Sahara Capers: Why it's not just about refunding the money, but finding its colour

Subrata Roy, the jailed boss of the Sahara Group, has offered to pay up the balance due to Sebi in five instalments by July 2015, with Rs 2,500 crore being paid upfront.

As expected, Sebi, which forced two group companies to wind up and repay the money collected under an illegal scheme of optionally fully convertible debentures (OFCDs), has objected, saying the amounts due are much more. In any event, the court rejected the Sahara offer with the contempt it deserved.

It is not clear how much exactly Sahara had offered to pay to get its boss out of jail, but Sebi sources told the court that the first instalment was not attractive, and that the Sahara Group had wrongly calculated the amounts due. Sebi expects Sahara to pay up around Rs 37,000 crore, which includes interest, and not just the Rs 24,029 crore indicated as due to investors as at the end of August 2011.

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The original Sebi order (dated 23 June 2011) against two Sahara group companies - Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) - ordered them to refund the accrued sums to all bonafide investors with 15 percent annual interest to be calculated from “the date of receipt of money till the date of such repayment.”

While SIREC started collecting funds after filing a red herring prospectus in March 2008, SHIC began its fund collection drive from October 2009. Calculating interest at 15 percent per annum for an average tenure of, say, about three years would yield us over Rs 36,000 crore. The actual amounts would vary from investor to investor, depending on when an investor gave his money and when he gets it back. The more Sahara delays, the more it will have to repay.

However, while the total amounts due are one thing, the real issue is not being addressed by either the Supreme Court or Sebi as yet.

Sahara’s real crime is not that it is not returning the money, which it claims it already has, but that the so-called refund has been done with cash and often to unverifiable persons.

So offering to pay up the money - whether done by its own calculation or according to Sebi’s calculations - is neither here nor there.

Even if Sahara pays up the full amount today, even the amounts claimed by Sebi, two issues will remain unaddressed.

One is about checking the bonafides of the investors whose money it reportedly repaid. If few of the investors can be traced, the court has ordered that the money should be paid to the government. This may be fine for government, but it will not get to the bottom of the scam, if it is a scam. Nothing less than a full-fledged probe under the anti-money-laundering act can establish this by following the money. Sebi has to find out whose money it was that Sahara returned.

The second is to figure out how Sebi is going to be repaid. Where is the money coming from? Does it not matter what the colour of this money is? If Sahara is going to repay close to Rs 37,000 crore, or even just Rs 22,000 crore-plus (Rs 24,029 crore less Rs 5,120 crore already paid to Sebi plus simple interest since the Supreme Court judgment of August 2012), the court has to ensure that this is not laundered money. You can’t send a message about money laundering by passing on similarly tainted money to Sebi. As a corollary, it also means that Sahara should not be allowed to raise money from newer schemes to repay Sebi. This is what it has been doing. When RBI asked it to close down one NBFC, it opened two more. Now that Sebi is folding up two companies, Sahara is raising money elsewhere, including Q shops.

Clearly, there is need for both a probe and the imposition of an administrator for the entire Sahara group so that all the money coming in or going out is legit.