Sahara Scam: The Story of Trust and Betrayal

10 Oct 2020  Read 2668 Views

The Sahara group (SG) has been a prevalent name in every Indian household, from the time MS Dhoni became a sensational cricketer and also became a household name through so many advertising campaigns.

What this means is that even India's favourite cricketer could not have predicted that SG will be called out for market abuse when he got into business with this company. 

If this incident doesn't jog one's memory or if someone has missed it, what one needs to know is that there are numerous allegations that prove how the Sahara group was fooling thousands of low-income class Indians and a large market in India, for almost 30 years under the nose of our jurisdiction, seamlessly.

The Sahara scam or Sahara chit fund scam is one of the biggest corporate scams in India. This scam came to the limelight because of the aggressive conflict that caught the Sahara Group and SEBI (Stock Exchange Board of India) in a heated fire for almost five years. 

So, when did it all start?

Subrata Roy, who is the founding chairman of the Sahara Group (an Indian conglomerate) earlier had a business of chit fund. 

In the chit fund business, Roy would increase the money of wage workers by providing them with some interest on the money which these workers would initially submit to him, as a means to carry out the duty of a bank in rural areas. 

The policy that Subrata Roy followed in this chit fund, also became the basic ethical principle for the SG conglomerate, as it grew under him. 

However, the key difference in his previous business of chit fund and SG was that he actually did return the money of the wage workers in the former business. 

But soon, when he realized how easily uneducated individuals could be scammed, he took advantage of these wage workers, and of their trust that he had so easily gained because of the honesty he displayed in the early days, to make his own pockets heavy. 

Growth stage of the Sahara Group 

After having built a reputation of trust about himself, Roy recruited several agents who were asked to bring in investors to this very same chit fund, on a commission which led to the establishment of this business's headquarter in Lucknow.

Here, this chit fund diversified into a reputable conglomerate having a foot in different sectors of finance, real estate, household, sports, infrastructure and manufacturing etc. 

As the company grew, the need for agents grew too, which directly contributed in creating several job openings for the Indian youth. In 2004, Time Magazine called Sahara Group as "India's second Largest Employer" after the "Indian Railway". 

Due to the diversification of sectors, the growth rate of this company was unimaginable. In 2011, Sahara had a huge market capitalization worth US$ 25.94 billion as of March. In 2012, Subrata was named as one of "The 10 most powerful people in India" by India Today.

How did they manage to carry out the scam?

The Sahara scam was mainly focused on two companies that were associated with SG, that is Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL).

Before getting into the Sahara scam, you should know about the IPO (Initial Public Offering), DRHP (Draft Red Herring Prospectus), and OFCD( Optionally Fully Convertible Debentures).

What is IPO, DRHP and OFCD?

IPO expands to Initial Public offering/giving, which is a method through which a private corporate pursues to become a public corporation by making its shares available to the investors (who further can judge the potential of a particular company and buy those specific shares for their own profit) at a stock exchange platform, to grow their fresh capital. 

Through commercialism, the company gets its name listed on the stock exchange market. 

DRHP is like a biodata of a company which holds all its relevant information such as the name of the promoter, managers' details, objectives, past performance, the balance sheet of the company, etc. 

When a company wants to raise fresh capital and wants to get listed on the stock exchange, it needs to submit DRHP to the SEBI who uploads this document on its official website, and final approval for enlistment is given. 

In OFCD, Debentures means Debt/Loan by which the company can borrow money from the people and return their money with some interest. OFCD is a type of debenture in which investors have options to convert their OFCD into equity, and they can become a shareholder of the company. 

If a company issues its OFCD to more than 50 people, then the company must inform the SEBI and take their permission for the further process.  

The Sahara Scam

On 30th September 2009, a company named Sahara Prime City (SPC), which was associated with SG announced that they wanted to make their company public to raise new fresh capital through an IPO, for which they had to submit DRHP to SEBI for the enlistment of the company on the stock exchange platform. 

SEBI uploaded the 779-page document online, where a big revelation was noticed on para 49 of the page no. 640. 

SEBI found out that two other companies of SG, which were Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL), we're raising funds for SPC illegally. 

While SEBI was investigating SPC, it also received complaints against SIRECL and SHICL, on 25th December 2009 and 4th January 2010 respectively, saying that these two companies were inappropriately issuing OFCD. 

SEBI then started to investigate vigorously into this illegal activity of SG and found out that the two associated companies of SG, SIRECL, and SHICL, have raised the OFCD worth 24000 crores from 2 to 2.5 crore investors and were still issuing OFCD for over 2 years without informing SEBI.

Denying the claims

After finding out about this illegal process of the company, SEBI banned the Sahara Group and asked it to return the investor's money with 15% of interest.

However, SG, in return, filed a case against SEBI in the Allahabad court instead of following their orders and won (which later was found out was a false win indeed).

In April 2011, the Sahara Group lost its case, but it challenged the Allahabad court's verdict in the Supreme Court.

The Supreme court suggested the company approach SAT( Securities Appellate Tribunal) and Sahara did the same. But SAT in its verdict declared the company guilty and ordered them to follow SEBI's order by returning investors' money with 15% interest.

However, the Sahara Group did not stop there as they challenged this verdict too!

Declared as a case of Money Laundering

In August 2012, the Supreme court found SIRECL and SHICL companies guilty and ordered them to submit the investor's money to SEBI with the interest rate of 15% under 3 months. 

The Sahara Group sent 127 trucks to SEBI filled with documents in boxes that contained the details of investors. SEBI rejected some of the trucks because they crossed the deadline of the submission. 

A team of 40-50 SEBI agents analyzed those documents and found out that the information filled in those documents were not complete and realistic. At this point, SEBI had sensed that this could be a Money Laundering case.

The Sahara Group did not return the money within 3 months as per the Supreme court's order, but later the first installment of 5120 crores was paid to SEBI. 

Out of 2.5 crore investors, only 4600 investors came forward to claim their money, and therefore, the court asked the Sahara Group to submit the proof that they had returned the investor's money and source of the money.

However, SG failed to do so. 

The Supreme Court found this case as a matter of fictitious and froze all bank accounts and assets of the Sahara Group. Finally, on 28th February 2014, Subrata Roy and the other two directors of the company were arrested by the police. 

In November 2017, the ED (Enforcement of Directorate) filed a case of Money Laundering against the Sahara Group.


The Sahara Group did not learn from their past mistake and ended up doing a bigger scam. At one point of time, the SG was the biggest corporate group in India, and the number of workers working there were around 14 lakhs. 

In May 2016, the Supreme court granted parole to Subrata Roy as his mother had passed away. Since then, Roy has remained outside of jail as his parole got extended multiple times by the court.

Sahara means 'Supporting someone', and the name of the company was "Sahara India Pariwar" which gave people hope that investing into the Sahara Group will give them the financial support they needed. This acquired trust in people's minds, made them invest their hard-earned money into the Sahara Group.

Little did anyone know that instead of supporting them, the Sahara Group will play with the people's emotions and leave them to suffer from an adverse financial crisis.

It's been years since the Sahara scam happened and people are still hopeful that they will get their investments back. However, the fog is still dense.

About the Author: Divyanshu kumar | 10 Post(s)

Divyanshu is currently pursuing a Master's degree in Financial economics. Growing up, he has always been interested in codes and numbers which he has gradually learnt to express in words too.

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