Business Model:

Subrata Roy called this business model collective materialism. It’s a clever mix of modernity &
tradition.
In 2008, two firms -Sahara India Real Estate Corporation and Sahara Housing Investment
Corporation were owned by Sahara and Sahara began to offer optionally fully convertible
debentures (OFCDs) to small investors promising them attractive interest rates .It was the
Registrar of Companies (ROC) that needed to clear these investment vehicles. OFCDs are
similar to bonds, except there is the possibility that they will be converted into equity shares in
the company. The model operated through almost a million agents, who could be local grocers,
milk producers, village authorities, etc. The agents visited individual households to sign up and
collect payments from new investors. With such an impressive agent network, the two firms are
estimated to have attracted almost 30 million investors and raised around $3 billion dollars.

This model became very popular, for several reasons. Many customers came from unbanked
parts of the country and they had no previous opportunity to invest. The agent network offered
great convenience. And Sahara’s brand popularity added a level of familiarity and trust.

Business Strategy:
Raising Fund from unbanked investor: Sahara claimed to seek “financial inclusion” through
investments from the unbanked, but at the same time sought regulatory exclusion for its
practices. Sahara provided investment opportunities to the rural nooks and corners of India that
were overlooked by most major banks.In early days Subrata Roy started scheme where he can
take money from ordinary people who was under privileged, homeless or no permanent address.

Introducing Scheme: Subrata Roy ran a Ponzi scheme by collecting funds from investors. He
promised to return money under terms & conditions. They were called Chits. Through Sahara
people learnt how to make money. They use to say if you deposit 15/20 rupees a day, your
money will become two times in three years. In the beginning people did get their return. This is
how Sahara built their credibility.

Refunding in another scheme: But for another 3 years, Sahara group suggested for another
scheme which is more lucrative. They persuaded their investor to refund their money for 15
years scheme which will suppose to multiply six & half times. As the return is good , the poor
people didn’t take the money out & let it roll over for next year.

Investment of collected money in other business: Subrata Roy, the chairman of sahara group
was very successful in raising the capital from the poor of india. After that they began to use that
of money to buy other sorts of assets including infrastructure and housing, media, entertainment,
retail, manufacturing, and information technology. So there has been increasing public deposit
mobilization.

Agency recruitment policy: During 1980s, Sahara started recruiting thousands of agents to sell
their chit /scheme to million of low scheme investors. Their policy was that at first do investment
then become the agent. The agent didn’t get salary but commissions on sales.
Advertisement policy: In their advertisement , the kind of culture they followed is “Sahara
Parivar- The worlds Largest Family”.They tried to bind people emotionally through family
community. Sahara was advertising that they were patriotic who were working for nations.

SEBI VS SAHARA Case Analysis:

Sahara’s scheme caught the attention of regulators and courts, which determined that it
was designed to bypass the regulatory and administrative authority of the Securities Exchange
Board of India (SEBI) that works to protect investor interests in securities. It is alleged to have
falsified records and subverted Indian regulations.
.
1 SEBI claimed that there is something shaddy as the information of the investor is not
transparent. It has been faulted for its lack of transparency on terms, source, and use of funds.it
works with new investors who is unfamiliar with OFCDs. As they have not kept the proper
records of the identity of its investors, how would they return money?

Additionally, the Supreme Court of India while looking into investor records found several listed
clients to be nonexistent .

But Sahara didn’t accept the matter &took an indirect way of intimidating the market regulations
by sending documents in an incomprehensive way so that it took a long to prove their
authenticity.For example, they sent the name of the investors in one box &the refund vouchers
in another box.

2. The Sahara group had sought money from nearly 30 million investors. The sheer size of the
issue makes it a public issue.
SEBI said that OFCD was a public issue & transferable .

On 31th August2012 the supreme court came in a decision that it is a public issue. As they had
sought money from nearly 30 million investors& the sheer size of the issue makes it a public
issue. As they have not followed the legal requirements,they directed Sahara to refund entire
money approximately 250/260 billion rupees.

On the other hand, Sahara said that Issue of Optimally Fully Convertible Debentures (OFCD’s)
is legal. Issue of OFCD’s is not a public issue. OFCD are neither shared nor Debentures but
“Hybrid” Class that cannot be listed. Serious error is committed by SEBI. Subrata Roy said that
it is not a public issue as Sahara’s investor are people who are part of Sahara family.

3.SIREC & SHIC both had an equity capital of only Rs 10 lakh each. But both the companies
planned to raise Rs 20,000 crore each. Imagine applying for a bank loan of Rs 20,000 crore with
only Rs 10 lakh as your contribution is impossible. It seems that it’s a way of funneling black
money. OFCD instruments were issued in the name of the two companies but cheques were
sought in the name of Sahara India.

SEBI said that Sahara was doing black money business. The forms were issued by two
companies but did not enclose an abridged prospectus .They also did not submit Balance Sheet
and P&L a/c to the concerned ROC.
SEBI claimed that Sahara didn’t comply with jurisdiction & stock market regulations though
they collected money from millions of people. SEBI claimed that Sahara is systematically
circumventing & violating the law. This is a violation of section 73 of Companies Act 1956 &
Untrue Red Herring Prospectus & the Securities Contracts (Regulation) Act, 1956 .

On the other hand, Sahara tried to tap the stock markets to raise money but failed.Sahara said
that there is no statutory requirement to list OFCD’s. As OFCD is initially a debenture but can be
converted into the shares and form Equity not debt.

4.SEBI has directed Sahara to refund all 24000 crore rupees collected in this scheme with 15
percent annual interest that is 3.6 billion dollar , along with all documents including subscriber
application forms, to SEBIThe Supreme Court of India has upheld this ruling.

5Sahara group then approached the Supreme Court but in August 2012, the honourable court
asked the group to repay an amount of over Rs 24,000 crore to Sebi within 90 days. The
regulator will then distribute the money to bonafide investors. But suddenly Sahara said it had
repaid most of the money over the last one year and an amount of just over Rs 5,000 crore was
pending.

6. In the October hearing Supreme Court had clearly hinted that it was no longer amused by the
delaying tactics of the Sahara group and would detain the group’s officials till the payments are
made. The Supreme Court Bench had said that previous orders not been compiled with and that
was why Roy and the directors were been summoned to explain the delay. Roy did not turn up,
thus the non-bailable warrant with an order to appear before the court on March 4.