Why Subrata Roy is reluctant to pay dues to investors?

Ever since Subrata Roy took Sahara Finance—where he had joined a little earlier as an employee—in late 70s, the ‘managing worker’ of the so-called Sahara Parivar has seen his business empire going from strength to strength. Roy seeded his empire on a simple business model— accept deposits of very low amounts from low-income investors as a residuary non-banking company. Between early 1990s when he moved his base to Lucknow, Sahara diversified to real estate, media, entertainment, tourism, healthcare, and hospitality, supposedly becoming the second-largest largest employer in India—just behind Indian Railways—with more than one million employees.

The Hindi newspaper Rashtriya Sahara, Aamby Valley City project near Pune, Sahara TV, Sahara Time (English newspaper), Grosevnor House Hotel in London and Plaza Hotel in New York City...the list of Sahara’s businesses and assets kept on growing.

But all that suddenly and dramatically changed on February 26, 2014, when the Supreme Court ordered the arrest of Roy for failing to appear before it in connection with the Rs 24,000 crore deposits his company has not refunded to investors and was arrested a few days later by Uttar Pradesh police and eventually put behind bars at Tihar Jail.

The apex court, which over the last one-and-a-half years extended the time period for Sahara to make payment to release Roy from jail and seemed to have exhausted most of its options, has finally seemed to be making some headway in its bid to squeeze the money Roy owes to investors. It said, it is considering appointing a receiver for Sahara's properties given that a group claiming Rs 1,85,000 crore in assets is unable to pay a meagre Rs 10,000 crore to set its chief free.

The SC is accused of showing unusual patience and leeway in extending the deadline for Sahara to make the payment. In fact, if we calculate the time from the date of the SEBI order of June 2011 asking Sahara to pay up, the group has had nearly five-and-a-half years to comply. The Rs 24,000 crore originally sought from Sahara has ballooned to over Rs 36,000 crore due to accumulated interest.

All these years—a time period an ordinary citizen of the country without the money power Roy has may not be offered in typical court proceedings—Sahara has found innumerable reasons not to pay. It has said the money is already repaid; it is difficult to locate all its small investors; it is difficult to raise so much money at one go, etc. This is despite the fact that the delay is costing the group a bomb in terms of accumulated interest on the amount—Rs 24,000 crore—it was originally asked to pay. Over the years this has ballooned to Rs 36,000 crore, surging by a mammoth Rs 10 crore a day by way of interest. One is forced to ask why someone like Roy is allowing the dues to surge to crazy levels at the order of Rs 10 crore a day—which any sane person would not want to do—by delaying the payment over and over again.

While there may be some truth in the litany of reasons Sahara has been citing as to why it cannot shell out money to close the proceeding and let Roy walk out of jail, the real clue as to why it is reluctant to pay up lies in the Sebi order of June 2011 - where it found several Sahara investors to be fictitious - and Supreme Court's own final judgment, where too it referred to the possibility of many of the investors being ‘benami’ ones.

If the real owners of many of Sahara’s assets are fictitious or ‘benami’, then it will be really difficult for Sahara to sell of those assets to ensure release of Roy from prison.

On the other hand, when there is apprehension that many of Sahara's investors may not exist, the best thing for the court to do is to appoint a receiver so that the real ownership can be investigated and the assets can protected from being transferred clandestinely. Positively, after many missteps, the apex court is finally moving in that direction.

Image credits: Indiatimes