1. SAHARA PARIWAR
FRAUD CASE
Sahara vs. SEBI

2. CASE BRIEF
Two companies of the Sahara group issued securities and mobilised a large sum of money
(more than Rs 24,000 crore) from over 3 crore investors without complying with SEBI’s
regulatory framework for public issues. The companies had been raising money since
2008. In 2011, they decided to become bigger and opted for a public issue. While
scrutinizing the draft prospectus of the proposed issue, SEBI found out about the other two
issues that were not compliant with the regulations.
The company claimed that the issues were complaint with the Companies Act and that
SEBI had no jurisdiction over it. SEBI’s battle with Sahara, asking it to comply with
regulations, went through various rounds of orders, stays, court rulings and tribunal
hearings, until it finally went to the Supreme Court, which ruled in favor of SEBI and
ordered the Sahara companies to refund the money raised by circumventing regulations.

3. SEBI
SEBI is a statutory regulatory body established by
the Government of India to regulate the securities
market in India and protect the interests of
investors in securities.
It also regulates the functioning of the stock
market, mutual funds, etc.
Founded on April 12, 1992, under SEBU Act, 1992.
Prevents malpractices in the capital market of
India and promote its development.
Protects the interests of the investors by enforcing
certain rules and regulations.

4. SAHARA INDIA PARIWAR
Company profile
•An Indian conglomerate
•Headquarters: Lucknow, India
•Founder: Subrata Roy
•Founded: 1978, Gorakhpur
•Type: Privately owned
Mission
To provide an amiable environment to all workers , so that their productivity remains
on a perpetual high and they always experience a blissful state of peace and satisfaction
Vision
To ensure that the interests of the Pariwar are kept paramount and justice prevails in
every sphere and at all levels to safeguard the interests of all workers.
Core values
Discipline, Collective Materialism, Absolute Honesty, No discrimination, Duty

5. Business Operations
● Subrata Roy laid the foundation of Sahara India in 1978, with the opening of a small office for his
business of deposits and para-banking in Gorakhpur.
● In this business, he would increase the money of wage workers by providing them with some
interest on the money which these workers would initially submit to him, as a means to carry out
the duty of a bank in rural areas.
● Sahara grew from 42 depositors to around 6.1 crores investors and depositors
● From there, it went on to become the largest conglomerate of India with a diversified range of
business interests. The company now has interests in financial services, education, real estate,
media, entertainment, tourism, healthcare, and hospitality.
● The lucrative business scheme, diversification and the branding of the company made people
develop trust on Sahara
● Roy realized how easy it is to take advantage of the wage workers, and of their trust that he had so
gained

6. MAJOR CONCEPTS AND TERMS
When a company gets money from
the public through the stock market,
it is called the Initial Public Offering
(IPO).
The DRHP, comprises the
company's details and can be
considered as the biodata of the
company.
Debentures are a debt instrument
by which the companies borrow
money from people, and pay
interest to them in return.
OFCD is a kind of debenture in which
the people can convert the debenture
into equity and then become equity
shareholders in the company.
According to Securities Act,
OFCD is a security and hence
anything related to them
comes under SEBI’s
jurisdiction.
Securities” include— (i) shares, scrips,
stocks, bonds, debentures, debenture
stock or other marketable. securities of
a like nature in or of any incorporated
company or other body.
IPO DRHP DEBENTURES
OFCD SECURITY SECURITIES ACT

7. TIMELINE
September 2009 December 2009 November 2010 October 2011
October 2009 January 2010 June 2011
Sahara Prime City files Draft Red
Herring Prospectus (DRHP) with
Sebi to bring out an initial public
offer of shares to public investors.
Sahara India Real Estate
Corporation Ltd. (SIRECL) and
Sahara Housing Investment
Corporation Ltd. (SHICL) file Red
Herring Prospectus with Registrar
of Companies.
Sebi receives complaint from
Professional Group for Investor
Protection against SIRECL and
SHICL
Similar complaint received against Sahara
group from one Roshan Lal through
National Housing Bank. Sebi seeks
clarifications from the group, initially
through their investment bankers Enam
Securities and later directly.
Sebi passes interim order against
the two firms, asking them to
refund the money collected from
investors.
Sebi passes final order and Sahara
challenges these directions before
the Securities Appellate Tribunal.
Securities Appellate
Tribunal upholds Sebi
order and asks the
companies to refund Rs.
17,656 crore to over three
crore investors.

8. August 2012 February 2013 July 2013 February 26, 2014
December 2012 April 2013 February 20, 2014
February 28,
2014
Sahara moves Supreme Court,
which also passes order asking the
two companies to deposit over Rs.
17,400 crore to Sebi for refund.
Supreme Court asks Sahara to
deposit the money in three
instalments beginning with an
immediate payment of Rs. 5,120
crore.
Sebi issues orders to attach bank
accounts and other properties of
the group after companies failed to
pay remaining two instalments and
later issues summons for personal
appearance of Sahara chief Subrata
Roy and other three directors
before it.
Subrata Roy appears before Sebi
after summons.
Sebi moves Supreme Court against
Sahara group for non-compliance
with the court’s direction
November 2013: Subrata Roy barred
from leaving the country.
Supreme Court issues
non-bailable warrant
after Subrata Roy fails to
make personal
appearance; Sahara
chief cites mother’s
illness for non-
appearance.
Supreme Court asks Subrata Roy to
appear personally.
Subrata Roy
arrested in
Lucknow and
sent to police
custody till
March 4..

9. ● To analyze the powers of the SEBI under section 55A(b) of the Companies Act, 1956 to administer various
provisions relating to issue and transfer of securities to the public by listed companies or companies which
intend to get their securities listed on any recognized stock exchange in India.
● Whether appellants had violated the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and various
regulations of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
● Whether Optionally Fully Convertible Debentures ('OFCDs') offered by the appellants should have been listed
on any recognized stock exchange in India, being Public Issue u/s 73 read with Section 60B and allied
provisions of the Companies Act.
● Whether OFCDs issued are securities under the Securities Contracts (Regulation) Act, 1956 ['SCR Act'].
OBJECTIVES OF THE CASE

10. PROBLEMS OR INSTANCES OF FRAUD
IN THE CASE● Complaint of wrong issue of OFCD
● SEBI started investigation. Found out that 2.5 cr investors that
raised 24000 cr rs
● Zero transparency of source or use of these funds
● Sahara claimed to submit red herring prospectus to RoC
instead of SEBI as OFCDs which are hybrid securities were
issued to investors of SIRECL and SHSCL without the
authorisation/approval of SEBI
● SEBI banned the issue of OFCD and told them to return the
money to the investors with 15% interest
● Supreme court; SAT approached. Sahara claimed that these
were not public issues. These were private issues for those
related to the Sahara group. However, more than 50 people =
public issue
● SEBI picked random investors. they were fictitious investors
to do money laundering

11. ● Supreme court asked them to return it with interest
as a deposit to SEBI. And asked for documents of all
investors
● Documents had incomplete details. money
laundering. unrealistic information, about address
agents and names
● Sahara was to pay SEBI in 3 instalments, but they
ended up paying only one
● Claimed to return their investors’ money. Only 4600
came to claim. Claimed that the remaining had
already been paid
● No proof of payment to investors and no answer to the
source of payment
● Subroto Roy and directors jailed on account of money
laundering and fraud

12. JUSTIFICATION
● Did SEBI have the power to investigate and adjudicate?
● Were OFCD’s deemed to be a security under ICA?
● Was it really a private placement?
● Whether preferential allotment rules apply to this
case?

13. JUDGEMENT
May 2011 - Supreme Court of India asked Sahara India Real
Estate (SIREC) to furnish the format of the application for its
optionally fully convertible debenture (OFCD) scheme and
a list of accredited agents that raised money on the
company's behalf.
October 2011 - Securities Appellate Tribunal (SAT), set up
by the Supreme Court, ordered two unlisted Sahara group
companies to refund within six weeks about Rs. 17,656.53
crore with 15% interest, which it had raised through
OFCDs.
November 2011 - Sahara India Pariwar moved the Supreme
Court against SAT's order and the Supreme Court stayed
the SAT order, and asked the two companies to refund
Rs. 17,400 crores to their investors and asked the details
and liabilities of the companies.

14. January 2012 - Supreme Court gives three weeks’ time to
Sahara India Pariwar to choose between options to return
investments made by public in its OFCD scheme. Sahara to
either to give sufficient bank guarantee or attach
properties worth the amount raised through OFCDs.
May 2012 - Supreme Court is informed by senior counsel
Fali Nariman of Sahara India Real Estate Corp that SEBI
could not have taken up this issue of Sahara Group of
companies raising funds through OFCD as there was no
complaint from any investor.
August 2012 - Supreme Court directed Sahara India Real
Estate Corporation Ltd. (SIRECL) and the Sahara Housing
Investment Corporation Ltd. (SHICL) to refund over Rs.
24,400 crore to its investors.

15. February 2014 - Subrata Roy arrested by Uttar
Pradesh police for failure to appear before
the Supreme Court.
March 2014 - Subrata Roy, along with two other
directors of Sahara, sent to Tihar jail.
March 2015 - Supreme Court stated that the
total dues from Sahara have gone up to
Rs 40,000 crore with the accretion of interest.

16. FINAL PROVISIONS OF THE LAWS
1. When the company is issuing their OFCDs to less than 50
people, they’ve to get a permit from ROC (Registrar Of
Companies).
2. When the company is issuing OFCDs to 50 or more than 50
people, they’re supposed to take a permit from SEBI.
3. The process of issuing these OFCDs need to be completed within
6 weeks by the company but Sahara continued for 2+ years.
4. OFCDs issued by Sahara’s were public issue of debentures,
hence securities
5. Unlisted companies like Sahara’s when made an offer of shares
or debentures to fifty or more persons, it was mandatory to
follow the legal requirements of listing their securities.
6. U/S 11B, SEBI has the power to issue appropriate directions in the
interests of investors in securities and securities market to any
person who is associated with securities market.

17. 7. Passing of Special Resolution u/s 81(1A) of Companies Act, 1956 for preferential
allotment by Private Placement of OFCDs does not confer the right to the company to
issue such securities to a large number of people.
8. Company is also bound to comply with the relevant provisions of the SEBI (Disclosure
and Investor Protection) Guidelines, 2000 ['DIP Guidelines'] and various regulations of
the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ['ICDR
2009'] related to an issue to the public.
9. The submission of Information Memorandum ('IM') and that Red Herring Prospectus
('RHP') u/s 60B of the Companies Act with Registrar of Companies ("ROC") doesn't
implies that the company has complied with all the provisions of the said act. The
company also needs to file the same to the SEBI for its scrutiny on the ground of being
an issue to the public and the involvement of the stake of a large number of people.

18. SUGGESTIONS
To bring about a visible decline in the culture of corporate scams in India, three major
systematic changes can and need to take place.
● Laws protecting whistleblowers are imperative.
● Greater level of autonomy to federal and market regulators than they presently
enjoy.
● Need for judicial reform in India

19. LOOPHOLES
This case is about the corporate social irresponsibility towards investors and failure of
corporate Governance mechanism of Sahara Group. It raises questions for both law makers and
regulators.
Is India’s regulatory framework equipped to consistently detect, halt and penalize such
organized efforts?
The court’s order lays out how two Sahara group companies made “a pre-planned attempt” to
“bypass the regulatory and administrative authority” of the Securities and Exchange Board of
India (SEBI). The regulator should take steps to institutionalize the elements that led to this rare
victory in court.
Is there sufficient intelligence gathering and co-ordination among different financial
sector regulators?
The level of interaction between the different financial sector regulators is clearly insufficient.
The only regular forum for interaction, the Financial Stability and Development Council (FSDC),
concentrates on macro-prudential matters. More active co-ordination is needed at the grass-roots
level.

20. Is everything as simple as it seems to be?
Despite advertisements in papers and other strenuous efforts, the market regulator has not
been able to find investors of more than Rs 10 crore.
If the Sahara investors are fictitious, SEBI doesn’t really have a role as it is mandated to deal
with real investors, and some other agency should look into the case. And if Sahara’s claim of
having repaid its investors is true, Subrata Roy and the two directors shouldn’t be in jail.
Lesson: This case should serve as wake-up calls for authorities such as the Income Tax
Department and the Enforcement Directorate to follow the money trail more closely.
Different regulators and enforcement authorities should clearly act to avoid duplication
and enable better deployment of resources. The government has formed a panel of retired
and serving bureaucrats, called the Financial Sector Legislative Reforms Commission
(FSLRC), to rewrite and harmonize some 60-odd financial sector laws.

21. Sahara’s misdeeds are considered as an eye-opener in several respects about the
uncertain dealings inside the corporate-houses and it brings in to being the need for
protecting the interest of several millions of investors, who invested their hard
earned money in such socially irresponsible corporations. SEBI proved to be
effective machinery in tackling the case to an extent but still it has a limitation of
regulating unlisted companies in India. The reasons for such scandals are several
including lack of transparency, weak provisions, political nexus and above all,
ignorance of investors. In the light of Sahara case, it is the responsibility of the
government and its various agencies to protect the interests of investors and nation
as well through putting in place necessary provisions in accordance with the
changing requirement of market.
CONCLUSION
PRESENTED BY – Adarsh Agrawal (1920602), Shashwat Vijaywargiya(1920626), Amisha Nahar
(1920632), Shrishankari R (1920647), Vani Ambardar (1920654)