The Subrata Roy Sahara Arrest Seems Like Overkill

The Subrata Roy Sahara Arrest Seems Like Overkill

Part of the Sahara imbroglio can be attributed to Stock Market regulator SEBI wanting to try out its newly installed teeth and claws. SEBI has turned the confrontation into a test case because it wants to have massive oversight, along with punitive and search and seizure powers like the American US SEC. And the Sahara Group, with its flamboyant Chairman, presents a juicy target. SEBI has picked on a Sahara Group debenture issue to private investors, millions of them, as is the wont of parabanking giants like Sahara and Peerless; via a couple of unlisted companies, as listed companies were  disallowed to do this kind of fund-raising now.

The amount in question is some Rs. 24,000 crores, typically made up of millions of small deposits. SEBI, on its part, is citing a law that if the depositors number more than 50, it automatically becomes a public raising of funds, and comes under its purview.  SEBI therefore instructed Sahara to return the funds to the investors as they had been raised ‘illegally’. Sahara, ostensibly has complied in the main. SEBI however is not convinced. In the balance, should this lead to a weakening of the Sahara Group, are the jobs of over a million employees and many millions of investors.

This despite SEBI having been sent 17 truck-loads of papers that allegedly prove Sahara has paid back most of its investors. SEBI has reportedly not ploughed through this ‘proof’ as yet, even as several more truck-loads of material await its scrutiny in a Mumbai godown. Instead, SEBI has got the Court to order Sahara to deposit Rs. 24,000 crores either in cash or by way of suitable and unencumbered property documents with it, in case the evidence does not check out. It is a fact that Sahara is struggling to do all this in cash-strapped circumstances presently, but there is nothing to suggest a  deeper malaise.
  

Sahara on its part has deposited some 5,206 crores claiming, at the time, that the net outstanding was about Rs. 5,120 crores. Since then, more payouts have been made, and the net outstanding now is about Rs. 2,000 crores. The property documents, also submitted to SEBI are apparently not up to the requisite value of over Rs. 20,000 crores, but since most of the money has allegedly been paid back, events may have overtaken this requirement. But not, it seems, SEBI scepticism.

The RBI has also been fretting over regulation of parabanking, and has curtailed much of Sahara’s room to manoeuvre over the years, and there is also the rumoured Congress high command antipathy towards the Group. The close relations that the Sahara Group has long enjoyed with Samajwadi Party and the father and son duo of Mulayam Singh Yadav and Akhilesh also seems now to be missing in action.

Sahara is no longer as cash-rich as it used to be, partially because of some large overseas hotel purchases, a downturn in the real estate asset valuations and liquidity,and the regulatory killing off of most of its parabanking businesses. It has also suffered significant losses in some of  its diversified forays.

The Supreme Court’s insistence on a personal appearance of corporate big-wig Subroto Roy Sahara, followed by a non-bailable arrest warrant, has now coalesced and focussed attention on the case. It is also why Subrata Roy Sahara is in a forest rest house near Lucknow under police custody till 2 pm on March 4^th when the bench of the Supreme Court will see and hear him in New Delhi.

If indeed only some Rs. 2,000 crores remains to be paid out, it possibly will resolve quite quickly. The Honourable Supreme Court justices are annoyed at Subrata Roy dragging his feet when summoned, though the latter claims it is because his 92 year old mother is seriously ill. It may also be important to bring this case to a business-like conclusion in short order to send out a signal that India is not in the way of harassing its eminent and accomplished corporate brass. If the idea is to make clear that no one is above the law, surely there is also a need to calibrate judicial wisdom and outreach according to the nature and gravity of the legal infraction. Top lawyers Ram Jehmalani and Ravi Shankar Prasad who are representing Subrata Roy, did try and fail to get his arrest waived and the hearing advanced.

But looking forward now, they need to put this matter into judicial perspective before it does a lot of damage to the image of India at a time when we need to encourage business, industry, FDI and FII.  India’s GDP has meanwhile plummeted to 4.78% and this kind of high profile trial that involves the arrest of top corporates does not help matters.

(793 words)

March 1^st, 2014

Gautam Mukherjeence ts new teeth and claws and the Supreme Court'