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Millennium Post

Sahara verdict cries foul

In April this year, I had written on how various points in a 2012 Supreme Court judgement against the Sahara Group on the basis of an earlier Securities and Exchange Board of India (SEBI) order were clearly erroneous and went against even Constitutional Acts. I had titled the article, ‘The Unputdownable’ as an appreciative sobriquet for Subrata Roy Sahara, the Sahara Group Managing Worker, who, despite various attempts by external entities to pull him down – the English media in India included – has come back with exemplary credentials.

First the background to this case and on the face-off that Subrata Roy Sahara has had with SEBI, and in this I liberally refer to my previous article. The Sahara group, which has issued Optionally Fully Convertible Debentures (OFCDs) since the year 2001 with all relevant government permissions, suddenly got a prohibitory order from SEBI in November 2010 against the OFCDs issued by two unlisted group companies (Sahara Housing Investment Corporation Ltd. and Sahara India Real Estate Corporation Ltd.), despite the government confirming that SEBI did not have any role to play in this regard.

Finally in August 2012 in the Supreme Court, the two Sahara firms unfortunately again received the short end of the judgement, where the judges asked Sahara to pay back the OFCD moneys with interest. The fact is that a few of the statements within the August 2012 Supreme Court judgement seemed to be plain wrong.

From not understanding that in India, investors do have names based on cities (the SC judge, after noticing that a Sahara OFCD investor was named ‘Haridwar’, said ‘One will never find Allahabad, Agra, Bangalore, Chennai or Tirupati as individual names’), to not being clear on how much money was in contention (with figures ranging between Rs 27,000 crore and
Rs 40,000 crore being forwarded by the bench), the judges missed the mark on many grounds.

Not only that, the Supreme Court order resulted in SEBI moving ahead and attaching not just the movable and immovable properties of the two companies involved, but also of other group companies. This mindless move by SEBI goes against the very basis of capitalism and against the distinction between group entities and between shareholders, that the Indian Companies Act clearly defines. As a basic tenet of capitalist business, no sensible investor would ever invest in an Indian company in case SEBI starts transgressing this clear line. That’s one reason a company’s losses cannot be recovered from its shareholders or from any other group company’s accounts.But that’s what SEBI decided to do.

They made a plea to Supreme Court on 30 July 30 2013, strongly requesting the Supreme Court to act against Subrata Roy Sahara for not following the earlier Supreme Court order, and that too simply because he is, as per SEBI, a shareholder holding a 70 percent stake in the companies. This is despite the fact that Subrata Roy Sahara is not a director in those companies, and he cannot be held legally liable. I consider this behaviour of SEBI similar to kangaroo court proceedings.

SEBI also pleaded to the court that the Sahara Group was a single economic entity and any group company’s commitments were liable to be paid by the other group companies. In a brilliant turnaround, the Supreme Court judges refused to accept SEBI’s contention. ‘...The other [Sahara Group] companies have not given any [such] undertakings,’ Justice Radhakrishnan commented, while Justice Khehar flatly questioned the SEBI counsel, ‘Each of these [Sahara Group companies] are individual companies; to what extent can we proceed against their assets?’ The SEBI counsel, having no plausible reply as of then, said he’ll argue the point later. One should also note that SEBI pleaded in the Supreme Court that Sahara Group’s newspaper advertisements berating SEBI and bringing out SEBI’s clear misrepresentations, amounted to contempt of court. To this, the bench, after studying the advertisement in contention, amusingly replied to the SEBI counsel, ‘This is not contempt [of the court].

The expression used in the advertisement is for you.’ In conclusion, all I can say is that while the August 2012 case against Sahara seemed to be faulty, the recent reconsideration by the Supreme Court of a few critical issues that have the potential to destabilise the tenets on which capitalism is based, is an extremely positive step and one badly needed to rein in the so-called market regulator which has suddenly become obsessed with lynch-mobbing Subrata Roy Sahara and his group of companies. As I had written in my previous article, while Subrata Roy represents the other India, what I call Bharat, the English media just can’t handle the trust this other India holds in him and his Sahara group of companies.

It is time we start changing such a mindset and ensure that capitalism and capitalists are not punished purely because one market regulator decided that they could make the rules and break them whenever they wished. And this change has to be initiated by the Supreme Court at the earliest.
The author is a management guru and director of IIPM think tank
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