In what cannot but be seen as a brazen attempt to violate the spirit of the Supreme Court’s orders on the return of investor funds only after due verification of the documents, the Sahara Group is reported to be continuing to make direct refunds without Sebi’s consent.
On 31 August, the Supreme Court directed two Sahara group companies – Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) – to refund an estimated Rs 24,000 crore raised from investors through optionally full convertible debentures (OFCDs) by 30 November. The payment has to be made directly to Sebi, which then has to verify the documents of investors and get the payments organised only to bonafide claimants.
But even as the deadline for payment approaches, the Sahara Group appears to be cocking a snook at both the regulator and the Supreme Court by asking its commission agents to make refunds clandestinely.
Business Standard said today that Sahara agents have been asked to collect “sehmat patras” (consent letters) from OFCD holders indicating that their money has been returned. The newspaper reports attempts by Sahara or its agents to doctor the documentation, by pre-dating the consent letters to dates as early as April – well before the Supreme Court verdict.
The newspaper, after talking to some unnamed Sahara agents, says that the agents have been “ordered to collect these letters, failing which their commissions are being stopped.” A chunk of the money has been transferred to the Sahara “Q-Shop plan, another money raising plan being marketed as a retail venture.”
The Q-Shop plan was started by the Saharas after the Supreme Court verdict, and it is being promoted by the entire Indian cricket team to give it a semblance of credibility.
However, if the report of clandestine refunds and transfer of investments from SIREC and SHIC bonds to Q-Shop is correct, it is a clear contravention of Sebi’s statement that no refunds should be made directly to investors by the Saharas.
In ads released last month, and replayed earlier this week, Sebi warned investors not to be “fooled” or “forced” to accept the refunds. The ads asked bond holders of SIREC and SHIC not to accept requests by Sahara’s agents to switch their investments to other group companies.
The ads have this to say: “Sebi has been receiving complaints from investors that they are being forced by Saharas/their agents/officials to switch over their investments to other schemes in Sahara Group companies like Sahara Q Shop Unique Products Range Ltd, Sahara Credit Cooperative Society Ltd, etc. Some investors have also complained that their investments have been switched over to the said schemes of Sahara Group companies without their consent.”
The ad asks Sahara’s investors to hold on to their documents and warns them “not to yield to any pressure from any person, including Saharas or their agents, for converting or switching over their existing investments in the bonds to any of their other schemes like Q Shop, etc.”
If, despite these warnings, the Saharas are openly flouting both the Supreme Court’s orders and the warnings of Sebi, the group is either desperate to cover its tracks or does not care for the regulator’s warnings. The general suspicion is that the OFCD money does not all belong to bonafide investors, and even the Supreme Court was not convinced on this could.
Based on a cursory examination on just one entry in the Sahara list of investors, Justice JS Khehar said he had “no other option” but to conclude that the details given “seem totally unrealistic, and may well be, fictitious, concocted and made up”.
The judgment had this to say: noted: “There can, therefore, be no hesitation in accepting that there was a pre-planned attempt at the hands of SIREC and SHIC to bypass the regulatory and administrative authority of Sebi. One can only hope it is not so. But having so concluded, it is essential to express that there may be no real subscribers for the OFCDs issued by the SIREC or SHIC. Or alternatively, there may be an intermix of real and fictitious subscribers.” (Italics ours)
As Firstpost noted earlier, the Supreme Court order of 31 August, which indicated very little trust in the Sahara group’s bonafides (read here), specified what Sahara had to do.
1) The money, with interest, should be paid “to Sebi”. And this money will be deposited with a nationalised bank till it is paid out to investors. There is no provision for paying the money directly to investors, or asking them to switch to other schemes. Sebi’s ad suggests that this order has been violated by Sahara.
2) The court order also directs Sahara to furnish details and supporting documents on money refunded to investors. And if the documents are not found by Sebi to be “genuine and acceptable”, the amount would be deemed as not paid. This is an important pointer indicating the court’s inability to trust Sahara.
Sahara knows that any costs incurred by Sebi in warning investors through advertisements and also the costs of checking and returning the money will be debited to the group.
If it is still willing to risk flouting the letter and spirit of the law, it must be desperate.