Sahara Group cos must repay over Rs.20k cr to investors: SC

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Sep 1 2012, 07:47am hrs
Subrata RoySubrata Roy
The Subrata Roy-led unlisted Sahara Group suffered a major setback on Friday with the Supreme Court directing two of its firms to return Rs.17,400 crore raised by issuing debentures to 22 million investors, with 15% interest. The total amount, adding up to over R20,000 crore, must be paid by Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Investment Corporation (SHICL) and is nearly 17% of Sahara Indias stated asset value. According to Saharas website, the companys total group assets at market value stood at R1.16 lakh crore as on April 30, 2011.

While ordering the company to refund the money, a bench comprising justices KS Radhakrishnan and Jagdish Singh Khehar dismissed Saharas petition challenging the order of the Securities Appellate Tribunal which had upheld the Sebi order. Sahara had questioned Sebis jurisdiction in regulating its optionally fully convertible debentures (OFCDs) stating since the companies were unlisted, they were out of its purview.

The court also appointed retired SC judge BN Agarwal to oversee compliance with its order. The court said if Sahara did not comply, the watchdog may take legal remedies, including attaching properties and freezing bank accounts.

The group, which has presence in financial services, housing, infrastructure, media and sports has been given three months to repay the amount.

While the Sahara group did not respond to the judgment till the time of going to press, sources said it may file a review petition in the SC. The companys bigwigs, sources added, have been summoned to Mumbai for a strategy session. The development comes at a time when the group has been diversifying into hospitality and retail. Last month, the group agreed to buy a controlling stake in New Yorks landmark Plaza Hotel for $570 million. Earlier, it had bought Londons Grosvenor House Hotel and recently announced its foray into organised retail.

The court has also asked Sebi to verify the genuineness of investors. The Sebi order on Sahara was scathing, stating SIRECL did not have any distributable profit for the fiscal ending March 31, 2008. It had negative networth at the time of the offer and the networth of SHICL was around Rs 11 lakh. It has said the subscribed capital of the two companies was very small in comparison to the liabilities on their balance sheets.

The two unlisted companies had raised around Rs 17,700 crore between 2008 and 2011 through an instrument known as optionally fully convertible debentures. However, Sebi said this massive fund mobilisation was outside its well-developed investor protection framework, which provided for checks and balances and statutory protection to investors. However, Sahara contended that its mobilisation of money from investors was in the nature of private placement that imposed no obligation on it to get listed in any stock exchange. It also contended that Sebi could not proceed against the companies in the absence of a complaint by investors.

On October 18, 2011, SAT had ordered Sahara group companies SIRECL and SHICL to return the money to investors. While arguing the case, Sahara contended that its mobilisation was in the nature of a private placement that imposed no obligation on it to get listed in any stock exchange. It also contended that Sebi could not proceed against the companies in the absence of a complaint by investors. However, Sebi told the court that the company resorted to the massive mobilisation outside the well-developed investor protection framework developed by it, which provided for checks and balances and statutory protection to investors.

In an earlier hearing, chief justice SH Kapadia had asked the petitioner companies to state how they had secured investors money and how they had deployed it.