Is Saharaâ€™s goose cooked? SAT orders return of Rs 24,000 cr R Jagannathan Subrata Royâ€™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 Royâ€™s companies, Sahara Commodity Services Corporation (SCSC, formerly Sahara India Real Estate Corporation) and Sahara Housing Investment Corporation (SHIC), that Sebiâ€™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 Royâ€™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 Groupâ€™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, â€œfor an OFCD issue involving 6.6 million investors, the issues were to be kept permanently open. Something unheard of in the capital market.â€ The Sahara Group challenged Sebiâ€™s right to interfere in the affairs of SCSC and SHIC saying that OFCDs were not under its jurisdiction because they were hybrid instruments â€“ neither shares nor debentures. Sebiâ€™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 Groupâ€™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 â€“ which embarrassed the finance ministry. Abraham complained that the finance ministry under Pranab Mukherjee was seeking to influence the Sahara case â€“ 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 â€“ and that Saharaâ€™s petition for MCA to hear its case was not tenable. â€œBoth 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,â€ says an Indian Express report, quoting the affidavit. This shift in the MCAâ€™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. â€œThe Sebi Act is a specialised act and the Companies Act is a basic act. Therefore, the Sebi Act should prevail over the Companies Act,â€ the MCA is believed to have said in the affidavit. Once the MCA and Sebi closed ranks, Saharaâ€™s goose was cooked.