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SEBI’s case against Sahara
Sebi-Sahara case: A saga of big numbers and innocuous names
PTI | Feb 28, 2014
It was an innocuous-looking complaint by one 'Roshan Lal' four years and four months ago that sent watchdog Sebi on trail of "various illegalities" committed by Sahara group in raising over Rs 24,000 crore from more than three crore investors.
The high-profile saga — which today saw the arrest of flamboyant Sahara group chief Subrata Roy, who calls himself "Managing Worker" of his business empire — has seen many dramatic events along the way.
There has been many emotional pitches by Sahara group, which claims to have a networth of over Rs 68,000 crore and assets worth over Rs 1.5 lakh crore.
The Sebi-Sahara case itself comprises staggering numbers like collection of over Rs 24,000 crore from three crore individuals, while once Sahara sent 127 trucks containing 31,669 cartons full of over three crore application forms and two crore redemption vouchers to Sebi office. This apparently resulted into a huge traffic jam on outskirts of Mumbai, where the regulator is headquartered.
The case also has brought to headlines numerous financial jargons like OFCDs, DRHP and RHP, as also numerous innocuous sounding names like Kalawati, Hardwar and the famous 'Roshan Lal.'
It all started with Sahara Prime City, a real estate venture of the group, filing a Draft Red Herring Prospectus (DRHP) with Sebi on September 30, 2009. This is an initial document that a company needs to file with Sebi to bring out an IPO or initial public offer of shares to public investors.
While going through this DRHP, Sebi sensed certain large-scale fund raising exercises by two Sahara firms — Sahara India Real Estate Corp Ltd (SIRECL) and Sahara Housing Investment Corp Ltd (SHICL).
Soon, Sebi received two complaints — one on December 25, 2009 and the second on January 4, 2010 — alleging illegal means used by these two firms in issuance of certain bonds, called OFCDs (Optionally Fully Convertible Debentures), to the public throughout the country for many months.
The second complaint was from Roshan Lal, which was received by Sebi through National Housing Bank. Based on these complaints, Sebi began seeking clarifications from the group, initially through their investment bankers Enam Securities and later directly. Further investigations found that the funds were raised through OFCDs after filing RHPs (Red Herring Prospectus) with the Registrar of Companies, although the rules required permission from Sebi for any issuance of securities to 50 or more investors. In these cases, the number of investors ran into crores.
Eventually, Sebi passed an interim order against the two companies on November 24, 2010, asking them to refund the money collected from investors.
A final order was passed by the regulator on June 23, 2011, while the group challenged these directions before the Securities Appellate Tribunal. However, the Tribunal upheld the Sebi orders on October 18, 2011, and asked the companies to refund Rs 25,781 crore to over three crore investors.
The group then moved the Supreme Court, which also passed a historic order on August 31, 2012, asking the two companies to deposit outstanding amount of over Rs 24,000 crore with Sebi for refund to the investors.
Saharas were also asked to deposit details of all investors to Sebi, which was mandated to refund the money after verifying their genuineness.
Sebi again moved the Supreme Court alleging non- compliance by the group to the earlier orders, pursuant to which the apex court passed another order on December 5, 2012, and asked the two firms to deposit the money in three instalments beginning with an immediate payment of Rs 5,120 crore.
While the group paid the first instalment, it failed to meet the deadline for other two payments and rather claimed to have already paid more than Rs 20,000 crore directly to the investors.
Unconvinced with Saharas' claims, Sebi passed orders on February 13, 2013, to attach bank accounts and other properties of the group and later issued summons for personal appearance of Subrata Roy and other three directors before it.
Roy and others appeared before Sebi on April 10, 2013, after which he famously told reporters that he was not even offered tea by Sebi officials.
During the same month, April 2013, Sebi finally closed its file on Sahara Prime City, whose planned IPO had kick-started this long-running battle.
In the meantime, Sahara group continued to issue full-page and multi-page advertisements in newspapers wherein it claimed to have cleared bulk of its outstanding liabilities to bondholders.
In these advertisements, the group also claimed to have raised total funds to the tune of Rs 2,25,000 crore since inception in 1978 across various businesses and pegged its total networth at an astonishing figure of Rs 68,174 crore and the size of its assets at Rs 152,518 crore.
Sahara also charged that Sebi was making "baseless allegations" against it and accused it of not accepting "60 truckloads of documents", while the regulator countered these charges by saying that the documents given by them were "hopelessly mixed up".
Sebi also issued public notices in newspapers, cautioning investors and general public against dealing with Saharas.
Papers don't prove pay-offs: I-T panel
Based on forensic evidence, the Income Tax Settlement Commission has said “evidentiary value“ of loose papers and electronic documents seized in raids on Sahara India, which refer to alleged pay-offs to politicians cannot be proved but has assessed the Subrata Roy-led firm's income at Rs 1,911 crore.
The Sahara case has been at the centre of a political storm as Congress vice-president Rahul Gandhi and AAP chief Arvind Kejriwal have alleged that the entries, along with those recovered from Birla group, point to pay-offs to PM Narendra Modi when he was Gujarat CM. However, the documents, which contain references to other BJP members as well as non-NDA politicians, have been found to be unverifiable by the commission.
The commission has reached an assessment for the seven-year period ending 2015-16 (assessment year) against the company's contention that it had incurred losses of Rs 2,279 crore during this period. The contention of losses has not been upheld but allowed set off for certain losses claimed by the company.
While the Settlement Commission -which is a forum that can be tapped by taxpayers to settle a tax dis pute only once -has allowed for a set off for losses incurred by Sahara India between 2009-10 and 2013-14 assessment years, it has asked the company to pay tax on Rs 137.58 crore for the assessment year 2015-16 (financial year 2014-15). The income tax department has been asked to compute the tax and interest on this amount.
The tax forum accepted the contention that documents seized during the raids were “loose papers and electronic documents were fabricated and had no evidentiary value“. On the other hand, it included an additional income of Rs 1,217 crore by the company based on revision made by Sahara. Apart from citing a forensic report of the Directorate of Forensic Science, Sahara had also argued that the entries by two of its employees were “maliciously made to malign one of its employees“. “The papers seen by us during the course of the 245D (4) proceedings do not throw much light on the veracity of the payment or receipt as depicted therein. We have also noted that no corroborative evidence was collected by the department,“ the commission said in its findings.
“Having considered carefully the rival arguments on this issue we are of the view that ownership of documents etc. cannot be totally denied, however, evidentiary value of loose papers and electronic documents could not be proved and the arguments of the AR (authorised representative of the company) are supported by the decisions of the Hon'ble Apex Court on this issue,“ the commission said.
It also said that around Rs 120 crore seized during raids were unexplained and will be treated as additional income.Another Rs 16 crore of foreign currency transactions based on documents seized and a further Rs 380-odd crore of unexplained cash have been added to the income.
“Rs 137.58 crore will be taxed under section 69A in assessment year 2015-16 as mentioned in para 4.4.3 and balance credit for loss up to the assessment year 2013-14 has to be allowed in assessment year 2014-15 and 2015 16,“ according to the order of the commission.
The case relates to the search and seizure operation carried out by the income tax department on several premises of Sahara group on November 22, 2011. Sahara India had approached the commission on August 18, 2016 but it was rejected on August 31 on the ground that it did not fulfil the criteria for settlement of cases exceeding Rs 50 lakh. The company again approached the commission on September 5, 2016 and the application was admitted and the order was passed on November 10 after three hearings--one in October and twoin November.
The commission has also agreed to allow the company to pay its tax liabilities in 12 instalments as Sahara had requested that they be allowed to pay in instalments as it was “passing through difficult times“. The commission also granted Sahara immunity from penalty and prosecution under the I-T Act in the case but cautioned that the immunity granted may be withdrawn at any time if the commission is satisfied that the company had in the course of the settlement proceedings concealed any particular material to the settlement or had given false evidence.