Endgame for Subrata Roy: Why SC may have to appoint a SIT

Given the fact that Subrata Roy of the Sahara Group has spent four years trying to evade the inevitable, it is a fair bet that despite his arrest today (28 February) in Lucknow, the legal battles will not end anytime soon. On 4 March, when Roy will be produced before the Supreme Court, the latter is likely to query him on whether (and how) he will comply with its order dated 31 August 2012 which asked him to pay Rs 24,000 crore with interest to Sebi. It has taken the highest court in the land nearly 19 months to bring Roy to heel even though it has still not been able enforce its own order for the return of investor money by Sahara India Real Estate Corporation and Sahara Housing Investment Corporation. [caption id=“attachment_1412563” align=“alignleft” width=“380”] It has taken nearly 19 months for the SC to bring Roy to heel: PTI[/caption] The two companies had raised the money through illegal issues of optionally fully convertible debentures (OFCDs) through a private placement – basically with the intent of avoiding Sebi scrutiny. Not only did Sahara not comply with the Supreme Court’s order, but as of today it has paid up only Rs 5,120 crore to Sebi , claiming the rest has been paid. There is, of course, no proof of this. So the key questions the Supreme Court may ask Roy when he turns up within its precincts on 4 March are these: #1 When will the money be paid? The Supreme Court had asked Roy to pay up Rs 24,000 crore to Sebi, which would then investigate the bonafides of his investors and repay them. The Supreme Court has set a monitoring committee under a retired Supreme Court judge, but so far Sebi has not been able to trace too many genuine investors on the basis of Sahara-provided  documents. Subrata Roy’s answer is likely to be that all investors have already been paid. #2: Why was the Supreme Court not told? It is not right for Roy to claim that money was repaid to investors when there are no records to prove the same and when Supreme Court hearings were on. The court should ask Roy how come you didn’t tell us you were returning the money when the case was going on? Roy is likely to say small investors were getting jittery, and hence he had to help them out. #3:  How did the money get returned without proper records? Sebi has found that only a minuscule percentage of small investors came up to claim their refunds when the regulator sent out mails to their registered addresses. This suggests that many of the investors may be non-existent or benami – a charge Roy will deny. #4: Can you provide a bank guarantee or unencumbered collateral while we find out? Sahara claims that it has handed property documents for more than the Rs 20,000 crore to Sebi, but the regulator has said that it will take months to wade through 3,300 title deeds to figure out if the collateral is valid. The Supreme Court will have to find a way out of the collateral issue. #5: What should be done if the bulk of Sahara’s investors turn out to be benami? While Roy will deny this and claim his investors are too small, often unlettered village folk, to have proper addresses, Sebi will say the bulk of them don’t exist. Roy apparently sent Sebi on a wild goose chase for investors, and the Supreme Court will have to take a call on this after hearing Roy. However, while the court may have several more questions for the Sahara boss, the real issues it will have to decide on are these two. One, what will happen to the Sahara Group, which claims to provide employment to nearly one million parabankers, and has assets running into tens of thousands of crores? Two, given the possibility that a lot of the Sahara money is from questionable sources, can the Supreme Court just ask about the collateral and let things be? To really bring the Sahara operations out of the grey areas it now occupies, the court will have to look at two long-term measures. First to protect Sahara jobs and investors, it will have to appoint some kind of provisional administrator, possibly someone with an impeccable understanding of parabanking, to run the Sahara empire. Subrata Roy has to be kept far away from his empire to allow the truth to emerge. Second, to get to the bottom of the real Sahara scam, it should appoint a crack Special Investigation Team , with forensic experts from the audit profession, to find out where the money came from, where it went, and how it was used. Anything else can only mean more litigation and endless hassle without a conclusion. Subrata Roy’s record shows that he is a pastmaster in running rings around the courts and regulators.