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How Sahara Hoodwinked Rbi, Sebi And The Supreme Court

1991 words - 8 pages

How Sahara Hoodwinked Sebi, RBI and the Supreme Court
There are a few business conglomerates in India which are often engulfed in mystery. Their dealings, activities and political affiliations are often discussed in a hush – hush tone by the press and the public. Not a lot is often known about their dealings. A few of such famous business groups include the Sahara Group headed by Mr. Subrata Roy, the Adani Group headed by its reclusive Chairman Gautam Adani and the real estate giant DLF headed by KP Singh.
Evolution of the Sahara Pariwar
Subrata Roy, is the head of the $10bn (£5.5bn) Sahara Group. Sahara Group has diversified businesses in banking, media and housing sector. Subrata Roy ...view middle of the document...

Today, 35 years later, Sahara India is one of India’s largest private company, with more than 32 subsidiaries. Its business span finance, infrastructure, tourism, housing, hospitality, media, consumer products, manufacturing. It is an employer to around 910,000 people which is more than any other Indian company except the state-owned Indian Railways – has assets of £5.68bn and 1,707 offices.
The Sahara Fraud case is completely about Optionally Fully Convertible Debentures and their investors. Hence, before looking into the chronology of events, let us learn what is an OFCD.
OFCDs are issued by a company to its potential customers to raise money. OFCD holders can choose to be shareholders of the company if they want to, or in other words it is not mandated by the company to be so. Generally, there is no asset market against such investments. In other words they are unsecured in nature. In case of default or liquidation of the company, they will be among the last stakeholders to be refunded.
Now, in 2008 RBI instructed Sahara India Financial Corporation from accepting fresh deposits anymore. The growth of the Sahara empire had always been shrouded with mystery and Sahara India Financial Corporation was at the heart of that growth. Now, as RBI closed the doors on the collection of deposits, it needed a financial instrument to stay afloat. It was also seen later that a major chunk of the deposits were collected from the rural parts of India.
Excerpts from the order from RBI-“ Reserve Bank of India had, by its order dated June 4, 2008, in exercise of its powers under Sections 45K(4) and 45MB(1) prohibited SIFCL from accepting deposits from the public and  directed SIFCL, inter alia,  to repay the depositors on maturity and comply with the directions of RBI”. The complete report on the 2008 ruling can be accessed at .
Sahara decided to float two companies- Sahara India Real Estate Corporation( SIREC) and Sahara Housing Investment Corporation(SHIC) and issued housing bonds which were technically referred to as OFCDs. The Sahara Group said that these bonds were issued to “friends, workers and other individuals who were related to the Sahara group of companies.” Henceforth, the company felt that the issuance of the OFCDs did not result into a public issue. However, according to Section 67 of the Companies Act, 1956, any issue of shares or debentures to 50 persons or more is constituted as a public offer.
It is the registrar of companies that needs to provide clearance to these investment instrument and its role remains vital in the complete process mainly due to its inaction. SIREC had a negative net worth and an equity capital of ₹10 lakhs while SHIC had a net worth of around ₹10 lakhs at the time of issuance. But, both companies planned to raise around ₹20,000 crores for the purpose of modernizing, setting up of airports and other projects allotted to the company and these funds...

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