The Supreme Court’s landmark judgment in the case relating to two companies of the Sahara pariwar, or family — as the group chooses to call itself — strengthens the hands of financial sector regulators besides having important ramifications for corporate and securities law. At the core of the dispute are hybrid instruments called Optionally Fully Convertible Debentures which the two companies floated without seeking regulatory approval or having any intention to list them on the stock exchange. With their financial position and other material facts hidden behind a deliberately devised opaque structure, the Sahara group had the audacity to challenge the Securities and Exchange Board of India which, as far back as November 2010, had asked them to stop raising funds through OFCDs. The principle that mobilisation of public money above a very small amount invariably requires regulatory clearance is so well established and rooted in common sense that Sahara had no case whatsoever. Yet it kept appealing its case, losing at every stage but probably gaining time. The Supreme Court has finally put paid to any lingering hope the group might have had. In fact, it is the appeal against the order of the Securities Appellate Tribunal that has led to the Supreme Court judgment, which will be equally remembered for its stringent criticism of the appellants.
This is not the first time regulators have had a problem with the group. In 2008, the Reserve Bank of India ordered its residuary non-banking finance company, the Sahara Financial Corporation, to phase out its deposit collections. Sahara claimed to have complied ahead of schedule but things could be considerably more difficult this time. The two companies have been asked to quickly refund some Rs. 24,400 crore which they claim to have collected from 2.21 crore depositors. Failure to comply will invite penal action. Tough days lie ahead for the group which has sought publicity as keenly as it has attempted to avoid financial scrutiny. Its logo has adorned the apparel of India’s cricketers for more than a decade. Over the years Sahara, which started as a residuary non-banking finance company, diversified into various unrelated businesses — a township near Pune, an airline (since sold off), and a TV station, among others. More recently it acquired an IPL franchise and a stake in a Formula One team. True to form, in all these as well as in its acquisition of two landmark hotels in New York and London, no financial details have been made available. The Supreme Court order will force the group to shed its secrecy. On that score alone it should be welcomed by all.
Keywords: Sahara group, Supreme Court verdict, Sahara pariwar, Sahara India Real Estate Corporation, SIRECL, Sahara Housing Investment Corporation, SHICL, investor money refund, financial sector regulation
Another editorial from The Hindu on a matter of crucial importance to
India's prosperity.
The editorial lists multiple serious failures: (i) (fraudulently?)
raising finance without regulatory approval (ii) defying(?) regulatory
authorities (iii) hiding material corporate financial information from
regulators (iv) running rings round many regulatory authorities and law
courts of the land, until finally stopped by the SC (v) not keeping
proper financial records (avoiding audit?), etc.
Are there also issues regarding the role and regulation of various types
of advisers (chartered accountants, lawyers, bankers, tax experts,
brokers, security analysts, etc)?
That there are so many simultaneous failures, over a protracted period
of time, may indicate systemic failures and a far deeper malaise.
Without a comprehensive investigation how can one know whether “the
Sahara pariwar” is an isolated errand corporate group or not, and what
are all the failures that need to be fixed urgently?
"The Pariwar's comeuppance" is an excellent editorial. The Supreme Court verdict has certainly helped in strengthening the financial sector regulatory bodies, which, forced to do so by the intervention of some influential politicians, had to remain silent spectators of some very unethical and illegal acts that were taking place under their very nose.Uncontrolled mobilisation of funds,if left unchecked, might end up in large-scale cheating of the unwary investors.
The Sahara Parivar case is symbolic of the erosion of ethical and moral standards in pursuit of professional success and wealth creation. Much has been written about the manner in which the Ambanis built their business empire but they continue to be patronised by political parties, the media and public at large. In fact the Govt has gone one step ahead to subsequently legalize the fraud retrospectively. Unless as a society we display intolerance to cheating as a route to success, these kind of methods are bound to flourish.
I wish I could like the comment by Narayan above!! THE HINDU is the
best, unbaised newspaper you'll get in India. Other media channels and
newspapers should atleast try to learn the 'class of journalism' which
Hindu has shown.
I find it irrelevant that some of our readers have commented or indicated above that The Hindu should not have been publishing the Sahara Ad (the Ad defended Sahara's position) while planning to write an editorial negative to the group. Well, that argument does not hold - it's like saying the Hindu should not write an editorial condemning rape because it reports the facts on rape cases.
An editorial is an opinion, whereas articles and ads are facts and reality. In fact the sense in the Hindu is that its articles mostly reflect facts and ground happenings without voicing opinions in them (unlike most other newspapers and TV channels who opine on everything in their articles), while The Hindu restrains its opinions to the editorials.
As far as Sahara is concerned, news is now coming that they are next using the co-operatives route (largely unregulated by SEBI/RBI/etc) to front their activities!! Looks like their business model is to thrive on loopholes.
The court should also have given directions to the CBI to find out how such a big amount of 22,000 crores got unnoticed from a huge number of government agencies, which in India are really very large in number.
Also, nexus with politicians should be investigated.
Black money, can be easily parked in such opaque systems.
it is silly on your part to name this article starting with pariwar,so that any casual reader will think it is about sangh pariwar.
NDTV used to do this for news item about MODI- former IPL organiser as it also covers narendra modi and any casual reader will get a negative view as planned.
Your observations are very apt. Without political backing, ‘Sahara Pariwar’ would not have been able to expand its empire. It is common knowledge this Pariwar has friends in all parties. It is very unfortunate that our regulatory mechanism which deals with financial transactions is not a well knit structure and there is very little coordination between various authorities. We have seen how businesses are allowed to attract innocent investors through high return but dubious deposit schemes and how such investors are being cheated. Unfortunately because of lack of coordination between various State and Central government agencies, these fraudsters often get away. There is no mechanism to catch the cheaters at an initial stage of such frauds. If we have to avoid a repeat of Sahara type uncontrolled mobilization of funds, we have to set up a far more efficient regulatory system.
Corporate ethics has fallen quite low. Sahara group is only a
manifestation of the evil that has percolated all walks of life. Your
newspaper carried an ad by the group where they claim to have
obtained all due clearances. The editorial says something to the
contrary.
ASSOCHAM has issued a full page ad advising the CAG after COALGATE.
The newly appointed FM has advised the IT department to go easy on
industrialists. He would also like to relook at Supreme Court's
judgement on Vodafone case.
Is Sahara an exception or the rule?
Brevity of words and the balance of facts is immaculate in every piece of news reported by “The Hindu”, being a young India below the age of 25, I find this to be “Responsible and ethical news reporting”, every sentence in the editor page is a spotless piece of good journalism, I only wish other news agencies (paper and the other electronic ones) only follow “The Hindu” and make news reading a “Celebration of democracy” rather than a “Circus of flashing news and a jugglery of vested opinions”. “The Hindu” is undoubtedly the leader; which will surely be the “The carrier of the 21st century Indian democracy” and probably never stop to engage the “Sane Indian minds”
there was an ad in the delhi edition just a day after the sc's
verdict(though i didn't read the full ad it was probably aimed at the
company's honest and just policies)....why this edit now ?
Please Email the Editor