The Sahara Fraud Case series 1: A Deep Dive into India’s Billion-Dollar Scam

Sahara India Pariwar was founded by Subrata Roy in 1978 and was considered India’s one of the biggest financial empires. In 2004, Sahara Group was the 2nd largest employer in India after Indian railways, with an employee strength of about 1.2 million.  The group is a financial rescuer for crores of small investors as it promised to double the deposit in 3 years in which money coming from new investors was used to repay old ones. Started as a chit-fund business and expanded to real estate, mass media, retail, hospital, and many more. Sahara owned luxury hotels like The Plaza in New York and Grosvenor House in London owned an IPL team, and also sponsored the Indian cricket team for almost a decade.

Nonetheless, beneath this shining empire laid down one of India's largest financial scams, entailing more than ₹24,000 crore (approximately $3.5 billion at that period) that was illegally gathered from countless small investors. Phony investors, counterfeit paperwork and other related documents, and financial deceit with manipulation—the scam included everything.

A Whistleblower’s Complaint

The first lead to Sahara’s downfall was not any government audit but a complaint from a whistleblower. In 2009 an investor CA Roshan Lal from Indore filed a complaint letter to SEBI (Securities and Exchange Board of India) stating that Sahara groups two companies Sahara India Real Estate Corporation Ltd. (SIRECL), Sahara Housing Investment Corporation Ltd. (SHICL) that some big mess is happening and also raising funds through Optionally Fully Convertible Debentures (OFCDs).

The Investigation and Court Proceedings

Between 1998-2009, Sahara raised around ₹24,000 crore through OFCDs from nearly 3 crore investors. 

On 30 Sept 2009, Sahara Prime City Ltd. a company of Sahara Group filed DRHP for IPO to raise ₹3,450 crore. However, SEBI raised concerns about Sahara's financial practices, particularly regarding the OFCDs issued by other Sahara companies. SEBI questioned whether the funds raised through these OFCDs complied with its regulations. Due to these concerns, SEBI did not approve the IPO and sought further clarification from Sahara. This scrutiny eventually led to a deeper investigation into the group's financial dealings.

In Nov 2010,SEBI stated OFCDs were being issued illegally, as any company raising money from the public and having more than 50 investors is required to register with SEBI and comply with its strict regulations. SEBI suspected that Sahara had bypassed these rules. Sahara failed to provide credible records of how the money was collected. 

In Dec 2010, Sahara appealed in the Allahabad High Court as they claimed that the bonds were hybrid products that did not fall under SEBI's jurisdiction. Instead, they are governed by the Register of Company (ROC) under the Ministry of Corporate Affairs. Sahara stated that it had obtained permission and submitted the red herring prospectus to the ROC before issuing the bonds. Allahabad High Court ordered SEBI not to take any action until a court order is passed.

In June 2011, SEBI ordered that SIRECL and SHICL should stop issuing these bonds and return the money to investors. Sahara contested the case in various courts which eventually came to the Supreme Court of India in Nov 2011 and the Supreme Court stayed the SEBI order. 

 

The Supreme Court ordered the recovery of ₹24,000 crore with 15% interest to investors after SEBI told the court in June 2012 that Sahara India businesses had no authority to issue OFCDs without adhering to market regulator regulations.

Sahara stated on August 30, 2012, one day prior to the Supreme Court's final ruling on August 31, 2012, that it has already paid back 95% of its investors, paying off the majority of their OFCD liabilities, which was approximately ₹23,500 crore, with only roughly ₹2,260 crore still outstanding. According to Sahara, they had already deposited ₹12,000 crore with SEBI to settle this debt, and once interest was added, the total had increased to ₹16,000 crore. Since these repayments were not considered by the Supreme Court, Sahara argues that any further payments now would mean paying the same liability twice.

The 127 Trucks of Documents in Defense 

 

In Dec 2012, SEBI demanded  Sahara to provide proof of investors to verify the refunds. Sahara came up with an outlandish move—On 8 Jan 2013, it sent 127 trucks full of documents to SEBI’s office in Mumbai, containing 31,669 cartons full of over 3 crore application forms and two crore redemption vouchers to SEBI office.

This move backfired to the Group when SEBI examined them, they found that most records were either illegible, incomplete, or fabricated and some applications had the same name and same address. It was seen as an attempt to overwhelm regulators with paperwork and delay the investigation. 

Furthermore, SEBI made four public announcements in over 144 newspapers, inviting Sahara’s investors to claim their refunds. However, since August 2012, SEBI has only refunded ₹64 crore to investors, even though it holds ₹16,000 crore from Sahara.

In October 2014, a surprising revelation emerged—only around 4,600 investors from two Sahara group companies had stepped forward to claim their refunds, despite SEBI's repeated calls for bondholders to claim their money.

Subrata Roy’s Arrest and Legal Battles

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Sahara continued to defy SEBI’s and Court orders claiming that it had already refunded most investors. But when asked to provide proof they always failed. After multiple warnings, the Supreme Court in Feb 2014, issued an arrest warrant against Subrata Roy along with two other directors of Sahara and ordered Uttar Pradesh Police to arrest and send to Tihar jail.

He was granted bail by the Supreme Court on 26 March 2014 on the condition that he would deposit the huge bail amount of ₹10,000 crore but they failed to deposit with SEBI. He remained in Tihar jail for more than two years and was released on parole in May 2016 to attend the last rites of his deceased mother and promise to pay the remaining amount.

Aftermath

Since then, SEBI has been working tirelessly to refund genuine investors, but the challenge remains—where are they? The fact that a sizable percentage of the investors cannot be located fuels more conjecture over the validity of Sahara's financial transactions. Around ₹20,000 crore (with interest) has been consistently deposited by Sahara India into the Sahara-Sebi account.

Even after years only a fraction of ₹24,000 crore has been returned. The government launched a refund scheme in 2023 but most of the investors have not been paid. SEBI has only refunded ₹138 crore as of 2023. Sahara’s empire has fallen but the questions remain about where the money went.

Conclusion 

The Sahara fraud case is one of the biggest scam in India’s history. More than 3 crore of investors were affected and many of them were poor. The scam involved fake records, regulatory loopholes, and courtroom delays. Even after decades, the full truth remains unknown. Was it a chit-fund scheme, money laundering, or something even more sinister? No one knows for sure. But what is clear is that Sahara’s rise and fall is a cautionary tale for investors, regulators, and the financial world.