Note: Inputs for this article are taken from Sahara’s investors, Employees, and Agents. Facts and figures are approximates and have been cross-checked from various sources.
I don’t know why I am such a big Sahara enthusiast. Perhaps the story of a man who started his business, with a meager amount of 2000 Rs. from a modest city of India, Gorakhpur, and taken it to zenith in 37 years was sufficient to substantiate my rationale behind idolizing this company. I will not think twice before saying that my heart bleeds after every hearing in Supreme Court regarding this high-profile case.
So let’s delve deep into Sahara conundrum and try to find where Sahara could have possibly gone wrong and what would happen if Sahara gave money to SEBI.
From Where it All Started?
In year 2008, RBI shut a non-banking finance arm operational under the name, Sahara India Financial Corp., which had the deposits of 17,500 crore and investors’ base of around 40 million people. The number of investors hasn’t changed drastically since then.
In June 2008, RBI ordered Sahara not to accept any deposit that would mature beyond 30 June 2011 and also not to accept any installments from existing investors. RBI also directed Sahara to brings the latter’s liability to zero by repaying the money of investors, after maturity, by 30 June 2015.
Sahara’s repayment procedure was smooth, to RBI’s own admission. By December 2013, only 768 crore was left to be paid to investors, and the whole repayment process was done under the scrutiny of RBI appointed board of directors. There was not even a single instance of KYC (Know your customer) violation. (KYC is a procedure that testifies the authenticity of investors by verifying photograph, address, and other details of investors).
All Hunky-Dory eh? So Where is the problem?
Even after RBI pulling the plug on SIFL, people’s trust on Sahara remained intact. Sahara India Real Estate Corp. Ltd.(SIRECL) and Sahara Housing Investment Corp. Ltd. (SHICL) are the two associate companies which started issuing bonds to investors back in 2006. RBI didn’t interfered in the operations of these two companies sensing no threat to the interests of investors.
In 2008, Sahara informed Ministry of Corporate Affairs about the number of investors, which was approx. 18 million then, who purchased bonds issued by these two companies. It is worth noting that Sahara was not obliged to inform SEBI about its operation as former is an unlisted company and thus is not under the purview of SEBI.
Later, when Sahara disclosed its fund-raising procedure, SEBI termed it as illegal. OFCD issued through private placements were not allowed to raise funds from more than 50 investors. Sahara’s number of investors was obviously leaps-and-bounds ahead of 50.
In November 2010, SEBI banned Sahara’s fund raising activities in every form and in June 2011 it directed the group to pay back the money of investors with 15% interest. Sahara had no choice but to refund the mammoth total of 24,000 crores by March 2012, as directed by SAT.
And The Twist in The Tale:
Sahara claimed to have refunded the money to its investors through cash. In August 2012, Supreme Court asked Sahara to furnish the details of the investors and given SEBI the responsibility to validate the authenticity of these investors.
Sahara had actually reinvested the money in its Q-Shop schemes. Let’s understand this with an example:
Let there are two people, X and Y.
X opted to buy debenture of SHICL at a fixed interest rate in 2006 and maturity period is of 4 years. In 2009, X received his payment as promised.
On the other hand, Y bought the debenture of same company in year 2009 with same rate and maturity period. So maturity period of his debenture was 2013. As SEBI put a ban on Sahara fund raising, Sahara gave two options to Y. He could either reinvest the money for 6 years in Sahara Q-shop scheme or get the money back with immediate effect and get the returns accordingly. Y agreed to reinvest his money in Q-shop in spite of getting the return, as it was offering better returns. Sahara produced documents testifying the reinvestment.
Here no investor was duped. They were given an option and a majority opted for reinvestment and this is the reason why no investor is demanding his money back. The trust that Sahara has built over decades is not proved futile. Till date, there has not been a single complaint from investors. Few claims that the money is of poor people who do not have knowledge of bonds and debentures. In reality, as high as 30% of the group’s investors are well literate and belong to middle and upper middle class.
Truck-Loads of Documents, Number of Investors. A Subterfuge or Truth?