The Sahara scam, one of India's most significant financial scandals, involved the Sahara India Pariwar's illegal collection of vast sums from investors through Optionally Fully Convertible Debentures (OFCDs). This case underscores the critical importance of regulatory compliance and transparency in financial markets.

Background of the Sahara Group

Founded by Subrata Roy in 1978, the Sahara Group expanded into various sectors, including real estate, media, entertainment, and finance. The conglomerate became renowned for its vast workforce and substantial assets, notably the Aamby Valley City project.

The Genesis of the Scam

In the early 2000s, two Sahara Group companies—Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL)—began raising funds through OFCDs. These instruments allowed investors to convert their debentures into equity shares after a specified period. Between 2008 and 2011, these companies amassed approximately ₹24,000 crore from over 30 million investors.

Regulatory Intervention by SEBI

The Securities and Exchange Board of India (SEBI), responsible for regulating securities markets, questioned the legitimacy of Sahara's fundraising activities. SEBI contended that the OFCDs were public issues requiring regulatory approval, which Sahara had not obtained. In June 2012, SEBI informed the Supreme Court that Sahara's real estate division had no right to mobilize funds without complying with market norms.

Supreme Court's Verdict

In August 2012, the Supreme Court directed SIRECL and SHICL to refund over ₹24,000 crore to their investors. The court mandated Sahara to deposit the amount with SEBI for redistribution to investors. However, Sahara's compliance was partial and delayed, leading to further legal complications.

Arrest and Incarceration of Subrata Roy

In February 2014, Subrata Roy was arrested for failing to appear before the Supreme Court regarding the refund case. Subsequently, in March 2014, he and two other Sahara directors were sent to Tihar Jail. Roy's incarceration lasted until May 2016, when he was released on parole.

Financial Implications and Asset Liquidation

By March 2015, the Supreme Court stated that Sahara's total dues had escalated to ₹40,000 crore, including interest. To recover the dues, SEBI initiated the auction of Sahara's assets, including the prestigious Aamby Valley City. However, the auction faced challenges due to limited buyer interest and legal hurdles.

Current Status and Investor Concerns

As of January 2021, the Delhi High Court allowed Sahara's cooperative societies to continue operations, noting that a payment of ₹17,487.82 crore had already been made. Despite this, many investors remain uncertain about the status of their funds, with allegations that Sahara used funds from new investors to repay old ones, akin to a Ponzi scheme.

Lessons Learned

The Sahara scam highlights the necessity for stringent regulatory oversight and corporate governance. It underscores the risks associated with unregulated financial instruments and the importance of investor awareness.

Conclusion

The Sahara scam serves as a cautionary tale about the perils of circumventing regulatory frameworks. It emphasizes the need for transparency, accountability, and adherence to legal norms in financial dealings to protect investor interests and maintain market integrity.

FAQs

What was the Sahara scam?

The Sahara scam involved the illegal collection of funds by Sahara Group companies through OFCDs without regulatory approval, leading to a Supreme Court directive to refund investors.

How much money was involved in the Sahara scam?

Approximately ₹24,000 crore was collected from investors, with dues escalating to ₹40,000 crore, including interest.

What is an Optionally Fully Convertible Debenture (OFCD)?

An OFCD is a type of debt instrument that gives the holder the option to convert the debenture into equity shares after a specified period.

What was SEBI's role in the Sahara case?

SEBI, as the securities market regulator, challenged Sahara's fundraising activities, leading to legal actions and directives for refunds to investors.

What is the current status of investor refunds in the Sahara case?

As of January 2021, significant payments have been made, but many investors are still awaiting refunds, and legal proceedings continue.

References

• Sahara India Pariwar investor fraud case - Wikipedia
• The mystery of Sahara's ₹25,000 crores - Finshots
• Sahara Scam – Missing Investors - Shankar IAS Parliament
• Sahara India Corporate Fraud Case - Sansad
• The Sahara scam | Business History