Subrata Roy No More: How An Effort To Get Listed On Bourses Busted The Sahara Empire

Subrata Roy's story that started as a tale of rags-to-riches, ended in despair.

New Delhi: Sahara Chief Subrata Roy breathed his last on Tuesday (14th November 2023). Roy's death has once again led to the rewind of story on his meteoric rise from a humble family background, becoming the owner of multi-million empire and eventually landing up in jail.

Subrata Roy's story began as a one that has 'rags to riches' element, but also one that ends up in despair.

Roy began with a meager sum of Rs 2,000 in 1978 and built a business empire that estimated several thousand crores, however had it not been a critical misstep, Sahara's money generating mechanism would have endured further.

Sahara continued to operate for years despite regulatory clamp-downs at various point of time. However Sahara got the major and final blow in 2008, with RBI barring Sahara India Financial Corporation from raising fresh deposits. The company had issued optionally fully convertible debentures (OFCDs) under two company banner --Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) with an intention to raise Rs 20,000 crore each.

It was reported that the Registrar of Companies (ROC) played a pivotal role by approving the proposal without posing fundamental inquiries. The dodgy nature of both SIREC and SHIC was underlined by their meager net worth. While SIREC was shown to have an equity capital of only Rs 10 lakh and a negative net worth, SHIC's net worth was approximately Rs 10 lakh. And what caught the regulatory attention was that despite such financial constraints, both entities aimed to raise Rs 20,000 crore each --an incongruity that should certainly have raised several eyebrows. 

By issuing these OFCDs under the guise of private placement, Sahara violated multiple laws. However, what became a chink in our armour was Subrata Roy's ambitious IPO dream. He opted to raise funds through Sahara Prime City in the stock markets that dealt him a severe blow. In order to file the IPO, the company was obliged to submit a Red Herring Prospectus, divulging the operational and financial details of other group entities. 

It was during this process that K M Abraham, a whole-time director of Sebi, identified irregularities in Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC), revealing that the funds garnered through OFCDs were disguised as private placements.

The irregularities led to his arrest in 2014 for failing to refund Rs 20,000 crore investor money.