Sahara India Pariwar Fraud Case
Introduction
• In the past decade corporate frauds have been on the tries in India
which has proven to be detrimental to the investment climate and
economic growth in the country.
• Being a largely unlisted company Sahara India Pariwar's activities
have in recent times come under criticism. This includes
allegations of unknown sources of capital, favourable treatment by
political parties.
• In this presentation the Sahara India’s investment fraud is going to
be analyzed to understand what motivates the senior management
and CEO to indulge in fraudulent behaviour.
Company Background
• Sahara India Pariwar is an Indian conglomerate headquartered
in Lucknow, India. Subrata Roy is the founder and chairman of Sahara
group. It was founded in 1978 at Gorakhpur.
• It’s subsidiaries are :Sahara Prime City, Sahara One Media & Entert,
Sahara India Financial Corporation Ltd etc. The group operates
business sectors like finance, infrastructure & housing, media &
entertainment, health care, education, hospitality and information
technology.
• The group has been a major promoter of sports in India and was the
title sponsor of the Indian national cricket team
• The group operates more than 5,000 establishments across India with
the employee strength around 1.4 million under the Sahara India
umbrella.
Brief Overview of the case
• The case all began when a Chartered Accountant in Indore sent a note
to the National Housing Bank ,requesting the Bank to look into the
housing bonds issued by two Sahara Group Companies ,Sahara India
Real Estate Corp (SIREC) and Sahara Housing Investment Corp (SHIC).
• The Accountant found that the bonds that had been issued to a large
number of investors had not been issued as per the rules.
• The National Housing Bank did not have the wherewithal to
investigate the allegation So it forwarded the letter to the Securities
and Exchange Board of India (SEBI),capital markets regulator.
Overview continued..
• Mr Abraham who was the then Director of SEBI was reviewing the
Draft Red Herring Prospectus (DRHPS) to raise equity for real
estate company Sahara Prime City Ltd through an initial public
offering (IPO).The DRHPS disclosed details of two associate group
companies (SIREC and SHIC) that were raising huge amounts of
money from the public through optionally fully convertible
debentures.
What is the case about?
• Sahara India Real Estate Corporation Limited (SIRECL) and Sahara
Housing Investment, Private companies
• They issued Optionally Fully Convertible Debentures ( OFCD)
• through subscription from investor with effect from 25th April 2008 to
13th April 2011 to raise over Rs 24,000 crore from more than 3 crore
investors.
• The purpose of the issue was to carry out infrastructural activities
;construction of bridges, modernisation of airports, rail system or any
other projects which may be allotted to the company
continued..
• January 4, 2010 : complaint from Roshan Lal, which was received
by SEBI through National Housing Bank.
• SEBI had claimed its jurisdiction and objected on why Sahara has
not taken permission
• Sahara has claimed that the said bonds are a hybrid product, thus
does not come under the jurisdiction of SEBI, instead it is
governed by Registrar of Companies (ROC) under the Ministry of
Corporate Affairs, from which the two companies of Sahara have
already taken permission.
Continued..
• SEBI : Rules require permission from SEBI for any issuance of
securities to 50 or more investors.
• 23rd June 2011, SEBI passed an order to the company to refund the
money so collected to the investors. Sahara preferred to appeal
before the securities appellate tribunal against the order of SEBI.
• 18 October 2011, The SAT confirmed and maintained the order of
SEBI
• Subsequently , Sahara filed an appeal before the Supreme court of
India against the SAT order
Supreme court
To SAHARA To SEBI
• If those two companies of SAHARA do not
refund money, SEBI is free to attach their
•OFCD schemes come under the scope of SEBI. properties and freeze their bank accounts.
•Mostly rural people have Invested money in your • Also conduct a probe against those two
schemes and they’re not aware of OFCD. Sahara companies to find out their actual
subscriber base. (to make sure some funny
•It seems Sahara have no intention of returning game or money laundering is not going on.)
the investors’ money. Your intentions are shady.
• Check the genuineness of the investors and if
•Order you to refund the money the investors are not traceable, the amount
will go to the government.
Continued..
• January 2012 - Supreme Court gives three weeks time to Sahara India Pariwar to
choose between options to return investments made by public in its OFCD
scheme. Sahara to either to give sufficient bank guarantee or attach properties
worth the amount raised through OFCDs.
• May 2012 - Supreme Court is informed by senior counsel Fali Nariman of
Sahara India Real Estate Corp that SEBI could not have taken up this issue
of Sahara Group of companies raising funds through OFCD as there was NO
COMPLAINT from any investor.
• June 2012 - SEBI informed the Supreme Court that the real estate division of
Sahara India Pariwar had no right to mobilize Rs. 27,000 crore from investors
through OFCD without complying to the norms of the market regulator - SEBI.
• August 2012 - Supreme Court directed Sahara India Real Estate Corporation
Ltd. (SIRECL) and the Sahara Housing Investment Corporation Ltd. (SHICL) TO
REFUND over Rs. 24,400 crore to its investors.
Continued..
• 6th February 2013: SC tells SEBI that it was free to freeze accounts and seize
properties of Sahara Group’s two company for defying court’s order by not
refunding Rs 24000 to investors.
• 13th February 2013: SEBI freezes accounts of Sahara Chief Executives Subrata
Roy
• 28 October 2013:SC says it cannot trust Sahara group anymore and directs the
company to submit title deeds of its properties worth RS 20 000 crore to SEBI
within 3 weeks
• 20 November 2013: SEBI says the group has over valued its assets and not
submitted original deeds of properties worth Rs 20 000 crore prompting angry
remarks for making a mockery of its order. Chairman Roy and 3 other directors
asked to appear before SC
• .
Continued..
• February 2014: Subrata Roy arrested by Uttar Pradesh police for
failure to appear before the Supreme Court.
• March 2014 - Subrata Roy, along with two other directors of
Sahara, sent to Tihar jail
Parties involved in the case
1. Securities and Exchange Board of India
• The market regulator SEBI advertised four times in more than 144
newspapers to ask the investors of Sahara to refund the money.
• It also barred Sahara India Real Estate Corp (SIREC) and Sahara
Housing Investment Corp (SHIC) - from raising money from the
public as they had raised several thousand crores through OFCDs
that SEBI deemed illegal
Parties involved..
2.Subrata Roy
• He was the Group Chief of Sahara group. He was arrested for
failure of the group’s two companies; Sahara India Real Estate
Corporation(SIREC) and Sahara Housing Investment Corp Ltd(SHIC)
to comply with the court’s order.
• In march 2014 - Subrata Roy, along with two other directors of
Sahara were sent to Tihar jail.
Parties involved..
3.Roshan Lal
• In Jan 4, 2010, he sent a note to the National Housing Bank,
requesting it to look into housing bonds issued by SIREC and SHIC.
• He found that the bonds bought by a large no. of investors were
not issued according to the rules.
• This sent SEBI on the trail of various illegalities committed by
Sahara Group.
Parties Involved…
4.Supreme Court
• The court asked the group chief Subrata Roy to appear before it
and explain his failure to pay the arrears over two deposit
schemes that had been declared illegal by SEBI.
• A bench comprising the Indian Chief Justice Ranjan Gogoi, justices
A.K Sirsi and S.K. Kaul was set up by the court.
• The Chief justice cut short the submissions made by both the
Sahara’s and SEBI lawyers.
Parties Involved..
5. Securities Appellate Tribunal (SAT).
• SAT held the Sebi findings to be correct saying that what the Red
Herring Prospectus did not disclose was the fact that the
information memorandum was being issued to more than 30
million persons inviting them to subscribe to the OFCDs.
6. Investors
• Investors were mobilised by the two companies i.e SIREC and SHIC
without complying with SEBI’s regulatory framework for public
issues
Impact on the corporate governance industry
• Since the occurrence of this case and other fraud cases in India, there has been
improvements and developments to ensure more transparent operations of
organizations. These are discussed below:
1. Board performance
• There needs to be a balance of executive and non-executive directors, to reduce the
amount of power top management has.
• Board Evaluations are performed on a quarterly basis to increase transparency in
organizations.
• 2. Independent Directors
• Independent directors are appointed for based on the current needs of the organization.
• Organizations strictly follow SEBI guidelines being issued to the corporates, for the
appointment of an audit committee. They are held accountable should they fail to
adhere to these guidelines
Impact on the corporate governance industry
3. Accountability to Stakeholders
• The accountability is not restricted only shareholders or the company, but
it is for the society at large and also the environment.
• The directors do not focus on their own interests but rather on the the
interests of the community.
4. Risk Management
• Risk management techniques are mandatorily undertaken by the directors
as per the Company Laws.
Also directors have to mention in their report, what risk management
techniques were used to shareholders as well.
Overall Case Analysis
• The ruling by the Supreme Court is justified from all perspectives as it
emphasized the fact that Sahara tried to defeat the provisions of various acts
such as :SEBI Act, 1992, Companies Act, 2013.
• Thus this jeopardized the lives of many investors who mainly belonged to the
lower class of society, barely earning enough to maintain a sustainable
income.
• This case is a perfect example of top management in organizations
manipulating the weaknesses of their investors.
• Majority of the investors were people who had little or no understanding on
how OFCD schemes work. This requires basic knowledge on the right time to
turn such debentures into shares which will be profitable.
• Such investors are unaware of the risk that comes along with luring schemes
and ignorantly invest their money. in one hope given by such unscrupulous
managers of these companies.
Group members
• This presentation was made possible by:
• 1. Reitumetse E. Nthako 2.Mirindra Robijaona
• 3. Lincy Babu 4. Sreelekshmi LT
• 5. Moreen Omulo 6. Sona Raj
• 7.Gopika Sajeev 8. Namitha S. Anand
THE END
THANK YOU!!!
