Sahara refund case: No contempt of court if

there're no means to pay, Ram Jethmalani says

ET Bureau | Aug 14, 2013, 10.07AM IST

NEW DELHI: The Sahara Group, which is facing contempt of court for violating
orders to refund investors' money, has argued that a company cannot be pulled up
for not meeting contractual obligations if it does not have the means to do so.

"Simple default is not enough. It must be in bad faith; not mere omission, but
verging on dishonesty; not a debtor in distress," Sahara's lead counsel, Ram
Jethmalani, told a two-judge bench of the Supreme Court on Tuesday.

"The court will take note of the fact whether the debtor had the ability to pay and
avoided paying. It will also take note of the other pressures on assets."

Last year, the top court had ruled that Lucknow-headquartered Sahara had
violated capital market rules while collecting 17,000 crore from investors
for finance schemes run by two group companies, and ordered a full refund of Rs
24,000 crore (principal with 15% interest) throughmarket regulator Sebi by August
31, 2012.

According to the market regulator, Sahara, which has missed two payment deadlines,
the last being February, has so far paid a little over Rs 5,000 crore toward the refund.
Sahara's promoter, Subroto Roy, and the directors of the group companies involved
(Sahara India Real EstateCorporation Ltd and Sahara Housing Investment Corp)
have been served two contempt notices in this case - the first was by Sebi and the
second was issued by the Supreme Court last month.

Citing an earlier ruling by Justice Krishna Iyer, Jethmalani claimed that no contempt
of court will lie if the debtor does not have the means to pay, nor will contempt lie in
a money decree. A money decree can only be executed, he argued.

Contempt proceedings are summary in nature and since a jail term is involved, the
contempt would have to be proved beyond doubt as in a criminal case.
"A debtor cannot be jailed for failing to meet his contractual obligations if he doesn't
have the means to pay, unless there is a mens rea (intent to violate the order),"
Jethmalani argued. "If he has and refuses, then he can be. But if he once had the
means and now doesn't, or he has but has other pressing claims, he can't."

Jethmalani cited international covenants, which say that incarcerating a person for
his inability to pay would be against all principles of "human dignity" and also
violative of the Indian Constitution, which guarantees every citizen the right to life
and personal liberty.

Sahara's counsel also claimed that the group had been honest with its investors and
had returned money wherever demanded.

"No investor has complained so far. We have paid and want to pay (in future). We
have approached banks for loans but they have said no because of the perception
created about us."

Jethmalani also claimed that Sahara had paid back most of the money to investors. A
"simple construction by a layman" of the August 31 order would mean that the
company was obligated to pay back all the money, even after the court's specific
order to pay it to Sebi. He cited figures to claim that Sahara had paid back Rs 22,117
crore to investors till September 2012. "There was no prohibition on payments," he
said.

The Supreme Court bench, comprising Justices KS Radhakrishnan and JS Khehar,

sought to know if this redemption figure had been disclosed under oath before any
judicial fora.

"This was a defence that should have been taken before the order," Justice
Radhakrishnan observed. Jethmalani sought more time to prove that the redemption
claims had been submitted to a court earlier.

He also cited a letter written by Sahara to Sebi after the August 2012 order in which
it enumerated the steps the company was taking to collate papers relating to its pan-
India investors, including information on the refunds, to claim that there was never
any intention to "willfully disobey" the court order.

"How could we be said to be willfully disobeying? If I have still committed contempt,

send me to jail," Jethmalani said, referring to Sebi's contempt petition.

Arguments in the case will continue on August 26, when Sebi counsel Arvind Datar is
expected to counter Sahara's arguments.
"Lack of means has been created because of the way the SC order has been
interpreted by SEBI, he said adding "banks refused to give us loan and a perception
has been created we have taken away thousands of crore of investors' money."