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Sebi widens scrutiny in Sahara case

Sends notices seeking information on possible transfer of money raised through OFCDs issued by two group firms
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First Published: Thu, Jan 03 2013. 11 53 PM IST
Sebi had argued that the OFCD sale was in violation of public issue norms under the companies law and the Sebi Act. Photo: Abhijit Bhatlekar/Mint
Sebi had argued that the OFCD sale was in violation of public issue norms under the companies law and the Sebi Act. Photo: Abhijit Bhatlekar/Mint
Updated: Fri, Jan 04 2013. 12 22 AM IST
Mumbai: India’s capital market regulator appears to be widening its scrutiny of the Sahara group’s transactions related to optionally fully convertible debentures (OFCDs).
The Securities and Exchange Board of India (Sebi) has sent notices to bankers of Sahara group firms seeking information on the possible transfer of money raised through the OFCDs issued by Sahara India Real Estate Corp. Ltd (SIRECL) and Sahara Housing Investment Corp. Ltd (SHICL) to the accounts of other group companies, according to a government official with direct knowledge of the matter.
“Sebi has sent notices to many banks where Sahara group firms hold accounts. It is a part of Sebi’s ongoing exercise to ascertain the flow of money raised by two group firms through OFCDs, which has to be returned to the bona fide investors,” said the official, who didn’t want to identified as the matter is sensitive.
In August, the Supreme Court directed SIRECL and SHICL to refund Rs.24,029.73 crore along with annual interest of 15% to its OFCD investors within three months after Sebi banned the firms from raising money from small investors through the instrument.
After Sahara moved the apex court seeking more time to pay back the money, on 6 December, a Supreme Court bench headed by Chief Justice Altamas Kabir ordered Sahara to initially deposit Rs.5,120 crore with the regulator and pay the rest in two instalments in January and February.
An email sent to the Sebi spokesman did not elicit any response. The Sahara group didn’t respond to Mint’s query.
While Sebi is expecting the first of the two instalments this month, according to a report in The Times of India newspaper on Thursday, the two Sahara firms moved the Supreme Court on 2 January seeking a stay on the payment of the two instalments. The group claims the total outstanding liability of the companies is Rs.2,620 crore and this amount has already been deposited with Sebi on 5 December.
The regulator had argued that the OFCD sale was in violation of public issue norms under the companies law and the Sebi Act.
Sebi’s notice to the banks follows the Supreme Court directive that it has to take recourse to all legal remedies through attachment, sale of properties and freezing of bank accounts if the two Sahara firms fail to comply with the order of the apex court.
Mint reviewed a Calcutta high court directive passed on one such Sebi notice sent to Allahabad Bank on 29 October. The notice, eventually upheld by the court, pertained to Sahara India Financial Corp. Ltd (SIFO), the group’s residuary non-banking company.
SIFO moved the Calcutta high court in November seeking a stay on the Sebi notice that sought information from Allahabad Bank on the bank accounts of the company.
In its petition, the company said the Sebi notice was “null and void and in violation of the order of the Supreme Court”.
According to the petition, there was no Supreme Court order against any other company of the Sahara group except for SIRECL and SHICL, and therefore the order was binding only on them.
“Sahara India Financial does not deal in securities. Therefore, the information sought from the bankers of Sahara India Financial is contrary to the powers of Sebi under the 1992 Act,” the company said.
The high court initially granted interim relief to SIFO by staying Sebi’s notice, but on 4 December, after Sebi intervened in the matter, the court allowed the regulator to collect the information from Allahabad Bank.
SIFO has time until mid-January (“two weeks after Christmas vacation”) to move against the order.
According to the company’s website, SIFO is the country’s largest residuary non-banking company in the private sector and is also the sponsor of Sahara Mutual Fund and co-promoter of Sahara India Life Insurance Co. Ltd.
Incidentally, in 2008, the Reserve Bank of India (RBI) had ordered SIFO not to accept fresh deposits and return the Rs.20,000 crore of public deposits it had collected in seven years. It also banned the company from accepting fresh deposits maturing beyond June 2011.
RBI directed SIFO to repay the deposits as and when they mature, and bring down the aggregate liability to depositors to zero on or before 30 June 2015, after it found irregularities in the functioning of the company. SIFO has paid back the bulk of the deposits.
The 4 December order of the Calcutta high court said that since the OFCD bonds issued by the two Sahara firms were transferable, Sebi was just trying to ascertain whether there had been any transfer of these bonds to group companies.
“No prejudice will be caused to the petitioner (Sahara India Financial) in the event information is given (to Sebi), and if found that the petitioner is in no way connected with the two companies under the scanner before the Supreme Court, no prejudice can be caused to any of its workings,” the high court order said.
Mint reported on 9 December that Sahara India Pariwar issued an advertisement in leading newspapers claiming its total outstanding liability was just Rs.2,620 crore. The ad said the group has over a period of time “redeemed the OFCDs issued to the investors and presently the total outstanding liabilities of both the companies is Rs.2,620 crore only”.
Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with Sebi. Mint is contesting the case.
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First Published: Thu, Jan 03 2013. 11 53 PM IST
More Topics: sahara | ofcd | banks | allahabad bank | sebi |
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