Sahara: The Untold Story
Tamal Bandyopadhyay
Jaico

Of all the meetings [Subrata] Roy has had with Sebi and the Reserve Bank of India chiefs over the past decade about his companies accessing public money, whether in the form of deposits or debentures, he would probably best remember his encounter with C.B. Bhave, [current chairman U.K.] Sinha's predecessor at Sebi. Bhave had put his foot down on clearing the draft red herring prospectus of Sahara Prime City Ltd. This had snowballed into the biggest ever crisis for Roy's empire that he had built brick by brick over 35 years.

One afternoon in June 2010, following normal practice, Roy was ushered into a meeting room adjacent to the Sebi chairman's room on the seventh floor of Sebi Bhawan, the headquarters. According to Sebi insiders, their conversation went something like this:

Roy: The Reserve Bank has prejudiced Sebi officers. They are taking a negative view on Sahara's (initial public offering) application without justification.

Bhave: What's the issue? They are yet to get information they had asked for. Where's the bias? Submit the information. We can have another meeting on this...

Roy: We have taken legal opinion and we are not required to send the information to Sebi.

Bhave: Sebi is not concerned about the legal opinion. Sebi has asked for the information and it needs to be submitted.

Roy: They are voluminous... It's summer and many of my people have gone on leave. It's difficult to collate all information.

Bhave: Let the employees come back from their summer holiday. We will wait.

Roy: If you can clear the application meanwhile...

Bhave: No, no... That can't happen. We need to scrutinise...

Roy (suddenly standing up): Bus, itna hi? (That's all?)
(He had possibly expected the Sebi chief to hint at a way out after Sahara had exerted much pressure on the regulator, but Bhave seemed unperturbed.)

Bhave: Maine jitna bola kafi hai ... Aur kuch bolu? (I have said enough. Should I say more?)

Roy didn't utter one more word; he stood up, greeted Bhave with folded hands in the gesture of a Namaste, and left. The meeting lasted about 15 minutes, over a cup of tea.

Indeed, the [Sahara] records were voluminous. Almost two-and-a-half years and a protracted legal battle with the market regulator later, on 10 September, 2012, a truck with Uttar Pradesh registration (UP-32-CZ-7837) carried aluminium cartons containing documents to the Sebi office at Bandra Kurla Complex. [That was only the first] of 127 trucks that would ferry the documents in 31,000 cartons, unheard of in India's corporate history.

Initially, Sebi did not allow the trucks inside its premises and was unwilling to accept the documents beyond office hours or in installments. The Supreme Court deadline set for supplying the data to Sebi had expired on 10 September.

The Supreme Court had on 31 August, 2012 directed two Sahara companies - Sahara India Real Estate Corp. Ltd and Sahara Housing Investment Corp. Ltd - to refund to investors in three months all the money they had collected by selling optionally fully convertible debentures, or OFCDs, decisively ending a three-year tussle between the regulator and Sahara in favour of Sebi.

India's highest court had upheld the order of the market regulator and that of its appellate tribunal directing the two firms to refund the money after accusing them of violating regulatory norms by raising money through the debentures from the public in the guise of private placements.

Sahara in a 12 September statement said the documents had been stored in warehouses in Lucknow, the place of Sahara's headquarters and the capital of Uttar Pradesh. A few trucks left Lucknow on 7 September carrying the first consignment of papers but they were delayed due to monsoon rains and couldn't reach the Sebi office in Mumbai before the deadline expired.

Assuming that each of Sahara's 30 million investors - that's equal to the population of Malaysia - had just one A4 size document each to account for their investments in Sahara's debentures, the papers stacked up in a pile would be 3,800 metres tall, or 52 times the height of the Qutub Minar.

The documents are stored at the office of Stock Holding Corp. of India Ltd (SHCIL) House, at Mahape, Navi Mumbai. It's one massive building spread across five acres - one kilometre away from the Thane creek hazardous waste disposal facility. The vast storage space at SHCIL was built to store share certificates. It used to buzz with activity until the mid-1990s, when Sebi introduced dematerialisation of shares - for holding securities electronically - after a duplicate share scam hit the Indian market. With a 3.2 million cubic feet of storage capacity spread over four floors, SHCIL has four bays - each 12.2 metres high, 100 metres long, and 15 metres wide. Through the use of robotics, SHCIL is able to locate any document in just three minutes and deliver it at a client's office in Mumbai within hours and outside the city in 24 hours.

Over 100,000 square feet of storage facility is maintained three floors below ground. For days, at 9.30 am, migrant labourers called dehadis unloaded the Sahara cartons from the trucks and took them to the ground floor of the storage unit. The cartons were sent to the underground facility through conveyor belts where robots arranged them. The scanning room is on the second floor of the building. After the documents were scanned, they were kept in labelled metal trunks. Twenty labourers worked day and night for eight days to move the Sahara boxes to the ground floor unit.

SHCIL's task appeared difficult but that's nothing compared with what Sebi might have let itself in for.

The regulator needed to check whether the documents were genuine, for which it could hire experts, consultants and even investigators. The process was painful. There is, for instance, an investor by the name Kalawati. The document related to her doesn't list the names of her father or husband. Her address doesn't include a door number, street or locality. The name of her agent is given as Haridwar which is also the name of a pilgrimage city in Uttaranchal. Kalawati figures 5,984 times in different locations on Sahara's list of investors, according to an Indian Express May 2013 news report.

Sebi attempted a snap verification of any four addresses from a randomly selected locality in Mumbai. It took the help of India Post to find the investors at the addresses given but could not trace them. It could identify two who had invested in the contentious OFCDs. These investors said they had put money into the OFCD issues on being approached by Sahara agents. The investors had no association with the Sahara group.

That blew the lid off Sahara's argument that its OFCDs were privately placed with group associates and not by way of a public issue. This kicked off the bitter battle that Sahara has been fighting nonchalantly with Sebi after conceding defeat in another such battle with India's banking regulator.

The author is Deputy Managing Editor at financial daily Mint