FINANCIAL REPORTING

ASSIGNMENT [FIBA204]

Submitted by –
Devopriya Basu
A90904622046
B.com (H) – 3rd semester

Submitted to –
Ms. Manisha Dey

AMITY COLLEGE OF COMMERCE AND FINANCE

KOLKATA
AMITY UNIVERSITY, KOLKATA
 ACKNOWLEDGMENT :-

I would like to express my profound gratitude to Ms. Manisha Dey of

Amity College of Commerce and Finance, Kolkata for her time and efforts
she provided throughout the year. Your useful advice and suggestions
were really helpful to me during the project’s completion.

My understanding of this subject became sharpened through many

discussions with my faculties. I am thankful to them and especially to Mr.
Amirul Sardar, who constantly mentored my progress and guided me
throughout.

I deeply acknowledge my parents and friends for their encouragement,

moral support, patience and understanding during the preparation of this
report. It is my sincere pleasure to thank all these individuals.

Last but not the least, I would like to thank all those who helped me
directly or indirectly during my dissertation.

Devopriya Basu
 TABLE OF CONTENTS :-

S.NO PARTICULARS PAGE NO.

.
1. INTRODUCTION TO THE CASE STUDY: SAHARA INDIA 1-3
SCAM
 KEY TERMS
2. REASONS FOR THE CASE 4-5
3. SOLUTIONS FOR THE CASE 6-7
 ACTIONS TAKEN BY THE GOVERNMENT
 POSSIBLE SOLUTIONS FOR THE CASE
4. CONCLUSION 8
INTRODUCTION TO THE CASE STUDY: SAHARA INDIA
SCAM :-

Subrata Roy is the founder and chairman of Sahara group. It was founded in 1978 at
Gorakhpur. It is a diverse conglomerate with investments in finance, housing, media,
entertainment, healthcare, education, hospitality, information technology and other
sectors. Its subsidiaries include Sahara Prime City, Sahara One Media & Entertainment,
Sahara India Financial Corporation Ltd, and others. However, the company faced a
major fraud scandal that had a significant impact on the Indian financial industry.

The case started when a Chartered Accountant in Indore forwarded a note to the
National Housing Bank, urging the Bank to investigate the housing bonds issued by
Sahara India Real Estate Corp (SIREC) and Sahara Housing Investment Corporation
(SHIC), both headquartered in Lucknow. He also found that the bonds which had
been distributed to numerous investors were not in compliance with the prescribed
regulations.

Due to the lack of resources, the National Housing Bank was unable to conduct an
inquiry to investigate the allegation and the institution transferred the letter to the
Securities and Exchange Board of India (SEBI), the regulatory body responsible for
looking after the framework of the capital markets.

The former Director of SEBI, Mr. Abraham conducted a thorough review of the Draft
Red Herring Prospectus (DRHP) for the purpose of raising equity through an initial
public offering (IPO) for Sahara Prime City Ltd, a real estate company. The DRHP
provided information on two associate group companies, SIREC and SHIC which
were
raising substantial funds from the public through Optionally Fully Convertible
Debentures (OFCD).

Sahara Prime City (SPC) is a subsidiary of the Sahara group of companies which
submitted it’s Draft Red Herring Prospectus (DRHP) to the Securities and Exchange
Board of India (SEBI) on 30 th September, 2009 with the aim of raising funds through
an Initial Public Offering (IPO). The DRHP of SPC contained about 779 pages.
However, there was something confusing information detected in paragraph 49 of
page no. 640.

During the examination of the DRHP of SPC, SEBI found that two other entities of
Sahara Group, that is Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara
Housing Investment Corporation Ltd (SHICL) had obtained funds through methods
that were inappropriate or illegal. As SEBI was conducting its investigation, it
received a complaint on December 25th, 2009 and January 4th, 2010, stating that
these companies were improperly issuing OFCDs.

SEBI's investigation revealed that SHICL and SIRECL, both companies of Sahara
Group, had raised Rs 24000 crore through OFCD from 2.5 crore investors without
obtaining permission from SEBI. According to legal requirements, this issuance of
OFCD should have been completed within a span of 6 weeks. However, SHICL and
SIRECL continued to issue OFCD for a period exceeding 2 years.

After being exposed, SEBI banned Sahara group from issuing new OFCD and told
them to give back the investors' money with 15% interest. But rather than following
the order of SEBI, Sahara group decided to take the case to Allahabad High Court.
SEBI’s order was put on hold by the court in December, 2010, but in April, 2011, the
case ruled in favor of SEBI. Despite losing the case in the High Court, they didn't give
up and appealed to the Supreme Court. The Supreme Court advised Sahara to go to
Securities Appellate Tribunal (SAT). SAT found Sahara guilty and ordered them to
follow SEBI's orders and return the money of investors with 15% interest. Despite
these clear instructions, Sahara went beyond all limits and challenged SAT's decision
in the Supreme Court.

KEY TERMS :

 Initial Public Offering (IPO) : It is the process by which a company offers its shares
to the public for the first time in order to generate funds is known as an Initial
Public Offering or (IPO). It enables the company to become listed on the stock
market.

 Draft Red Herring Prospectus (DRHP) : It is a non – confidential document

which consists of all the biodata and other relevant information of the
company and SEBI uploads it on it’s website.

 Optionally Fully Convertible Debenture (OFCD) : It is utilized by companies as a

debt instrument to borrow funds from the public, with the provision of interest
being offered in return. Optionally Convertible Fully Convertible Debenture
(OFCD) grants investors the opportunity to convert their OFCD into Equity,
thereby becoming shareholders of the company.
 REASONS FOR THE CASE :

The Sahara India scam, also known as the Sahara Group financial scandal, was one of
the largest financial frauds in India's history. The Sahara India scam primarily occurred
due to the following reasons:

1) Sahara India collected funds from numerous investors through unregistered Collective
Investment Schemes (CIS). These schemes promised high profits to the small investors.

2) The Sahara Group continued to run these CIS without the permission of Securities and
Exchange Board of India (SEBI) and other financial institutions, which led to the scam to
remain unnoticed for a significant time.

3) When SEBI began investigating the activities of the Sahara Group and instructed
them to return the collected funds, Sahara refused to comply with rules instructed
by SEBI and took the matter to court. This worsened the situation furthermore.

4) The Sahara Group was suspected of having political connections that possibly
protected them from investigation and legal action for a long time which ultimately
resulted to the prolonged duration of the fraudulent activity.

5) Recovering funds from Sahara Group became very difficult due to their wide
range of investments in real estate and other businesses. The process of identifying
and selling these assets to compensate investors was confusing and took a huge amount of
time.
6) The Sahara Group's financial operations were not transparent and had
complicated corporate structures. This lack of clarity made it difficult for regulators
and investigators to get a fair and true view of the financial health of the company.

7) The Sahara Group had lengthy legal disputes with SEBI which caused delay in
resolving the case and raising doubts about the legality of their activities.

8) The lack of strong and timely enforcement of financial regulations and penalties
against those who violate them has allowed entities such as the Sahara Group to
continue their activities for a long time.

9) The Sahara Group was able to run unregistered investment schemes and avoid
inspection for a long time due to regulatory gaps and weaknesses in the framework.

10) The lengthy legal proceedings and numerous appeals made it more difficult to
resolve the Sahara India scam.

Moreover, The Sahara India scam emphasized the necessity for better regulatory
supervision, stricter enforcement of financial rules, and the restructuring of legal
procedures to enhance the prevention of financial frauds.
 SOLUTIONS FOR THE CASE :

1)ACTIONS TAKEN BY THE GOVERNMENT:

Some of the measures taken against the group in relation to the alleged fraud
include:

a) The Sahara India Group was investigated by SEBI for issuing Optionally Fully
Convertible Debentures (OFCDs) without following their regulatory requirements,
which was illegal for collecting funds from the public.

b) Sahara was instructed by SEBI to reimburse the funds obtained from investors by
issuing OFCDs. The investors who had invested in these instruments were instructed
to be repaid by the company.

c) The Supreme Court of India handled the Sahara India Group case. It ordered the
repayment of funds to SEBI and the attachment of properties and assets of the
group and its promoters to ensure repayment.

d) SEBI started auctioning Sahara Group's properties, including the Aamby Valley
property, to repay investors' funds.

e) The Sahara Group's founder and chairman, Subrata Roy, faced detention for a
prolonged period for failing to comply with the Supreme Court's directives. He was
eventually granted parole, but with specific terms and payments.

2) POSSIBLE SOLUTIONS FOR THE CASE:

To tackle such scams, a mix of regulatory, legal, and preventive actions is necessary.
Here are a few possible ways to address and prevent them:
a) Encourage financial literacy and investor awareness programs to educate people
about the potential dangers of different investment choices. Educated investors are
less prone to fraudulent scams.
b) Ensure accurate financial reporting, auditing, and verification of financial
statements and transactions by implementing stronger auditing and accounting
standards, set by independent auditors.

c) Implementation of strong safeguards for whistleblowers to report financial

misconduct without fear of retaliation. Enhance the legal system's efficiency and
effectiveness to speed up financial fraud cases.

d) Ensure companies adhere to corporate governance regulations, as per the board

composition and accountability, to promote good corporate governance practices.

e) Reducing financial fraud by implementing strict penalties, fines, and legal

repercussions for those responsible. This can effectively deter fraudulent activities.

Therefore, Governments and regulatory authorities can reduce scams and protect
investors by implementing these measures.
 CONCLUSION :

In conclusion, The Sahara India scam is a notable case in India's financial

fraud history. It has revealed the different aspects of the scam, such as the
allegations, investigations, legal proceedings, and its impact on investors
and the financial market. This scam also serves as a reminder of the
challenges and responsibilities in maintaining the integrity of financial
systems. It emphasizes the ongoing efforts to prevent and address
financial fraud, and the importance of vigilance, accountability, and
regulatory reforms to safeguard investor interests and maintain trust in
financial markets.