Source :ET :25 NOV, 2010, 02.49AM IST,ET BUREAU
The Sahara Group, known for its political connections, proximity to Bollywood stars and enigmatic chairman Subrata Roy , has received a severe blow from capital market regulator, Sebi.
The regulator has barred Mr Roy and some of the Sahara directors from raising money by issuing securities and also show-caused two group firms as to why they should not be directed to refund nearly Rs 5,000 crore they had mobilised. The move puts a question mark on the long-awaited IPO by the group’s real estate arm, Sahara Prime City, which has been hanging fire since September 2009.
The Sebi order follows complaints by investors that the draft IPO prospectus did not disclose that two group companies — Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Investment Corporation (SHICL) — were issuing convertible bonds.
The regulator, subsequently, found out from the Registrar of Companies, or RoC, that SIRECL had mopped up Rs 4,800 crore while it could not ascertain the amount raised by the other group company. This, according to Sebi, is “material information of interest to prospective investors.”
“Considering the quantum of money solicited by these companies, it is only to be presumed that the prima facie violations have taken place with the connivance of the promoters,” said the Sebi order issued late Wednesday evening. In all likelihood, Sahara will challenge the interim, exparte order.
The Sahara spokesperson said: “They (Sebi) have taken wrong action against us with sole allegation that we have not supplied the document they asked for. We have written earlier in this regard, where it is clearly mentioned that this convertible bond matter is definitely out of the jurisdiction of Sebi and we had given them clear opinion that it is a ministry of corporate affairs’ matter. The clear opinions were given by Justice AM Ahmadi, former chief justice of India; C Achuthan, former presiding officer, Securities Appellate Tribunal; Justice SP Kurdukar, former Supreme Court judge, and few others. All these opinions clearly stated that this matter is not under the jurisdiction of Sebi.”
Besides the Sahara chief, other promoters and directors impacted by the Sebi order include Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Choudhary. All of them have been barred by Sebi “from issuing prospectus, or any offer document, or issue advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever.”
Sahara has argued that the information was not disclosed because the convertible instruments were privately placed and the companies had no intention to list the securities. However, Sebi thinks that since the number of investors subscribing to the securities was more than 50, the offerings were ‘public issues’ and not ‘private placements’. Thus, according to Sebi, the issuances were under its purview.
“It may require detailed scrutiny of the balance sheet of the Sahara Group to examine the flow of funds in and out of the companies. Prima facie, it appears that in the guise of private placements, these companies are rampantly tapping huge amount of money by not disclosing the source of funds by circumventing the applicable framework of law,” said the order.
The resolutions passed in the AGM of the two companies make it clear that the promoters of the companies were completely aware about the mode of raising money, the order said.
As per the prospectus filed by SIRECL and SHICL with the RoC, each company had a project cost of Rs 20,000 crore. Referring to the non-disclosure, Sebi said that it “raises serious concerns for the safety of the funds of the investors who have subscribed to the optionally fully convertible debentures issued by the said companies.”
Sebi’s decision comes almost two years after the group flagship and one of the country’s largest finance companies, Sahara India Financial Corporation, was barred by the Reserve Bank of India from raising money through public deposits.
Following the move, which had come as a big blow, the group began focusing on real estate. A year ago, Sahara Prime City filed the draft prospectus. Enam Securities, JM Financial Consultants, Edelweiss Capital , IDBI Capital Market Services and Daiwa Securities SMBC India were named as lead managers.
The two Sahara companies that have been show-caused have been asked to file their objections within 30 days of the order.
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