The beleaguered Sahara India group seems to have landed in fresh trouble with the Enforcement Directorate serving a show-cause notice on the conglomerate and its chief Subrata Roy, seeking explanations for alleged violation of foreign exchange rules involving an overseas direct investment of about Rs.3,662 crore in 2010.
ED investigations have revealed that the amount was channelised by Sahara India companies for the purchase of Grosvenor House Hotel from the Royal Bank of Scotland. The next year, the agency initiated the probe into allegations that the group had violated the Foreign Exchange Management Act (FEMA) rules in making “overseas direct investment” without following mandatory guidelines.
The group has earlier maintained that there was not a single instance of violation of any regulatory or legal requirement at any stage and that all transactions were legal.
The direct investment outside India is allowed through either the Automatic Route, where the investor does not require prior approval from the Reserve Bank of India but has to adhere to certain conditions; or the Approval Route, which requires permission from the RBI.
According to the ED probe, Sahara India took the Automatic Route. However, it allegedly did not meet the prior conditions for the same. That it purportedly did not reveal that two of its companies were then facing an enquiry by the Securities and Exchange Board of India and that an adjudication matter was also pending with the Enforcement Directorate.
The agency alleges that the funds utilised to acquire the hotel originated from the Sahara India Real Estate Corp. Ltd. and the Sahara Housing Investment Corp. Ltd., from where it made way to Sahara India Commercial Corporation Limited (SICCL) for it to acquire land and undertake project developments.
According to the ED, the funds were subsequently routed through Sahara subsidiary Aamby Valley Limited (AVL) to Aamby Valley (Mauritius), in which AVL then held 99.99 per cent stake, and used for the purchase of Grosvenor House Hotel. The agency suspects that since such a transaction could not be allowed under the Automatic Route, the companies involved needed prior approval from the RBI that was allegedly not sought. However, the transaction was reported to the regulatory body within a month.
The ED alleges that for the overseas transfer of funds, Sahara group had approached its authorised bank, which raised certain objections. Then it sought permission from the bank to opt for another authorised bank. The bank agreed, but with the condition of a prior RBI approval. However, the agency alleges that without obtaining the RBI permission, changes were made and the funds immediately transferred overseas from the other bank.
