Volume : 4 | Issue : 5 | May 2015 ISSN - 2250-1991

Research Paper Commerce

Corporate Social Irresponsibility Towards

Investors- a Case Analysis of Sahara Group

Dr. Vijaya Lakshmi

Asso.Professor, St. Xaviers P.G.College, Hyderabad
Kanteti

The purpose of the present paper is to discuss how Sahara Group could raise so much of money without following the
ABSTRACT

prescribed rules and regulations and how did SEBI come to know about the wrongdoings of these two companies. Ultimately
it is the investors who were the losers and this case analyses the corporate irresponsibility of the company in not paying the
investors as promised.. It is understood through the present case that though companies may not always be rewarded for
social responsibility, irresponsibility is not without price.

KEYWORDS Investors, Corporate social irresponsibility, Sahara Group, SEBI

Introduction: It is indicated that the intention of the company was to car-

In the present economic and social environment, issues related ry out infrastructural activities and the amount collected from
to corporate social responsibility and ethics are gaining more the issue would be utilized in financing the completion of pro-
and more importance, especially in the business sector. The jects, namely, establishing/constructing the bridges, moderniz-
failure to account for long-term social and environmental im- ing or setting up of airports, rail system or any other projects
pacts makes those business organizations unsustainable. which might be allotted  to the company from time to time.

Earlier, it was measured in terms of charitable contributions, One of the group company Sahara Prime City Limited intends
consultations with shareholders chosen by the corporation, to raise funds through listing of its shares filed Prospectus to
and the corporation’s own definition of “Best Practices” with SEBI. While processing the prospectus, SEBI received com-
regard to worker safety or environmental impact. Being so- plaint from one Roshan Lal alleging that Sahara group was
cially responsible is the appropriate practice in any corporate. issuing Housing Bonds without complying with Rule/Regula-
Now, Corporate Social Responsibility (CSR) can be understood tion/Guideline by RBI/MCA/NHB, SEBI also received complaint
as a management concept and a process that integrates so- from “Professional Group of Investors Protections” dated
cial and environmental concerns in business operations and a 25.12.2009 and 4.1.2010 which prompted SEBI to ascertain
company’s interactions with the full range of its stakeholders the correct factual position. Any company that wants to issue
like their customers, employees, shareholders, investors, com- equity shares or Debentures or any other market related in-
munity and the environment. strument to the public through the IPO Process has to file a
Draft Red Herring Prospectus or DRHP to SEBI to tell them the
Investors are one of the important stakeholders of any compa- details of the public issue, why they are doing so, their finan-
ny, who fund part of the money by buying shares or a “part cial position etc. It is pretty standard procedure in India.
ownership” in the company. Companies may pay their inves-
tors, dividends — a share of the profits. Modern investors are Thus, Sahara’s case is all about OFCD and its investors. Here is
not short-sighted, they are “strongly interested in a company’s the analysis of the issues pertaining to how events unfolded
overall reputation and public perception, as well as its relation- from 2008 to the issuance of non-bailable warrant to Sahara
ships with specific stakeholders such as customers, employees chief Subrato Roy.
and public authorities”.
Why did SEBI ask Sahara to refund the money?
It is understood through the present case that though compa- SEBI asked Sahara to refund investors because it felt Sa-
nies may not always be rewarded for social responsibility, irre- hara was raising money in violation of capital rais-
sponsibility is not without price. ing norms and certain sections of the Companies Act.
SEBI found that under the garb of an OFCD the com-
Factual Case Summary: pany was running an extensive parabanking activi-
Sahara India Real Estate Corporation Limited (SIRECL) and Sa- ty without conforming to regulatory disclosures and in-
hara Housing Investment Corporation Limited (SHIC) , are the vestor protection norms pertaining to public issues. 
two unlisted companies floated in 2008, controlled by the Sa-
hara group worth of Rs.2.75 lakh crore . What is Sahara’s justification?

The two companies have raised about over Rs 24,000 crore Sahara challenged SEBI’s order saying the capital markets reg-
from more than three crore investors by issuance of Optional- ulator did not have any jurisdiction over the group companies
ly Fully Convertible Debentures (OFCDS) and mobilise lucrative since they were not listed. The court dismissed Sahara’s peti-
investments promising, in some cases, to return three times tion, also hauling it up for not complying with its orders.
their face value after 10 years,  by passing Special resolution
U/S 81(1A). An Optionally Fully Convertible Debenture is just a What orders did Sahara not comply with?
kind of Bond that can be converted into Equity Shares by the The court directed Sahara to furnish details of the OFCDs it
investors if they want to. So, this is a kind of hybrid market had issued including subscriptions and refunds within 10 days
instrument that would come under the jurisdiction of the Se- and submit these to SEBI. It also gave Sahara 90 days to de-
curities and Exchanges Board of India (SEBI). posit roughly Rs 24,000 Cr. SEBI which was given powers to
freeze Sahara’s accounts, attach properties etc. Sahara has re-

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Volume : 4 | Issue : 5 | May 2015 ISSN - 2250-1991

peatedly missed deadlines to comply with the Supreme Court’s Thirdly, Sahara’s all or any of the estimated 30 million Sa-
orders. It claims the total money due is only Rs. 5,200 Cr, as hara subscribers could be “fictitious”. “there may be no
the balance amount has already been repaid. SEBI meanwhile, real subscribers”, or that fictitious subscribers are mixed
told the court that while it had begun the refund process; it in with the real ones. And yet, despite advertisements in
couldn’t trace many of Sahara’s investors as details submitted papers and other strenuous efforts, the market regula-
by Sahara were not in the prescribed format, with addresses tor has not been able to find investors of more than Rs 10
and other details missing in some cases. crore.  If the Sahara investors are fictitious, SEBI doesn’t re-
ally have a role as it is mandated to deal with real inves-
What has the supreme court done today? tors, and some other agency should look into the case.
Since Sahara hasn’t been able to deposit the Rs. 24,000 Cr And if Sahara’s claim of having repaid its investors is true,
amount with SEBI, the Supreme Court has asked Sahara In- Subrata Roy and the two directors shouldn’t be in jail. 
dia to submit a bank guarantee for Rs. 20,000 Crore before
2014,October 28th which is the date for the next hearing of Fourthly, this case should serve as wake-up calls for authorities
the case. SEBI had earlier rejected Sahara’s offer to secure the such as the  Income Tax Department  and the Enforcement Di-
difference (between Rs 5,200 and 24,000) through immovable rectorate to follow the money trail more closely. Different reg-
property entrusted with a bank trustee.  ulators and enforcement authorities should clearly act to avoid
duplication and enable better deployment of resources. The
In March 2015, the court had directed two Sahara group government has formed a panel of retired and serving bureau-
companies — Sahara Real Estate and Sahara Housing — to re- crats, called the Financial Sector Legislative Reforms Commis-
turn around Rs 24,000 crore with interest to nearly 3 crore in- sion (FSLRC), to rewrite and harmonise some 60-odd financial
vestors through market regulator SEBI in Aug 2012. The firms sector laws.
were later allowed to pay up by February 2013. So, the total
dues have now gone up to Rs 40,000 crore with the accrual
of interest.
Conclusion
What lessons are learnt from Sahara case? Sahara’s misdeeds are considered as an eye-opener in sever-
This case is about the corporate social irresponsibility towards al respects about the uncertain dealings inside the corpo-
investors and failure of corporate Governance mechanism of rate-houses and it brings in to being the need for protecting
Sahara Group. It raises questions for both law makers and the interest of several millions of investors, who invested their
regulators. hard earned money in such socially irresponsible corporations.
SEBI proved to be effective machinery in tackling the case to
Firstly, is India’s regulatory framework equipped to consistently an extent but still it has a limitation of regulating unlisted
detect, halt and penalise such organised efforts? The court’s companies in India. The reasons for such scandals are several
order lays out how two Sahara group companies made “a including lack of transparency, weak provisions, political nexus
pre-planned attempt” to “bypass the regulatory and admin- and above all, ignorance of investors. In the light of Sahara
istrative authority” of the Securities and Exchange Board of case, it is the responsibility of the government and its various
India (SEBI). The regulator should take steps to institutionalise agencies to protect the interests of investors and nation as
the elements that led to this rare victory in court. well through putting in place necessary provisions in accord-
ance with the changing requirement of market.
Secondly, the case highlights the issue of intelligence gather-
ing and co-ordination among different financial sector regu-
lators. The controversial money-raising operation followed a
ban on Sahara’s para-banking activities by the Reserve Bank
of India in 2008. Sebi was, however, only alert to the opera-
tion two years after Sahara started, that too when one of the
group companies came to the regulator for a “legal” public
issue. The level of interaction between the different financial
sector regulators is clearly insufficient. The only regular forum
for interaction, the Financial Stability and Development Coun-
cil  (FSDC), concentrates on macro-prudential matters. More
active co-ordination is needed at the grass-roots level.

REFERENCES

SEBI Bars Subrata Roy from Raising Funds”. Outlook (magazine). 24 November, 2014 . | | “Investor fraud case: Sahara Group chief Subrata Roy grilled by Sebi over assets”.
Indian Express. 27 March 2014. | | “SC gives Sahara 3 weeks to secure investments”. Business Standard. 20 January 2012. | | “SAT upholds SEBI order on Sahara to refund
money”. The HinduBusiness Line. 8 October 2011. | www.hindustantimes.com › India-News › India | | Corporate Accounting Fraud: A Case Study of Satyam Computers
Limited by Madan Lal Bhasin. | | Sebi.com | http://www.business-standard.com/article/opinion/learning-from-sahara-112090300069_1.html,retrieved on 21st April 2015 |
http://www.business-standard.com/article/companies/sebi-vs-sahara-5-things-you-need-to-know-113100400713_1.html, retrieved on 21st April 2015 | http://indiatoday.
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