SC order makes it clear that Sahara companies had phantom investors

The Supreme Court’s orders in the case involving Sahara boss Subrata Roy and his three directors vindicates various contentions made in several Sebi reports and in Firstbiz that many of the investors in two Sahara companies were fictitious.

The court, in a judgment dated 31 August 2012, had ordered two of Roy’s companies - Sahara India Real Estate Corporation and Sahara Housing Investment Corporation - to repay nearly three crore claimed investors Rs 24,000-and-odd crore by 30 November 2012.

The judgment has not been complied with till date, with Roy claiming he has already repaid the money even though the court explicitly said the payment had to be routed through Sebi for due verification of the bonafides. This is why the court today (4 March 2014) sent Roy to judicial custody till 11 March or till the Sahara group paid up. Roy failed to turn up when summoned on 26 February, after which he was arrested after the Supreme Court issued a non-bailable warrant against him.

But the court order is very clear that it has no faith in Roy’s contentions. (Read the full SC order here )

In fact, it effectively substantiates what Firstbiz has been saying all along: that most of the investors in the optionally fully convertible debentures (OFCDs) issued by the two Sahara companies were probably benami.

The order said: “Documents and affidavits produced by the contemnors (Roy and his directors) themselves would apparently falsify their refund theory and cast serious doubts about the existence of the so-called investors. All the fact finding authorities have opined that majority of investors do not exist.”

In fact, the court was clear that Roy was all along trying to play footsie with the law. “We have found that the contemnors have maintained an unreasonable stand throughout the proceedings before Sebi, SAT (the Securities Appellate Tribunal), high court and even before this court. Reports/analysis filed by Sebi on 18.02.2014 make detailed reference to the submissions, documents, etc, furnished by the contemnors, which indicates that they are filing and making unacceptable statements and affidavits all through and even in the contempt proceedings.”

In the ultimately analysis, the court was forced to act against Roy because if it did not do so, it itself would have lost credibility. The order said: “Sufficient opportunities have been given to the contemnors to fully comply with those orders and purge the contempt committed by them but, rather than availing of the same, they have adopted various dilatory tactics to delay the implementation of the orders of this Court. Non-compliance of the orders passed by this Court shakes the very foundation of our judicial system and undermines the rule of law, which we are bound to honour and protect. This is essential to maintain faith and confidence of the people of this country in the judiciary.”

Subrata Roy, by choosing to defy the highest court of the land, has gotten into a deeper hole than if he had chosen to comply with the order.