Sahara investors untraceable, but search empties Sebi coffers

Sebi's quest to locate genuine Sahara investors may be turning largely futile, but the entire process has become a very costly affair for the regulator and its expenses may rise further next year from about Rs 60 crore estimated for the current fiscal.

In the high-profile case involving refund of over Rs 24,000 crore and additional interest of 15 per cent per annum, the Supreme Court had asked Saharas in August 2012 to submit all documents and refund money to Sebi for further repayments to genuine investors after verifying the documents.

Sebi feels that the storage cost payable for the documents submitted by Saharas will go up further in the next fiscal 2014-15 due to receipt of additional documents, such as property title deeds submitted by Saharas, as also due to storage of scanned images, sources said.

The Supreme Court had ordered that all expenses incurred by Sebi in the refund process would be incurred by Saharas.

The regulator has now sought a permission to use a portion of Rs 5,120 crore -- deposited by Saharas for refund to investors -- for settling expenses incurred or to be incurred in the matters for carrying out directions of the apex court.

After months of delay, Saharas finally submitted 5.28 crore documents to Sebi without providing "any authentic database and the documents were dumped at Sebi in a totally haphazard fashion," according to the latest status update of the Special Enforcement Cell set up by the regulator for Sahara case.

Sebi has completed the work of scanning all these documents and has created computer files running into a total size of 70 terabytes (about 20 crore images). A hard disc with such a storage capacity can contain more than three crore songs.

While the scanning job is over, the work relating to data entry may be still continuing, sources said.

While Saharas have denied the charges that the documents submitted to Sebi were "hopelessly mixed up", Sebi felt it necessary that all the documents be scanned and a proper database be created to move ahead with the investor verification and refund process.

It was felt that the database would also make the work of refund processing much more manageable, besides covering the risk of damage to the documents.

In this context, Sebi had awarded a contract to Stock Holding Corporation of India Ltd (SHCIL) for storage, digitisation, scanning etc, for an annual contract value of Rs 25.96 crore and to UTI Infrastructure & Technology Services Ltd (UTI-ITSL) for refund related activities for an annual contract value of Rs 29.87 crore.

In addition to these contracts, Sebi has incurred significant expenses under other heads also with regard to the Sahara case, including towards legal costs and the in-house refund handling expenses, sources said.

The work awarded to UTI-ITSL could not be made operational pending creation of database and on account of certain changes in the methodology for processing of refund claims as per a Supreme Court order passed in May 2013.

Therefore, Sebi has been handling the refund related works in house for the interim period, sources said, while adding that the storage costs payable to SHICL would increase considerably in the next fiscal due to additional documents.

Faced with huge expenses, Sebi asked the Supreme Court last month that it should be permitted to settle the costs incurred by it from the money deposited so far by Saharas.
After depositing Rs 5,120 crore, Saharas claimed that it had already refunded more than Rs 20,000 crore directly to the investors in cash. These claims have been contested by Sebi.

The regulator has already come across large-scale anomalies and a huge number of possibly fictitious investors after analysing truck loads of documents submitted by Saharas to substantiate these and other claims of Saharas.

To locate genuine investors who may have deposited money with Saharas, the regulator also wants to issue public notices in regional language newspapers and through other avenues, especially in northern and eastern states of the country.

Sahara group chief Subrata Roy is currently in Tihar jail.

The months-long analysis, which was conducted with the help of hundreds of scanners, computers and a robotic system installed at a huge SHCIL warehouse in suburbs of Mumbai by hundreds of people, began early last year soon after Saharas delivered more than 100 trucks full of cartons containing documents.

Sebi has finally managed to sort over three crore application forms of investors who were issued OFCDs (Optionally Fully Convertible Debentures), as per claims of Saharas, and close to 2.4 crore redemption vouchers through which the group claimed to have refunded the investors.

The physical documents were first scanned and then given distinctive numbers for easy-storage in the robotic system installed at SHCIL warehouse.

Sebi is separately handling the investor claims that it is getting directly from the public after its earlier public notice last year, wherein those having invested in Sahara OFCDs were asked to send appropriate documents for refund.

The details of these investors are then being matched with those provided by Saharas, although a large number of these direct claims are coming without necessary documents.
Sahara has accused Sebi of being slow on refund and investor verification, but the regulator has rejected these charges.

Sebi began the process of refund to individual genuine investors in May last year after verifying their credentials, while it is waiting for a go-ahead from the court to start refund to genuine investors with multiple accounts.

Later in the evening, Sahara said in its reaction that it was "a highly malicious campaign initiated by Sebi with a very clear intention to siphon off money from the funds that Saharas have deposited purely for the repayment of its investors".

"In order to achieve this sinister goal, Sebi is maligning Sahara's name by stating that there are no depositors, while in the Supreme Court they have stated that in last 15 months they had only digitally listed the documents and no verification has undertaken yet.

"Sahara has provided full details of all its depositors, including those whom Saharas have repaid," the group said, while adding that Rs 5,120 crore given by Sahara was purely for repayment to its investors and "not for any kind of miscellaneous expenses to be incurred by any party."

"Sebi at one end has stated in Parliament that this money is for refund to Saharas' investors only and the money would not be utilised for any other purpose.

"Till now, in Saharas' case, Sebi has not shown any intention to protect the interest of investors, for which it has been constituted," the group claimed.

While directing Sebi to facilitate refund of investors' money after collecting the same from Sahara, the Supreme Court in its August 31, 2012 order had said that "we also order that all administrative expenses including the payment to the additional staff and experts, etc would be borne by Saharas".

The order also said that Sebi, in the event of finding that the genuineness of the subscribers being doubtful, an opportunity shall be afforded to Saharas to satisfactorily establish the same as being legitimate and valid.

"It shall be open to the Saharas, in such an eventuality to associate the concerned subscribers to establish their claims.  The decision of SEBI in this behalf will be final and binding on Saharas as well as the subscribers," the order had said.