[Mr. Roy has not been
charged with a crime, but the Supreme Court ordered him to be jailed as he
faced a civil suit over accusations that many of the company’s investment
vehicles were illegal and its investors fictitious. The company has said that
it helps about 90 million Indians without access to banks save and invest, and
at its heart, the battle is over whether Sahara is one of the world’s most
important providers of credit to the deserving poor or a huge money laundering
operation for the crooked rich. In addition to being India’s largest private
employer, Sahara claims to be the country’s largest private property owner and
its largest private financial institution. It said it had plans to hire 56,000
people this year and 400,000 by 2017, bringing its total employee base to 1.6
million working in about 4,800 finance offices, as well as retail shops,
hotels, hospitals, housing developments, newspapers, television news channels,
a sugar factory and power generation projects.]
By Gardiner Harris
 |
Ink was thrown at Subrata Roy, chairman of the Sahara Group,
as he arrived at India’s
Supreme Court last week. Credit Associated Press
|
NEW DELHI — Subrata Roy has long been one of Asia’s most flamboyant
billionaires, a bejeweled, modern maharajah who lives on an opulent 270-acre
estate and presides over the Sahara Group, which is, by its own account, India’s
largest private employer. To his allies, Mr. Roy is an up-from-bootstraps hero
who built from scratch a sprawling empire that provides vital financial
services to India’s poor.
But last week India’s
Supreme Court locked him up in South Asia’s largest jail on a charge of
contempt and demanded at least $3 billion to set him free. His company may be
forced to sell or mortgage some of its most valuable assets to pay for his
freedom. Among the jewels in Sahara’s crown are The Plaza Hotel in New York and the
Grosvenor House hotel in London.
Mr. Roy has not been
charged with a crime, but the Supreme Court ordered him to be jailed as he
faced a civil suit over accusations that many of the company’s investment
vehicles were illegal and its investors fictitious. The company has said that
it helps about 90 million Indians without access to banks save and invest, and
at its heart, the battle is over whether Sahara is one of the world’s most
important providers of credit to the deserving poor or a huge money laundering
operation for the crooked rich. In addition to being India’s largest private
employer, Sahara claims to be the country’s largest private property owner and
its largest private financial institution. It said it had plans to hire 56,000
people this year and 400,000 by 2017, bringing its total employee base to 1.6
million working in about 4,800 finance offices, as well as retail shops,
hotels, hospitals, housing developments, newspapers, television news channels,
a sugar factory and power generation projects.
Sahara executives,
several of whom demanded anonymity because of court proceedings, said the
company had done nothing illegal and deserved a Nobel Peace Prize for its work.
Any harm brought to Sahara, they said, could hurt all of India.
But the Supreme Court
concluded that the company either had little idea how to contact millions of
its depositors or many of those small depositors were fictitious, implying that
its billions come from India’s huge black-market economy.
“Is Sahara the Swiss
Bank of India,” a prominent newspaper columnistasked this week, “where the high and
mighty keep their unaccounted money and millions of investors have only lent
their names?”
Suspicions that Sahara
is laundering money have swirled since at
least 1996, when the tax authorities in Lucknow first investigated allegations.
Mr. Roy has never been charged with money laundering and openly boasts of an
unrivaled stable of influential friends. A corporate website includes
pictures of him with President Obama, former President Bill Clinton, almost
every top politician in India in the past 25 years and a bevy of Bollywood
actors.
People close to the
present investigation who asked to remain anonymous because the case was still
being adjudicated said that some of the country’s most powerful politicians
repeatedly called securities regulators in recent years to ask for leniency for
Mr. Roy.
“Why hasn’t the Sahara
scam been denounced by any politician or political party, like every other scam
has?” asked Prithvi Haldea, a securities analyst who sits on government
securities oversight committees. “There’s a deafening silence on Sahara, and
it’s because they’re all complicit.”
Mr. Roy, 65, started
Sahara in 1978 with $32 and a scooter that is now kept on a pedestal at company
headquarters. He coaxed tiny but regular deposits from hundreds, then
thousands, then millions of India’s poor, promising in return to pay for a
son’s wedding, a daughter’s dowry or a grandmother’s operation in a service
that was part bank, part insurance and part investment. He did not demand the
blinding array of documents India’s banks insisted upon, and he and his
employees often appeared at depositors’ homes.
Like many businessmen
in India, Mr. Roy has frequently faced legal trouble. He laughed off
investigations for so many years that he even skipped a Supreme Court hearing
on Feb. 26 that he had been ordered to attend (his 92-year-old mother was sick, he said
later). Angered, the Supreme Court issued an arrest warrant.
The police went to his
estate in Lucknow called Sahara Shahar, which has an artificial lake, its own
gas station, a theater with luxury seats and a 5,000-seat auditorium. Mr. Roy
was not present that day but surrendered the next. He was then taken for the
weekend to a high-end government guesthouse, where his family and lawyers
visited him for days and his personal chef attended to his needs. The Supreme
Court ended those privileges last week, and he is now lodged in Delhi’s
notorious Tihar Jail.
The Sahara case
demonstrates not only the extraordinary deference given the wealthy and
well-connected but the lack of sophisticated oversight of India’s financial
system, according to Ajay Shah, a professor at the National Institute of Public Finance and Policy in
New Delhi.
“India’s present laws
are hopelessly out of touch with what’s happening in the real economy,” Mr.
Shah said.
The World Bank has
estimated that only 35 percent of India’s adult population has access to formal
banking services, and much of Sahara’s business has been based on serving the
remaining 65 percent – rickshaw pullers, tea vendors, farmers and cobblers.
Indian law allows companies to collect cash deposits of as much as $317.
Anything more must be accompanied by a check or other traceable instrument.
Using millions of such
tiny and untraceable deposits, Sahara reported that two of its companies had
created privately placed bonds valued at $4 billion. But Indian law also
requires that investments involving 50 or more people be regulated by the
Securities and Exchange Board of India, widely known as Sebi.
For years the board
peppered Sahara with questions about its bonds, and for years Sahara refused to
provide answers.
“We were challenging
the basic jurisdiction of Sebi,” Satish Kishanchandani, a Sahara lawyer, said
in an interview.
In one letter to the
Securities and Exchange Board, Sahara wrote that it could not answer in detail
because “most of the staff remains on long holidays with their children, due to
summer holidays” — an explanation that prompted the Supreme Court to wonder
derisively whether Sahara was “running a kindergarten where their staff were
expected to be unavailable during the summer.”
Then Sahara said that
it had to collect the information about its own investors before providing that
information, a claim the Supreme Court termed “outrageously ridiculous.”
After more orders by
the board and the Supreme Court, Sahara provided compact discs that purportedly
contained the identities of millions of investors, but Sahara refused to
divulge the disks’ passwords, regulators said.
Then Sahara sent 127
trucks containing nearly 31,669 cartons that it said contained investment
records from 30 million people. The cavalcade caused a huge traffic jam in
Mumbai, location of the Securities and Exchange Board’s headquarters. But
thousands of letters sent to investors by the board have been returned
undelivered.
The Supreme Court’s
cursory examination of Sahara’s investor list led it to conclude that many of
the names “may well be fictitious, concocted and made up.”
The name Haridwar led
the court to note that this was the name of a city, not a person. “In India,
names of cities do not ever constitute the basis of individual names,” the
court’s order stated.
Sahara representatives
responded that the board and the Supreme Court were demanding formal addresses
and responses from people who lived in mud huts. And the company repeatedly
brought to court an investor Haridwar.
“An uneducated person
living in rural India cannot fill out a form and spend money sending it back,”
Mr. Kishanchandani said.
Sahara says it has
already returned $3 billion to investors and given an additional $800 million
to the board, and that is all that is due.
“Our contention is that
we have paid,” Mr. Kishanchandani said. “Asking for more is double-paying. Give
us some concession.”
But Securities and
Exchange Board officials say that Sahara has provided no verifiable proof that
it has paid back its millions of investors.
A 2010 World Bank
study concluded that India’s shadow economy, which includes legal activity that
is concealed from the authorities, is equivalent to a fifth of the country’s
gross domestic product. Most real estate transactions involve bags of
unreported cash, and 85 percent of all jobs are in the cash-based informal
sector. The Indian finance minister, Palaniappan Chidambaram, reported last
year that only 42,800 people had declared income of $158,000 a year, a figure
he said was “laughable.”
Even India’s
traditional banks are increasingly troubled. Loans reported as nonperforming at
40 publicly traded banks jumped 36 percent in Decemberfrom the same period a
year earlier, and many economists believe the problem is far worse than the
banks have admitted. There is growing speculation that the government, which
owns 70 percent of the banking system, may soon have to recapitalize most banks,
a process that will involve a huge transfer of wealth.
The Supreme Court has
ruled that if the board could not find genuine Sahara investors, the money the
company surrendered should be given to the government. With interest, the
outstanding balance is $5.4 billion, the board said Friday.
A Sahara proposal to
pay $400 million immediately and $2.6 billion over the next 16 months was
dismissed by the Supreme Court as “dishonorable.” The company filed a habeas
corpus petition Wednesday, citing Mr. Roy’s “fundamental rights to personal
liberty.” Company representatives were expecting the petition to be heard
Thursday afternoon. If it is rejected, Mr. Roy will have to wait at least 10
days to appeal his imprisonment again.
Sahara representatives
said the company had the financial wherewithal to pay for his release, although
they said the demand to do so was grossly unfair.
“It’s a big
organization. We can survive,” said one official. “But it’s a major pressure on
cash flow.”
Hari Kumar contributed reporting
from New Delhi.
