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.

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SC orders Sahara to refund Rs. 24,400 crore August 31, 2012

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