Is Sahara’s goose cooked? SAT orders return of Rs 24,000 cr

Discussion in 'Economy & Infrastructure' started by Daredevil, Oct 18, 2011.

  1. Daredevil

    Daredevil On Vacation! Administrator

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    Is Sahara’s goose cooked? SAT orders return of Rs 24,000 cr

    R Jagannathan

    Subrata Roy’s Sahara Group, sponsor of the Indian cricket team, owner of the Pune IPL franchise, part-owner of the F1 Force India team and runner of a shadowy business empire that has fallen foul of two regulators, has got its comeuppance at the Securities Appellate Tribunal (SAT).

    SAT is where appeals against orders issued by market watchdog Securities & Exchange Board of India (Sebi) are heard.

    On Tuesday, SAT told two of Subrata Roy’s companies, Sahara Commodity Services Corporation (SCSC, formerly Sahara India Real Estate Corporation) and Sahara Housing Investment Corporation (SHIC), that Sebi’s 23 June order to return all the money they had collected through optionally fully convertible debentures (OFCDs) stands. They have been given six weeks to comply and return the money.

    According to a CNBC-TV18 report, the two Sahara companies will have to return nearly Rs 24,029 crore raised via the OFCD scheme. OFCDs are debentures which investors can convert into shares at their option.

    This means SAT has essentially closed Roy’s clandestine and dubious money channel, as ordered by Sebi, even as another channel was closed the Reserve Bank of India earlier. The RBI ordered Sahara to wind down the deposit-taking operations of Sahara India Financial Corporation (SIFC), a residuary non-banking finance company, and the group now claims it will return all deposits by the end of this year.

    The Sebi order of 23 June essentially put a stop to Sahara Group’s Ponzi operations of raising money from here and there to run its various businesses. The order, pronounced by former board member KM Abraham, noted that the two companies, which had a minuscule net worth of a few lakh rupees when they started raising money through OFCDs privately in 2008 and 2009, were planning to collect as much as Rs 40,000 crore between them by bypassing Sebi.

    As Firstpost noted at that time, “for an OFCD issue involving 6.6 million investors, the issues were to be kept permanently open. Something unheard of in the capital market.”

    The Sahara Group challenged Sebi’s right to interfere in the affairs of SCSC and SHIC saying that OFCDs were not under its jurisdiction because they were hybrid instruments – neither shares nor debentures. Sebi’s 23 June order made mincemeat of this argument.

    The Sahara Group then tried another tack. It claimed the OFCDs were being privately placed with the Sahara Parivar and not the general public, and hence Sebi should not intervene. But Sebi would have none of it. It pointed out that when OFCDs were being sold to over six million investors, on what basis could Sahara claim these were not members from the general public?

    Quite clearly, Sahara Group’s effort was to seek a change in forum since it knew its OFCDs could not withstand Sebi scrutiny. It was obviously hoping to get the ministry of company affairs (MCA) involved on the quiet and get a deal done.

    But two things conspired to ruin this gameplan.

    One, the Supreme Court ordered SAT to pronounce on the Sahara appeal within eight weeks after involving both Sebi and the ministry. It would have made no sense for two regulatory arms to differ when the Supreme Court running a beady eye on their stands.

    But, coincidentally or by deliberate action, the correspondence between the Sebi member (Abraham) and the PMO got leaked – which embarrassed the finance ministry. Abraham complained that the finance ministry under Pranab Mukherjee was seeking to influence the Sahara case – which the ministry vehemently denied. The leakage of this missive from Abraham to the PMO would have tilted the balance against Sahara since any favourable verdict would have looked suspicious.

    In fact, the changing political winds became apparent in August when the ministry of corporate affairs, which got initial intimation of the Sahara OFCDs, decided to join hands with Sebi at the SAT hearings.

    In an affidavit dated 26 August, MCA said that it had joint jurisdiction along with Sebi to protect investors – and that Sahara’s petition for MCA to hear its case was not tenable. “Both Sebi and MCA work in tandem for protecting (the) rights of small investors. So the question of technicality of jurisdiction is not the way to look at the issue,” says an Indian Express report, quoting the affidavit.

    This shift in the MCA’s position is stark since in an earlier affidavit filed with the Allahabad high court in the same case, the ministry had claimed that the registrar of companies under the MCA should have jurisdiction over Sahara, and not Sebi.

    But at the SAT hearings, the ministry changed its views. “The Sebi Act is a specialised act and the Companies Act is a basic act. Therefore, the Sebi Act should prevail over the Companies Act,” the MCA is believed to have said in the affidavit.

    Once the MCA and Sebi closed ranks, Sahara’s goose was cooked.
     
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  3. Daredevil

    Daredevil On Vacation! Administrator

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    I hope this dubious black money to white money exchanger is closed forever. This Subrato Roy guy has always came across a shady guy with shady financial operations. I heard that he owns much of the Lucknow's land holdings.
     
  4. Yusuf

    Yusuf GUARDIAN Administrator

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    Too much of this "going after black money" is going to hurt and slow down indian economy. India needs black money and there is no doubt about that.
     
  5. Daredevil

    Daredevil On Vacation! Administrator

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    Black money is also the reason for high real estate prices in the cities where a common cannot buy an house in his life time. The guys with Black money make it white through these real estate buyings and make it inaccessible for other common people. If the Black money was used for employment generation then that is a different issue.
     
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  6. Yusuf

    Yusuf GUARDIAN Administrator

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    That same black money saved india from the housing crash that the west experienced.
     
  7. Daredevil

    Daredevil On Vacation! Administrator

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    Nope, its the RBI that saved us from Housing crash by not allowing housing bubble to form by not allowing sub-prime loans or transaction of toxic derivatives. Actually I would have been happy if there was a crash because the real estate prices were highly inflated and are even now.
     
  8. Adux

    Adux Senior Member Senior Member

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    I think somebody got some...lol
     
  9. Yusuf

    Yusuf GUARDIAN Administrator

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    It's not me :D it's a general statement. Black money is a "white truth" in India. It is huge. Plugging it will actual my slow things down.
     
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  10. Param

    Param Senior Member Senior Member

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    All business men have some back money:D
     
  11. Adux

    Adux Senior Member Senior Member

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    So the truth comes out!
     
  12. amitkriit

    amitkriit Senior Member Senior Member

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    That will be a temporary phase. If anybody has studied economics, he will tell you that parallel economy and economic disparity kill even the most powerful economies. Economists and governments have learned a lot from the "Great Depression of 1930s", whose major reason was too much corporate greed and zero market regulation. Even capitalist economies like USA won't tolerate such things.
     
  13. amitkriit

    amitkriit Senior Member Senior Member

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    People create stories and reasons to protect their own selfish interest. Indian Economy can survive the crack-down on the Black Money. Black Money has benefited only a handful of people, at the expense of government exchequer, development and low-level wages.

    Consumption cannot be sustained if a large part of the economy remains in the hands of a few rich people, that is the case in India.
     
  14. Yusuf

    Yusuf GUARDIAN Administrator

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    Missed an "a" between the "m" and "y". Made all the difference!!
     
  15. Yusuf

    Yusuf GUARDIAN Administrator

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    Let me yell you this, you take an auto rickshaw that cost you 100. You paid him cash. No receipt. He is not going to account it. Your money became black with him. You don't have a receipt you can't account it.

    The government knows this. For business it gives "allowances" as there can't be receipts for everything. This is what is used to cook the books.

    MAT is always on book accounts. Good enough to play around with.

    One of the reasons why cash will remain the mode of payment in india than cards or electronic means.
     
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  16. Adux

    Adux Senior Member Senior Member

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    Yusuf is correct, as long as the license raj and current stupid tax code exist, No Indian is going to be honest to the Government of India. For eff sake, I supposed to pay nearly 60-75% in direct and indirect taxes? I have to give 70 ruppees of the very 100 I make to this government and country? What do I get back in return? Absolute ZERO. Heck, I dont even have my life protected against terrorist and other goonda's. And I am supposed to be honest to a dishonest country and government.?
     
  17. Adux

    Adux Senior Member Senior Member

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    The Largest collection of Black money as a collective is with the poor people, Disliking the rich is a fad. Atleast they contribute something, what do the unproductive class contribute, yup more mouths to feed, not with their labor but rather my hard work
     
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  18. Yusuf

    Yusuf GUARDIAN Administrator

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    Adu, reminded of JFK. Ask not what the country did for you but what you did for the country. Sounds good in speeches that will draw huge applause, but at the end of the day, people are selfish and greedy.
     
  19. SLASH

    SLASH Senior Member Senior Member

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    We need overall reduction in taxes so that people would be encouraged to show their true assets. At least people can spend that money freely. Most of the black money is just lying under the bed.
     
  20. Yusuf

    Yusuf GUARDIAN Administrator

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    Exactly. The cooliewala near my shop makes more than 500 a day. That qualifies him to pay IT. ask him about it and he'd say what's that and why should I pay?

    The thing is, there is a large number of those around. Probably 80% people are like that. Not coolies but unorganized class that makes money but does not account. Some don't even know what it is to account and pay tax.

    Educated class has to bear the brunt. And if you say you didn't know, they will say ignorance is not an excuse and you will be fried.
     
  21. Yusuf

    Yusuf GUARDIAN Administrator

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    It's not lying under bed. That is for sure.
     

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