Government must now widen investigations into Sahara’s operations
Feb 14 2013, 2107
The stock market regulator’s move to freeze bank accounts of two Sahara Group companies and their four directors, including group chairman Subrata Roy, and attaching their properties, has dealt a heavy blow to the group. The freezing of accounts of Sahara India Real Estate Corporation (SIREC), and Sahara Housing Investment Corporation (SHIC), by the Securities and Exchange Board of India (Sebi), has already come into effect immediately. The writing on the wall was clear in the case relating to the non-refund of Rs 26,000 crore deposits to the investing public when the Supreme Court gave Sebi a go-ahead last week to freeze Sahara’s accounts, and attach its properties. This brings down the curtains on the two illegal companies that raised huge amounts of public deposits without regulatory nod. Sahara was once pulled up in 2008 when the Reserve Bank of India (RBI) ordered it to wind up Sahara India Financial Corporation (SIFC), another company from the Sahara stable. The group subsequently claimed that the RBI killed their financial inclusion-based residual non-banking finance company (RNBFC) activities and gave them seven years to repay depositors, which, according to Sahara, was cleared in four. Interestingly, in June 2011, Sebi ordered its two other companies — SIREC and SHIC — to repay the money raised from fraudulently issued optionally fully convertible debentures. Subsequently, the Supreme Court, while ordering the two Sahara companies to return the money collected in three months, made Sebi responsible for the return of the money and even gave it further investigative powers to probe the details about the investors. Sebi is finally doing its best in investor interest. After doing a random check on the investors’ list, a judge at the apex court had recorded his impression as “totally unrealistic, and may well be, fictitious, concocted and made up”. Another Supreme Court judge had concluded that Sahara’s actions would attract civil and criminal liabilities, which include prison terms for certain transgressions. “There can, therefore, be no hesitation in accepting that there was a pre-planned attempt at the hands of SIREC and SHIC to bypass the regulatory and administrative authority of Sebi. One can only hope it is not so. But having so concluded, it is essential to express that there may be no real subscribers for the OFCDs issued by the SIREC or SHIC. Or alternatively, there may be an inter-mix of real and fictitious subscribers.” Sahara Group has, however, continued to maintain that “there is not single benami money” with them. Local police and other anti-fraud squads routinely stamp out fraudulent ‘finance’ companies that mushroom in small cities and villages across India off the regulatory gaze. But here, one would wonder how Sahara could continue to con investors openly, for such a long time. While Sebi’s tough stance will hopefully deliver justice to millions of investors across the country, the government should launch parallel investigations to unravel the unholy nexus between the fraudulent companies, the police and local administration, and book the culprits, no matter how powerful and connected they may be. The income-tax department has already begun a survey of Sahara group’s parabanking operations to get details on depositors. It needs to be complemented by a wider investigation by agencies specialised in financial crimes, to ensure severe punishment to such fraudsters. Only such a move will deter them from hoodwinking gullible investors.