Here's why SC should set Subrata Roy free and take over Sahara properties instead

The Supreme Court has tied itself in endless knots over the way it has handled the illegalities of the Sahara Group, whose boss Subrata Roy is currently in jail.

On 4 March, Roy would have spent a year in jail – which would be a record of sorts for a businessman who once had several top politicians and Bollywood actors at his beck and call.

The problem is simple: Roy has to produce Rs 10,000 crore to get bail, money he has been unable or unwilling to produce despite claiming to be the owner of properties worth thousands of crore. Yesterday (11 February) Roy’s counsel claimed in court that a deal to raise money from a firm called Mirach had fallen through. As The Economic Times tells it, the deal collapsed “when a letter underpinning its proposed deal with Mirach and supposed to confirm the existence of funds was found to be forged. Mirach denies it had forged the letter.”

The problem, though, lies as much in the way the Supreme Court has handled the issue as in how Sahara has mishandled it.

This is a short history of the Sahara case (read the full details here ). Around June 2011, market watchdog Sebi, after detailed investigations, issued an order to two Sahara group companies – Sahara India Real Estate Corporation and Sahara Housing Investment Corporation – to wind up and return the money to investors with 15 percent interest. Reason: they had raised over Rs 24,000 crore illegally from over 30 million investors without Sebi’s nod.

Sahara kept appealing and appealing, but on 31 August 2012, the Supreme Court, in a landmark judgment, upheld the Sebi order and ordered Sahara to comply with it. Simultaneously, it also asked a former Supreme Court judge, BN Aggarwal, to help Sebi recover the money from Sahara. But as the Supreme Court and Sebi suspected, Sahara could not do so, possibly because a significant chunk of the money raised was probably benami. So are probably the properties to be used to raise money for bail.

This is where the matter came back to the Supreme Court. What it had to deal with was a simple issue of benami money , not violation of Sebi’s jurisdictional powers over two Sahara companies. It has gone about it the wrong way.

First, when Subrata Roy did not comply with its judgment even 18 months after it had passed its final order, both by delaying it and by refusing to pay up, he was clearly in contempt. This is what he should have been punished for. But the court put him in jail demanding the money, an upfront payment of Rs 10,000 crore, to get bail, and the balance after being set free.

Second, since the real issue is not whether Sahara can pay up, but whether some (or a major portion) of its transactions involved black or benami money, the only logical thing to do was to set up an administrator for Sahara’s properties, and a Special Investigation Team (SIT) to investigate whose money it was anyway. Instead, what the court has done is keep Roy in jail, and allowed him to try and sell his properties from Tihar. If the Supreme Court can set up a SIT to bring back black money from abroad, one wonders why it is hesitating to do so with Sahara.

Third, to ensure that the sale was kosher, the court appointed an amicus curiae, Shekhar Naphde, to oversee the sale of property. Naphde has now told the Supreme Court bench headed by TS Thakur that the Mirach deal can’t go through. “It seems we are being taken for a ride.”

Sure, the Sahara group has been taking everyone, from Sebi to the Supreme Court, for a ride, and this is partly because the regulator and the court have been reluctant or unwilling to see the issue for what it is.

The ET report quoted Justice Thakur as saying yesterday: “We can’t be stuck in this kind of situation forever. We will ask the committee headed by Justice BN Aggarwal to examine this. Also you (the amicus) can examine transferring properties to an asset management agency.”

So we now have a former judge, an amicus and, next, an asset management company to deal with a problem called Subrata Roy Sahara. Sebi already has a small army of experts investigating the bonafides of Sahara’s alleged investors. It is yet to find too many of them – once again pointing towards the possibility of benami investors.

If investors are spurious, the chances are the ownership of Sahara properties will also be clouded in mystery.

In this situation, the Supreme Court should bite the bullet and call a spade a spade. It has to appoint an administrator for all Sahara properties rather than just create an asset management company which will spend a year figuring out whether Sahara actually has clear title to the properties it claims it owns. You can sell and asset only if you know who the real owners are.

The best thing to do is to set Roy free for a moderate amount of bail and instead arrest his properties. All his properties should be put under an administrator.