The Sahara mystery

Subrata Roy’s escape from Supreme Court has finally ended when Lucknow Police taking him into custody. But I wasn’t sure why the owner of such a big company with a big reputation was running away.

Let us look at the chronological list of events which lead to Subrata Roy in this situation.

Sahara Group wanted to raise funds to stay afloat, many companies do that and that’s why we have stock exchanges. But in 2008 RBI has debarred Sahara corporation from raising a fresh deposit. This meant trouble for Sahara – how would they get funds, so they tried to find out a financial instrument that doesn’t come under RBI purview. OFCD was their solution.

OFCD is optionally fully convertible debenture. A debenture is like a debt but it is not secured by any asset or collateral. It is backed by the creditworthiness of the company or issuer. So if I buy a debenture of Rs 10000, I am lending 10000 money to Sahara but Sahara doesn’t have any asset which will back the money they are raising. In case of default or bankruptcy they have nothing to sell and repay me the amount. Since Sahara was a big name in India people had trust in it and they were ready to buy. To raise funds through OFCD Sahara opened two companies – SIREC and SHIC, with an initial funding of Rs 10 lakh each.

They needed permission from Registrar of Companies(ROC) to start raising funds. ROC granted the permission which itself is dubious, how company with only Rs 10lakh initial value could be allowed to raise funds worth Rs 20,000 crores. After getting funds from millions of people, Sahara thought of going to stock market to raise funds. According to SEBI guidelines, the company had to declare the working and financials of the companies in the group.

Here is where this fund raising came under suspicion. Sahara claimed that it is private raising, but under law if a company raise funds privately then maximum number of investors should not exceed 50, so it was not a private fund raising.
Supreme court told Sahara to refund Rs 24,000 crore money to investors within 90 days. But Sahara delayed the process and said it has repaid all the money except Rs 5000 crore. Supreme court asked Subrata Roy to come to court and explain the delay. But he didn’t turn up and hence received non-bailable warrant.

This is how it ended up him in police custody.

Source

http://www.business-standard.com/article/current-affairs/10-things-you-need-to-know-about-sahara-row-114022600863_1.html

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