Sahara and RBI war : What about Investors ?

Woes of Sahara-owned companies appear to be multiplying. In yet another debacle, the Securities and Exchange Board of India (SEBI) has asked them to refund money raised via optionally fully convertible debentures (OFCDs). Moreover, it has also asked the companies to pay 15% interest to subscribers of OFCDs. This order is subject to Supreme Court's instructions, SEBI said.

This is not all. The market regulator has said that these repayments should be effected only in cash through demand drafts or pay orders. Until then the two Sahara companies, Sahara India Real Estate Corporation, now known as Sahara Commodity Services Corporation and Sahara Housing Investment Corporation , have been restrained from accessing the capital market for raising funds.

Four individuals including Subrata Roy Sahara, Ashok Roy Choudhary, Vandana Bhargava and Ravi Shankar Dubey, too have been restricted from associating with any listed or public company.

It was observed in July 2008 that the two Sahara companies were raising sizable amounts of money from the public without conforming to the prudent disclosure and other investor protection norms which govern public issues. Moreover, the details of such mobilisation were also not made available in the public domain. Thus, the Reserve Bank of India (RBI) had declared deposit taking by Sahara Investment Finance Corp as illegal. SEBI says that around that time itself these two companies began to raise funds and came up with six OFCD schemes.

SEBI says that random checks reveal that these schemes were indeed subscribed to public in general, while Sahara had been saying that these OFCDs were issued privately to people associated with the group. SEBI found that the company did not have adequate assets to secure their own OFCDs and that the magnitude of fund raising was exceeding the assets of the two companies put together.

In fact, the two companies have not yet disclosed the complete amount of money that was raised. According to SEBI’s prospectus, the companies intended to raise approximately Rs 40,000 crore.

In May 2011, the Supreme Court gave instructions to SEBI to look into the matter and pass an order which the court will then look into.

Now, SEBI would initiate appropriate proceedings in accordance with law. The regulator says the companies would submit repayment of completion certificate to SEB