Thursday, February 14, 2013

Dead-end for Sahara Sri & Family?

SEBI froze more than 100 bank accounts of Sahara including two of its companies.

The Securities and Exchange Board of India (SEBI) on Wednesday cracked down on Sahara group, freezing more than 100 bank accounts, including those of two of its companies – Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC). This means cash lying in bank accounts can immediately be confiscated and all properties of the group can be auctioned in time to raise money.

Sebi’s action follows directions from the Supreme Court, which had said last week that the market regulator was free to freeze accounts and attach properties if Sahara group firms were not depositing the money with it for refund to investors.

Sandeep Parekh of FinSec Law Advisors believes with this move the group faces ‘its dead-end.’ Another lawyer familiar with the history of this case called the move to freeze accounts ‘revolutionary’ in favour of strict action being taken against the group.

A bench headed by justices KS Radhakrishnan and JS Khehar last week had questioned SEBI for being slow on the case. “What steps are you taking? You are not taking any action. The judgement tells you what to do, but you are not doing it.” The bench had commented, “we wonder whether Sahara is committing contempt or you are committing contempt. You have done nothing, except issue notices after notices (to Sahara). Who is committing contempt?”

The Supreme Court directive to SEBI strengthened the matter over the last few days giving it the power to take this drastic action. Counsel for Sahara, Kishore Lahiri was heard questioning the move in a television interview. He raised the issue of how and why personal accounts of key executives of the group must be frozen even though the case pertained to companies. To this, Sandeep Parekh says the nature of the business activity was such that businesses and personal connections were nebulous.

In an order last year in August, the SC had directed the two Sahara group companies to refund around Rs 24,000 crore with 15 percent interest to investors who own Sahara’s optionally fully convertible debentures (OFCD). SEBI during its investigations also wanted to know who these investors really were.

“These OFCDs were probably no real people and there were no depositors,” insists a lawyer familiar with this case. “If that’s really the case, and that it was all fictitious or a facade for economic activity going on then Sahara is in for serious trouble.”

In December 2012, Sahara Group was allowed to pay the money in three installments, including an immediate payment of Rs 5,120 crore, followed by an installment of Rs 10,000 crore in the first week of January and rest by the first week of February 2012.

Wednesday’s SEBI order suggests that neither of the two installments was paid and therefore the regulator took action as per the Supreme Court orders.

The properties being attached by SEBI include the land owned by Sahara group firm Aamby Valley, prime land in Delhi, Gurgaon, Mumbai and other parts of the country. Besides, SEBI has also ordered attachment of equity shares held in Aamby Valley, mutual funds, bank and demat accounts and investments in all the branches of all banks. SEBI has asked all the banks to transfer the amounts lying in those accounts to a ‘SEBI-Sahara Refund Account.’

“I don’t see any kind of further relief available to Sahara. It’s a dead end for them. Sahara has already filed for reviews and they are done. All Sahara can do is pray,” asserts Parekh.

This SEBI move is surely going to roll a few heads in the power circles. According another lawyer familiar with the case, this could unravel a “very deep alleged nexus between the Sahara Group and politicians.”

Sahara’s formal release after the SEBI order is still awaited.

CASE TIMELINE

  • Jan & Feb 2013: Sahara was to pay pending dues (Rs 10,000 cr)to investors in two instalments
  • Dec 2012: Sahara moved the apex court seeking more time to refund the money
  • Nov 2012: SEBI filed petition against two Sahara firms requesting the court to start contempt proceedings against them for not complying with the order

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