Late March 3 evening, as 65-year-old Subrata Roy was escorted into a 5x12 cell in Ward 4 of Tihar’s Jail No. 3 after the Supreme Court consigned him to judicial custody, it marked the beginning of the end of one of the longest-running battles involving a prominent corporate house and the country’s capital market regulator.
Interestingly, between the time that SEBI first initiated the inquiry four years ago and Roy’s eventual arrest, there has not been a single instance of an investor in either of the two Sahara firms under watch actually filing a police complaint or going to court. Roy would want it to be seen as reflective of the group’s “beautiful story” which, he told the Supreme Court, would prompt it to fall in “love” with Sahara. While the plea evidently did not cut much ice with the judges, there is little doubt that Roy himself looks back with great affection on the empire that he built from scratch, with himself as the “guardian of the world’s largest family”.
Nothing epitomises Roy’s preoccupation with his humble past more than the Lambretta scooter that stands enclosed in a cubicle in Lucknow’s Sahara Shaher — a throwback to how it all started over three-and-a-decades ago in Gorakhpur, Uttar Pradesh’s hardscrabble east.
The family is said to have its roots in Araria, Bihar, but was settled in Gorakhpur. Roy stayed with his parents and siblings in a rented house in Turkmanpur area. The eldest son, he did a diploma course before being forced to take up work due to the death of his father Sudhir Chandra, who worked in a sugar mill. Roy tried his hand first at making salted snacks, apparently supplying them on the Lambretta under a venture called ‘Jaya Products’. He then dabbled in yet another venture, along with wife Sapna Roy. Both ventures failed.
In 1978, Roy set up Sahara. The Gorakhpur para-banking venture focused on small investors, such as tea-stall owners and rickshaw-pullers, who set aside as little as Re 1 a day and chose to entrust the money to Sahara India Financial, the group’s flagship firm. In a matter of three decades, it grew into India’s largest residuary non-banking company.
While financial details of this growth have never been officially issued, Sahara, in the course of 30 years, would go on to become an empire with an extensive media network, a full-scale scheduled commercial airline, Air Sahara (sold to Jet Airways in 2006 for over $500 million), acquisitions in the premium hospitality segment (including a controlling stake in New York’s landmark Plaza Hotel and London’s iconic Grosvenor House Hotel) and an IPL team. The group’s high-profile lead sponsorship of the Indian cricket team only ended in December 2013. Now Sahara sponsors the Indian hockey team and owns a stake in Vijay Mallya’s Formula One racing team.
Alongside the growth of Sahara, grew the story of Subrata Roy. His ‘Sahara Shaher’, a fortified 270-acre gated complex in Lucknow where Roy lived amid much luxury, became the talk of the country, and not just for what it featured, but the people it hosted. He organised much-talked-about events, graced by movie stars, politicians and corporates, and left the country stunned with the February 2004 wedding of his two sons at Sahara Shaher. Stars would perform at gigs in his own private auditorium at the Shaher. When Mayawati targeted it when she came to power in 2007, the mini-city’s halo shone even brighter.
At the Sahara headquarters, staff were instructed to greet visitors by putting their right hand to their chest and saying “Sahara Pranam”. On Sahara TV, the anchors would greet the viewers in the same manner — all adding to Roy’s distinctive image. Sahara’s website claims no dividend has been paid to promoters for 34 years and no profit has been taken out of the group.
Over the second half of the last decade, even as the run-ins of Sahara firms with regulators continued, Roy’s heady mix of politics and glamour showed no signs of diminishing. He would mostly be spotted with Samajwadi Party bigwigs Mulayam Singh Yadav and Amar Singh (then in the party) and Reliance ADAG chief Anil Ambani, players of the Indian cricket team, as well as the ever-present film stars.
While allegations about Sahara being a parking lot for black money of politicians have been doing the rounds for years, no investigative agency has proved anything to this effect so far. Roy has said, on several occasions, that he has never paid nor received any money from the SP, though he concedes “respect” for Dhirubhai Ambani.
A less known fact is that it was Roy who had a hand in Niira Radia coming to India from London. Radia made her entry in 1995 as a liaison officer in the Sahara Group and one of the initial success stories of the woman who would become a high-profile PR professional was with Sahara Airlines.
If Roy has had time to reflect on the past these few days since his arrest, one date would have stood out — September 29, 2009. On that day, Sahara Prime City filed its draft red herring prospectus (DRHP) with SEBI, seeking the go-ahead for an initial public offering. On Page No. 640 in the 934-page offer document, Sahara Prime City had an innocuous mention of some tax-related issues, which included a Rs 35.57 crore dispute with the income tax department over accepting OFCDs (or optionally fully convertible debentures) from investors by way of cash, instead of cheques or demand drafts as mandated. SEBI dispatched a routine query to merchant bankers.
When the Sahara Group dithered on furnishing the information, officers in SEBI’s head office in Mumbai decided to investigate further, leading to the collapse of what many call a house of cards.
The first questions about Sahara’s operations were raised back in 1996. In December that year, the Lucknow income tax department asked the group to give details of deposits made by some people allegedly in Sahara’s schemes. Many of the names forwarded by the department were those of politicians. The group promptly issued advertisements in newspapers, putting out the names and asking those people to get back so that their antecedents could be “verified”. The ruse worked — the IT officer who initiated the inquiry, Prasenjit Singh (then assistance commissioner of Income tax, central circle III, Lucknow), was transferred.
Unlike 1996, Sahara would run into more resolute adversaries in the RBI and SEBI a decade later. In 2008, RBI ordered Sahara India Financial Corp Ltd not to accept fresh deposits and wind up the
Rs 20,000 crore of public deposits it had over the next seven years. Sahara responded by converting these deposits into OFCDs, not really expecting that it would have to grapple with another formidable government regulator — SEBI.
The angle of political or corporate rivalry behind the case has always existed. Two seemingly isolated events were instrumental in SEBI being alerted to the September 2009 filing of the DRHP by Sahara Prime City. On January 4, 2010, a certain Roshan Lal, who claimed to be an Indore-based chartered accountant, sent a letter to the National Housing Bank (NHB), requesting that the housing sector regulator look into anomalies in bond issues of Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd (SHICL). Lal’s note was forwarded by the NHB to SEBI. A month earlier, the capital markets regulator had got a somewhat similar note from an Ahmedabad-based advocacy group named the Professional Group for Investor Protection.
Sahara lawyers have stated on record that Enam Securities, the merchant banker in the Sahara Prime City issue, sent a response to Lal’s address in Indore’s Janata Colony, but the address was untraceable. While the identity of Lal remains a mystery, based on the contents of his complaint and that of the Ahmedabad-based group, SEBI, on November 24, 2010, issued an order banning the Sahara Group from raising money from the public in any form.
The regulator had discovered that SIRECL had raised Rs 4,843.37 crore and SHICL Rs 32,355.55 crore between 2004-05 and 2008-09. So where has all this money been invested?
One of the possible answers lies some 1,500 km south of the Sahara Group’s Lucknow headquarters, in the Aamby valley luxury township in Maharahstra. According to Aamby Valley Ltd’s 2009-10 balance sheet, the project was spread over 10,600 acres. The September 2009 prospectus filed by Sahara Prime City claims that the group’s “land reserves are located in 99 cities (including in union territories”. Sahara’s business plan focused on “developing 88 integrated townships under the Sahara City Homes” brand and 15 residential complexes under the “Sahara Grace” name across 99 cities.
The SEBI order effectively restrained both para-banking firms SIRECL and SHICL from mobilising funds from the public and prohibited the directors from soliciting money from anybody.
Sahara first responded with high-octane newspaper advertisements in November 2010, which branded the SEBI missive “irresponsible” and a “wrongful ex parte order”.
The Supreme Court’s August 2012 ruling, directing Sahara to return
Rs 24,000 crore to investors or its equivalent properties to be attached, was met with similar theatrics. After falling back on some deadlines, Sahara dispatched truckloads of documents of investor details to SEBI. While the first truck carried an Uttar Pradesh registration (UP-32-CZ-7837), a second truck that accompanied it on September 12 and September 13 carried a Maharashtra plate (MH-04-CP-2147). SEBI refused to accept the data beyond office hours and a truck laden with documents was stopped from entering SEBI’s Bandra-Kurla Complex office on September 10, the deadline set for submission by the Supreme Court.
On the evening of September 12, 2012, the Sahara Group released a statement claiming that SEBI was “authoritatively” asking for original vouchers but “these couldn’t be provided as they would be needed while settling payments”. Sahara asserted that 500 people had been working in three shifts round the clock at its Lucknow warehouse with 20 photocopying machines. Even then, it would take years to finish making copies.
During the course of this wrangling, in December 2012, Sahara deposited
Rs 5,120 crore with SEBI. It did not give any other instalment as it claimed it had “directly refunded” the rest to the investors.
SEBI, meanwhile, was saddled with the task of sifting through the documents to ascertain if they were genuine. The agency found that in the first batch of 20,000 mailers it sent to investors based on details from Sahara, more than 8,000 were returned with the stamp “addressee untraceable”. Sahara, however, contested the SEBI position, saying their liability is “limited to only providing the address as furnished by applicants”. The Sahara Group also claimed that “there cannot be (even) one fictitious investor”.
In April 2013, summoned to its Mumbai office, Roy emerged with a complaint that he hadn’t even been offered tea. In July 2013, the Supreme Court said it would summon Roy and directors of the two companies if the investors were not repaid. Subsequently, the court issued contempt notices, asked for bank guarantees for Rs 20,000 crore, and directed them to make available to SEBI title deeds of properties and restrained the group from selling any assets.
Sahara’s claim has been that all transactions have been done in cash and the money raised by other group firms used to pay off the investors and that, as a result, there were no bank statements to show the money trail. Exasperated, the court asked Roy to present himself before it on February 26, 2014. Roy failed to turn up, leading to his arrest.
On March 7, there was a fresh setback, with the Supreme Court rejecting Sahara’s proposal to pay the entire amount to SEBI in cash instalments of Rs 2,500 crore each at regular intervals of three months. Roy will continue to remain in judicial custody.
The apex court has said that what happens next would depend on how fast the group can come up with a plan to refund investor money that is workable.
There is another side to the Subrata Roy tale, largely playing out in cities such as Lucknow and smaller towns such as Gorakhpur and Hardoi. Fitting in with what Roy calls Sahara’s “beautiful story”, it has people seeing financial regulators unfairly targeting a man who has been “encouraging the poor to develop saving habits” in a country where less than 40 per cent of the adult population has access to formal banking services. Saving encouraged by Sahara firms has helped suppress alcoholism in rural areas and the group routinely offered money when families needed to marry off daughters, the company has claimed. Roy, according to insiders, also made it a point to attend functions of depositors.
Said to have a strong faith in astrology, Roy is known to consult Pandit Krishna Murari Mishra of Gorakhpur ahead of major milestones. The opal in a ring he wears on his right index finger is said to be on Mishra’s advice, to bring him luck. Right now, he could do with both — luck and divine intervention.