Sebi to Sahara:Refund money raised via OFCDs with 15% interest

Sebi to Sahara:Refund money raised via OFCDs with 15% interest

Market regulator SEBI on Thursday asked two Sahara group entities to return money collected from millions of investors through an instrument named Optionally Fully Convertible Debentures (OFCD), citing violation of regulatory norms.

As per a Sebi order, Sahara Commodity Services Corp (earlier known as Sahara India Real Estate Corporation) and Sahara Housing Investment Corporation (SHICL) will be required to refund the money raised from hybrid instrument OFCD to investors along with 15 per cent interest.

The two companies and its promoter Subrata Roy Sahara, and the directors -- Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Choudhary -- jointly and severally, shall refund the money collected, the order said.

Besides, the regulator has also restrained the entities from accessing the securities market for raising funds, till the time payments are made to the satisfaction of the SEBI.

Although the total amount raised by the two companies is not known, Sahara Commodity has been raising money since 2008, while SHICL began fund collection in 2009.

The companies have been collecting money through different schemes from investors which has been estimated at several millions.

"The companies have kept their issues open for more than three years or two years, as the case may be, in contravention of the prescribed time limit of ten working days under the regulations," it said.

The two companies have failed to apply for and obtain listing permission from recognised stock exchanges, it said.

SEBI also barred Subrata Roy Sahara, Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Choudhary from associating themselves, with any listed public company and any public company which intends to raise money from the public till the repayment is made.

The repayment shall be effected only in cash through Demand Draft or Pay Order, it said, adding the implementation of the order is subject to the directions of the Supreme Court.

"It was observed that SIRECL and SHICL were raising sizable amounts of money from the public without conforming to the prudent disclosure and other investor protection norms which govern public issues," the order said.

Moreover the details of such mobilisation were also not made available in the public domain, it said.

As per the offer document, these companies required Rs 40,000 crore for their projects.

Referring to the new mode of raising funds, the order said it "appears prima facie to be an attempt by companies within the fold of the Sahara India Parivar, to adopt a new mode of fund mobilisation through Cooperatives formed under the Cooperative Societies Act."

"...from a complaint received in SEBI, I understand that the schemes for fund raising under the newly adopted cooperative route have exactly the same features as the OFCDs in question," SEBI Member K M Abraham said.

The order further said the two companies have failed to appoint a monitoring agency (a public financial institution or a scheduled commercial bank) when their issue size exceeded Rs 500 crore, for the purposes of monitoring the use of proceeds of the issue.

This mechanism is put in place to avoid siphoning of the funds by the promoters by diverting the proceeds of the issue, it said.

The two companies have failed to apply for and obtain listing permission from recognised stock exchanges, it added.

Rejecting Sahara's argument that no investor complaint has been filed against OFCDs, the order said, "most major Ponzi schemes in the financial markets, which have finally blown up in the face of millions of unsuspecting investors, have historically never been accompanied by a gradual build up of investor complaints.

"But when financial catastrophes have indeed finally erupted, they do so with little warning and lead to major collapses in the financial markets with disastrous consequences to investors," it said.