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Will Subrata ‘Sahara’ Roy’s troubles with SEBI and the SC ever end?

Cell-By Date
Illustration by Saahil
Cell-By Date
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FAQ
Why ‘Sahara Shri’ is in the spot that he is today

How did SEBI vs Sahara begin?
Sahara Prime City prop­osed an IPO in ’08; two sister firms, SIRECL and SHICL, caught SEBI’s eye. They had issued OFCDs worth Rs 24,000 cr. In Nov ’10, SEBI demanded details of its ‘three crore subscribers’.

Who were Sahara’s OFCD subscribers?
Sahara gave a list to SEBI, which questioned its authenticity. SC asked retired Justice B.N. Aggarwal to verify the list. Sahara still stands by list; says it’s not responsible if people gave wrong addresses.

What action has been taken against Sahara?
SEBI ordered the two Sahara firms to refund investors in June 2011. The SC upheld this in Aug ’12. In November ’12, SEBI files conte­mpt plea. In ’13, Sahara Group told not to part with its properties.

Why was Roy jailed?
In Feb ’14, Subrata Roy fails to show up before the SC for a hearing. Roy placed under judicial custody in Mar ’14. Sahara was thereafter allowed to sell overseas properties to arrange the Rs 10,000 cr Roy needed for bail.

What happens next?
Although technically there is no outer limit to how long Roy can be in Tihar, the SC was clear on Monday, September 8, that Sahara must give Rs 10,000 cr—to refund investors­—if Roy wants to be a free man.

***

Swing into Gate No. 1 of the Tihar Central Jail, turn left on the main thoroughfare of the sprawling complex, past the three-storey director-general headquarters, and about 150 metres before you reach the courthouse is a quaint single-storey building. This is where Subrata Roy, chairman of the Sahara India Parivar, and two of his imprisoned subordinates are staying, having been shifted from the cubby cell of Jail No. 3 a month ago. Walk into the courthouse compound, separated by a perimeter wall from the campus, and cross the lawn to reach the entrance. Six guards—four outside, two inside—keep watch on Roy. You enter the courthouse itself, stroll across the courtyard, where two trees and bushes provide a touch of serenity, to reach a verandah. Before Roy was shifted here, every third Saturday a judge from Tees Hazari came to record probation reports here. On the Supreme Court’s order, the courthouse has now been designated as a jail.

In the rooms beyond the verandah, life certainly is more comfortable for Roy, compared with his five months in the warren of cells. He no longer sleeps atop a cement platform on handspun blankets inside a 15x20 cell, no longer eats Tihar’s bland vegetarian meals (eggs are permitted there, though) and no longer needs to redeem coupons at the jail canteen. This is because now, prison insiders say, Roy has his own cooks preparing meals for him. Other privileges too have been bestowed on Roy, including two ACs, wi-fi and a landline telephone with international dialling, besides computers and laptops. Roy has to furnish details of who he is calling and why, but he is no longer secluded. These benefits come reportedly at a prohibitive Rs 60,000 a day (last Friday, the SC gave Roy another 15-day extension to stay in the courthouse).

The choices before Roy are “unprecedented”, say jail insiders. But it comes at a prohibitive Rs 60,000 a day.

Every day, cars bring 4-5 visitors to see Roy, Ashok Roy Choudhury and Ravi Shankar Dubey, the two Sahara directors now in jail with him. The visitors’ list from May include Subrata’s younger son Seemanto Roy, Vijay Dogra, a Sahara director and other company officials of Sahara firms entangled in the legal battle with stockmarket regulator Securit­ies Exchange Board of India (SEBI). They strategise all day on how the Sah­ara parivar can dispose of three prime hotel properties in London and New York to raise the whopping Rs 10,000 crore bail set by the SC. Should Roy manage this, he’ll get parole immediately, but will have to surrender his passport as an assurance against leaving India without court permission.

The philosophy of imprisonment is to shackle a person’s free will, deny him/her choices. In this sense, Roy’s Tihar stint has certainly expanded the meaning of the word ‘jail’. The choices bef­ore Roy are “unprecedented”, say three jail insiders. No wonder Roy is back in form, making it a point to shave daily, unlike the days he languished in Jail No. 3. By all accounts, it appears the dramatic curtailments he faced during his first five months are over.


Gates closed Visitors leaving the Tihar Jail complex. (Photograph by Tribhuvan Tiwari)

“The Supreme Court has only emphasised supremacy of the law. This is a rare instance where a person’s personal liberty has been lost in this manner. It appears the court has taken note of how murky this case is.”
Mohan Parasaran, Senior advocate, SC, former solicitor-general

It was on March 4 that the UP police escorted Roy to the Supreme Court, after he defied orders to personally app­­ear before it. An unknown young lawyer had thrown black ink at Roy. Roy had looked stunned and upset. Hours later, the court sent him into judicial custody—for contempt of ord­ers—until he raised bail: a mind-boggling Rs 5,000 crore in cash and Rs 5,000 crore in bank guarantees. The first few days, one jail official reveals, Roy was, to put it mildly, distraught. “Those passing by his cell said they heard sighs and sniffles from within,” one official says. However, Roy is said to have quickly regained his mettle. “He’s super-intelligent,” another official says. “Everything’s happening just the way he wants it to.”

Actually, Roy’s fall from grace has been magnified even further because he undertook a series of attention-grabbing cat-and-mouse manoeuvres with the SC over the last two years. It is this which has led to his incarceration by the Supreme Court, a move that raised legal eyebrows. Sahara officials did not respond to e-mails seeking a meeting for this story (for the record, Sahara has ongoing legal cases with Outlook).

The SEBI vs Sahara wrangles began in 2011 when two Sahara companies, SIRECL (Sahara India Real Estate Cor­p­oration Ltd) and SHICL (Sahara Housing Investment Corporation Ltd), were asked to refund Rs 24,000 crore collected through Optionally Fully Convertible Debentures (OFCDs), a kind of hybrid bond, to investors. Sahara has to pay this massive amount to SEBI which will then distribute it to the investors. This SEBI order was upheld by the Supreme Court on August 31, 2012, reiterated in December 2012 and the following year. Of the Rs 24,000 crore, Roy and Sahara have paid around Rs 5,000 crore till now.

Actually, Roy’s arrest wasn’t on at any stage during the three-year SEBI-Sah­ara dispute. At the Supreme Court, Sahara submitted three repayment plans. Though none was cleared, the company always got more time to present new repayment schedules. Against this backdrop, Roy’s incarceration appears to be more a consequence of the personality cult of ‘Sahara Shri’ and the monumental blunders made by the group, starting as early as 2005, than the SEBI-Sahara legal battle.

“Although currently I am not arguing the case, in my professional opinion, the continued incarceration may well be held to be a violation of his right to life under Article 21 and a fit ground for a curative petition.”
Abhishek Manu Singhvi, Cong leader, senior advocate, SC

Thus, on February 20, 2014, when senior advocates Ram Jethmalani and C.A. Sundaram appeared on Sahara’s behalf, an exasperated bench noted that Sahara’s senior counsel were taking “conflicting stands” and asked Roy to appear in person before it on February 26. For some reason, Roy chose not to show up, citing a seemingly hackneyed reason—his mother was “unwell”—as if to cock a snook at the Supreme Court. This triggered a chain of events that ended with his arrest.

Even SEBI’s lawyer Arvind P. Datar says he wouldn’t object if Roy were to leave Tihar to raise money even today. “They (Sahara) can go to the Taj (hotel) or wherever else to do their deals,” he told Outlook. Datar explains, however, that a corporate chairman, which Roy is, has a limited role in striking big-ticket property deals, typically the preserve of specialised agencies. As per documents submitted by Sahara in court, Aamby Valley (Mauritius) and its subsidiaries own two hotels in New York—Plaza Hotel and Dreams Hotel and Retail—valued at $844 million together and The Grosvenor House Hotel Development in London, valued at $830 million. Should Sahara raise the required bail amount from these sales, SEBI will get the proceeds. Sahara’s efforts to sell these properties have floundered. News came last week that the Sultan of Brunei has denied talks to buy Grosvenor House. It would seem that until the bail is furnished, Roy will continue to be Tihar’s guest.

A senior Supreme Court advocate, involved in the SEBI-Sahara case before the 2011 SEBI decision, says Roy has been held in contempt because of Sahara’s “bizarre” moves in court. “If I find a design in their legal strategy I’ll let you know, but so far it appears they (Sahara) have none,” he quips. The situation is bizarre, he says, for “if someone doesn’t have the money, then not ret­u­r­ning it isn’t contempt”. In fact, this was precisely Jethmalani’s argument before the two-judge bench on August 12, 2013: “Simple default is not enough (to be contempt of court). It must be in bad faith, not mere omission.”

Why then did Roy defy court summons and risk his freedom? A lawyer who declined to join Sahara’s legal def­ence team last year says he once successfully represented Roy in court, only to have his acolytes ascribe the legal triumph to his towering personality, not the legal defence mounted. “That’s how personality cults develop and ultimately lead to a man’s downfall,” he says. “It’s clear that Sahara Shri’s image of himself no longer matches reality.”

This was accentuated by submissions that raised doubts about Sahara’s int­en­tions. For instance, Sahara proposed to the SC last November that it would sell 106 acres in Versova, Mumbai, to pay off SEBI. If developed, Sahara cla­i­med, prices on this tract would soar to Rs 30,000 or more per square foot. A princely Rs 19,000 crore might, therefore, land in Sahara’s kitty from just this sale, according to documents Sahara submitted to the SC. Oddly, Sahara forgot to mention that the land was disputed. “We were up till 1 am figuring out Sahara’s offer and discovered pending litigation in Bombay High Court. Not just that, the land is in the middle of a no-development zone. Forget plush suites, you can’t even build a bathroom there,” Datar says.

“I’m sure Sahara’s lawyers will be wondering, why should he be sent to jail for a company that he’s not a director in? I don’t think there’s any precedent for such an arrest, it’s done under the SC’s inherent powers.”
R. Vaidyanathan, Founder, Advaya Legal

Such instances prompted a visibly upset bench of Justices K.S. Radhakr­is­hnan and J.S. Khehar to invoke special powers—one never known to be used before—drawn from Articles 129 and 142 of the Constitution to put Roy behind bars. These powers also relate to contempt of court and “uphold the majesty of law”, explains a senior adv­ocate. “Things came to such a pass because Roy constantly tried to whittle down the court’s dignity,” he says.  The February 25 order for Roy’s arrest (he was escorted to court by the UP police) clearly notes that Sahara’s tactics “undermine the rule of law which we are bound to honour and protect”.

One legal luminary associated with the case draws attention to an “old rule” allowing imprisonment of debtors. “In fact, imprisonment as a way to get someone who has the money to pay up is per­­mitted,” he says, admitting that Roy’s is the solitary instance of its kind. The gra­vity of Roy’s situation is clear in that the SC once prevented a high court from exercising these powers, he says.

Several lawyers directly associated with the SEBI vs Sahara case say the court’s ruling of March 4 is such that Roy may be in prison indefinitely. (There is a precedent for this kind of detention—a case involving custody of a child. One of the parents was in the lock-up for violating a court settlement, and faced repeated jail terms under English law. “The maximum penalty was 24 months but after 23 months imprisonment the court asked the man to comply. His refusal saw the court send the man back to prison for another 24 months, and so on,” says one lawyer.) The legal luminary agrees, “This order (of March 4 onwards) is such that Roy may also constantly be in jail.”

SEBI engaged only one senior counsel for the entire SEBI-Sahara saga, Arvind P. Datar, while Sahara has had virtually a battery of the topmost legal luminaries of India representing it—Fali Nariman, Rajiv Dhawan, Ravi Shankar Prasad (now Union law minister), Abhishek Manu Singhvi (Congress leader), K.T.S. Tulsi, Ram Jethmalani, Gopal Subramanium, Harish Salve and others. At present, the advocate on record for Sahara is the head of the Samajwadi Party’s legal cell, Gaurav Bhatia, a senior advocate in the SC. “This was also Sahara’s strategy: squeeze SEBI’s access to top lawyers,” says Datar.

“The question to be debated is whether there is a reasonable limit for how long someone can be incarcerated under present circumstances—or if the six months limit prescribed under the Contempt of Courts Act applies.”
Gopal Sankaranarayanan, Senior advocate, SC

Some of these lawyers gave up Sahara’s briefs because of the contradictory positions they found each other taking in court. For instance, renowned lawyer Rajiv Dhawan let go of the Sahara file on July 22. On July 4, in the Supreme Court, Dhawan had hotly contested the continued detention of Roy in Tihar before a three-judge bench of Justices T.S. Thakur, A.R. Dave and A.K. Sikri, seeking permission to neg­otiate property deals as a free man for 40 days. The court reserved its order.

On July 22, the court denied parole to Roy. Dhawan reacted to the verdict with “astonishment”. However, Sahara “welcomed” the Supreme Court’s order, perhaps because it had allowed Roy to sell international properties from within Tihar, in a statement quoting Gaurav Bhatia. This, it is said, miffed Dhawan no end. “I didn’t argue for Sahara or Roy that day as their advocate...I did it for I believed he must be freed from Tihar. I personally felt his continued detention was against his constitutional rights,” Dhawan says. Another senior advocate who declined Sahara’s brief says he did so because “there’s nothing left to do in it but grovel. Sure you can growl if you want but that only pulls down institutions, both the court and Sahara”.

So far no investigative agency has probed Sahara’s claims about where it raised the disputed Rs 24,000 crore from, or how much—if any—it has refunded to investors. So far, no investor has come forward with complaints of non-refund by Sahara either. The company has returned Rs 5,000 crore to SEBI and then it claimed, out of the blue in summer 2012, that it has refunded another Rs 17,000 crore, by cash, to inve­stors. SEBI disputes this claim, demanding proof of rep­a­y­m­ent—which it says Sahara hasn’t shown as yet. Only now is the Enforcement Directorate, says a government official, asking to bec­ome a party to the SEBI-Sahara dispute. Should the ED join forces and a probe is undertaken, the focus would shift, naturally, from verifying Sahara’s claims on whe­ther it repaid investors to examining the very source of its funds.

“We were up till 1 am figuring out Sahara’s offer when we discovered pending litigation before the Bombay HC.”

So expect more twists and turns in the case in the near future. SEBI itself ruled that it will refund investors’ money, but identifying them is a massive challenge. “What’s going to happen is, SEBI will not do any verification of investors. They don’t have the means to do it. They will simply send letters to addresses supplied by Sahara,” says the official. So far, this has proved correct. Of the one lakh pages of investor details supplied by Sahara, SEBI has examined a random sample of 20,000. Of these, a source says, only 8,000 responded to SEBI’s letters. “For the rest, there’s nowhere to write letters to,” says this source. No wonder, only around 5,000 people, all claiming sums below Rs 20,000, have sought refunds so far. “The investors’ list appears to be bogus,” a source who is part of the proceedings told Outlook. “In any case, Sahara has to pay up. If investors don’t show up, the government will get the money, as the Supreme Court order says.” A Sahara counsel rebuts the charge: “We have delivered a list as ordered by the court. How can it be presumed false?”

SEBI’s Datar says Sahara must prove repayment. “I looked through their books—and I am also a CA by training—but I can’t find any evidence of repayment.” Essentially, Sahara has cla­i­med that Q Shop, its retail arm, and Sahara India Cooperative Credit Society (SICCS), bought tho­usands of crores worth real estate assets from SHICL and SIRECL. This money was used to repay investors, goes Sahara’s version. But where did SICCS and Q Shop get the money? The company says it got it from another group member—Sahara India, a partnership firm. “Sahara has a vast network of branches and agents that may have collected money—but they must have given people some reason as to why they were raising money, wouldn’t they? It’s this reason I’m trying to get Sahara to tell us,” says Datar. So far, there have been none forthcoming. The wait has been long, in Tihar and outside.

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