In today’s Finshots, we tell you the story of how a big Indian conglomerate scammed crores of people, yet left regulators confused about why no one seems to be asking for their money.
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If you’re a millennial, you probably remember one company’s logo splashed on the Indian cricket team’s jerseys in the 2000s ― Sahara.
This entity was a sprawling business empire that had its fingers in many pies — It was a financial institution, a housing finance company, a media house, an airline, a hospitality business and even a stakeholder in a Formula 1 team. Its assets were worth over ₹2,50,000 crores. At least that’s what Sahara’s outdated website claims.
But the company that was started in 1978 by a man named Subrata Roy soon turned out to be a bit of a sham. In the 2010s, the whole thing began to come crashing down. But even today, no one seems to have been able to solve a very specific mystery of Sahara’s ₹25,000 crores liability.
What do we mean?
Well, we have to rewind to 2010. Sahara Prime City Limited, one of Sahara’s group companies, had filed its Draft Red Herring Prospectus (DRHP) with SEBI. For the uninitiated, a DRHP is simply a document that a company files before it goes public on the stock exchange. It lists down all the financials of the company, the prospects and risks, and industry details.
Anyway, Sahara Prime City wanted to use the money from the public issue to finance infrastructural projects like bridges, airports and rail systems. That was its business. But when SEBI went through this document it spotted something unusual. It saw that two other group companies of Sahara ― Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) had earlier raised over ₹19,000 crores from more than 2 crore investors.
Now SEBI was quite surprised at this. It asked Sahara why on earth it wasn’t made aware of this massive fundraise.
And Sahara had its answer ready. It said that the fundraise wasn’t actually open to the public and that it was only meant for friends, workers, employees or other people close to the Sahara Group. Technically, it was a private fundraise. So it didn’t need to tell SEBI about it since the bonds weren’t going to be listed on the stock exchange.
Now here’s the thing. SIRECL and SHICL offered a security called Optionally Fully Convertible Unsecured Debentures (OFCDs). Simply put, an investor lends a company a debt in exchange for a security which they can later convert into company shares. Of course, with a bunch of other conditions. Now, when a company raises money this way from more than 50 people at a time, the rules say that it stops being a private fundraise. It will be classified as a public issue and the fundraise will need the blessings of SEBI.
But Sahara’s claim was that it raised the money from its ‘pariwar’ (family) of well-wishers. Basically, that’s how the group referred to itself, employees, and customers. As one big happy family. So it simply used its network of 10 lakh agents and more than 2900 branch offices to issue an information statement to more than 3 crore people inviting them to subscribe to the OFCDs. It was within the family it said.
Of course SEBI was having none of that. It said that Sahara had put nothing in place to ensure these investors were protected. There was no compliance. There was no legal framework. There was nothing. And so it ordered Sahara to return all of this money back to the investors and stopped Sahara Prime City from going public.
Now Sahara wanted to prove SEBI wrong. So it went to the courts. It argued and argued. But nothing worked. And even the Supreme Court ordered Sahara to deposit the money it had raised through the OFCD with SEBI. The matter was done.
Or so everyone thought. Because here’s the thing. Sahara began to claim that it repaid the money in cash back to the investors. That it had already done its duty. But there was really no proof of such an event happening. In fact, the Supreme Court even asked for the source of this refunded money:
“You (Sahara) tell us what is the source of this money? Did you get the money from other companies or other schemes to the tune of Rs 24,000 crore? Or you withdrew it from bank accounts? Or sold property to get it? It should be any of the three alternatives. Money did not fall from the heavens. You have to show from where you have got the money.
Tell us the source of the cash and there will be no need to open the pandora box…You tell us and we will close the case. You tell us how you raised Rs 24,000 crore in cash.”
So yeah, without a clear answer, the Supreme Court didn’t budge. And SEBI recovered several thousands of crores from the Sahara Group and deposited them in national banks so that it could promptly refund the sum to aggrieved investors. The amount stands at ₹25,000 crores according to SEBI's latest statement.
But here’s the mystery now — it has been over 10 years and thus far, SEBI has only received claims for a measly ₹138 crores!!! And that means, thousands of crores are lying idle in SEBI’s bank account without a beneficiary attached to it.
So the question is — did Sahara really raise so much money via the OFCD? Or did they simply concoct a tale that would convince more people to part with their money in the future? Because you see, Sahara was allegedly involved in an even deeper sham involving hundreds and thousands of people — through various Sahara Cooperative Societies.
The idea was simple. Sahara would take deposits from people in return for interest. Now you’d think that it was like a non-banking financial company that took deposits, lent them out at higher interest rates and made money from the interest rate difference. But that’s not what Sahara did. Instead, it spread the word that if people deposited a small portion of their daily earnings with Sahara, they’d get back double or triple their savings. Even ₹20 wasn’t too low to invest in Sahara’s schemes. It accepted them all. And Sahara won its investors’ trust by giving them the massive returns they were promised.
How did it do that, you ask?
See, the allegations is that Sahara simply used funds from fresh investors to repay old investors with interest when their deposits matured. It’s called a Ponzi scheme. This is the money that people say built the Sahara empire.
And yeah, we don’t know if Sahara dipped into this 'Ponzi' money to make that deposit with SEBI.
But that’s the mystery of the ₹25,000 crores. And it’s probably a secret Subrata Roy took with him to his grave.
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