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Refund To Investors: Sahara Lashes Out Against Regulators

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Hours after the Supreme Court judgment directed the group to repay Rs 17,400 crore of investors' money along with 15 per cent interest, the Sahara group sought to comfort its depositors saying there was nothing to worry about and that there wouldn't be even a day's delay in repayment. "Sahara is the most honest custodian of your money and by the grace of God, we are so healthy that there cannot be even one day delay in any payment commitment of Sahara," a release from Sahara said.

"Here we want to inform all our Hon'ble Depositors and investors that you need not worry about anything and be at absolute peace...," Sahara said in the statement.

“The RBI in 2008 killed our financial inclusion-based RNBC (residual non-banking finance company) activities and gave us seven years’ time to repay our depositors, which we cleared in just four years,” Sahara said.

In an "emotional" outburst against regulators for repeatedly questioning the source of all its public deposits and investments, the Sahara Group challenged the authorities to find any 'benami' (illegal) money with the group.

The Supreme court ruled on 31 August that unlisted conglomerate Sahara, one of India's biggest groups and a household name through its cricket sponsorship, must refund Rs 17,400 crore  raised by "dubious" means from 2.3 crore small investors.

Friday's judgment underscored an increasing assertiveness by the judiciary and regulators as businesses and financial markets expand at a fast pace in Asia's third-largest economy.

K.S. Radhakrishnan, one of the two judges ruling on the case, said in his order that the ruling demonstrated the need to treat economic offences "with an iron hand".

The sting in the judgment's tail was that Sahara must also pay investors - mostly from smaller towns and rural areas where banking penetration is low - interest at 15 per cent from the day money was paid in.

"Here we want to inform all our Hon'ble Depositors and investors that you need not worry about anything and be at absolute peace...," Sahara said in a statement.

"It is a landmark judgment given by the Supreme Court today which gives a lot of protection to investors," P. Venugopal, a lawyer representing India's market regulator, told Reuters.

The Supreme Court, whose order reaffirmed an earlier ruling that the fundraising did not meet rules, ordered two unlisted Sahara group firms to refund money they had raised with the interest within three months.

From 2008-11, they received Rs 17,400 crore through what is known as an optionally fully convertible debentures.

The markets regulator, the Securities Exchange Board of India, last year ordered the two Sahara firms to return investors their money after it found the fundraising process did not comply with regulations. An appellate tribunal subsequently upheld SEBI's order.

Sahara said the fund-raising was a private placement not governed by rules for public issues. SEBI rejected this, saying a private placement should be limited to 50 investors. Sahara then appealed the order at the Supreme Court.

Founded by Subrata Roy Sahara, Sahara has been the sponsor of the Indian cricket team for more than a decade. It also sponsors the country's field-hockey team and owns a stake in Formula One auto racing team, Force India.

Last month, Sahara agreed to buy a controlling stake in New York's landmark Plaza Hotel for $570 million. It also owns London's Grosvenor House Hotel.

Small Investors
Sahara firms offered seemingly lucrative bonds to investors, promising, in some cases, to return three times the face value after a period of 10 years.

They collected money "without any sense of responsibility to maintain records", Jagdish Singh Khehar, the other judge on the case, said in his order.

"One is compelled to record that the whole affair seems to be doubtful, dubious and questionable," he said, adding financial transactions were not the same as the transactions made with a street hawker or roadside cigarette seller.

Consumer activists have campaigned for months against what many saw as a fundraising scheme that took unsuspecting investors' money.

"They see Sahara on television everyday as sponsor of the cricket team and that leads them to believe that this is the best company," said a spokesman for the Investors and Consumers Guidance Cell, one of the activist groups.