Jailed Subrata Roy is paying the price for arrogance of power

Firstbiz Jagannathan 9 Sep 2014

That are the lessons we can learn from the fall from grace of Vijay Mallya and Subrata Roy?

While the former is battling the banks after being declared a “wilful” defaulter by the United Bank of India, a declaration which could cost Mallya all his board positions, the latter completed six months in jail this week for what we should call “wilful” defiance of a Supreme Court verdict. The verdict, delivered as far back as 31 August, 2012, asked Roy to return all the money raised through two illegal issues of optionally fully convertible debentures (OFCDs) to Sebi – for onward dispatch to genuine investors. Roy went to jail only on 4 March this year after stringing the Supreme Court along for 18 months.

Some 10-15 years ago, it would have been a fair bet that neither Mallya nor Roy would have been hauled over the coals for “wilful” transgressions of their loan conditions or the law. A political system of cronyism that ensured that the big fish always got away would have come to their rescue.

Now, no one can be sure. The reason is simple: all democratic institutions have been damaged and compromised so much by rampant cronyism – the executive, the legislature, the investigative agencies, the regulators, the judiciary, and the media – that they are now fighting hard to regain the credibility they have lost.

The courts, damaged by allegations of cronyism and corruption, are unwilling to be seen as handmaidens to the corrupt. They are over-reaching to prove they are clean.

The media, in an effort to redeem itself, is making extra efforts to chase every crook – real or imagined. Despite efforts by sections of the media to tone down coverage of wrongdoing when it involves their own commercial interests or owners, the media as a collective is sparing no effort to prove its worth.

The investigative agencies and the regulators see the nailing of big names as key to their own future credibility.

The banks, under fire for lending money to all kinds of unviable projects under pressure from politicians and through corrupt practices, are tightening up their act and going after defaulters.

The regulators, Sebi and RBI among them, long seen as kowtowing to the powerful, are also refusing to yield an inch where earlier they would have been open to compromise.

Big fish in net

Mallya and Roy are some of the first big fish to be caught in the net when all institutions are trying to re-establish their independence – both to themselves and the public at large.

So, if Mallya is trying to wriggle out of his “wilful defaulter” status by appealing to the higher courts on technicalities, he is likely to face severe resistance from the judiciary. The Calcutta high court, for example, refused to hear his plea to let a lawyer represent his company before United Bank of India (UBI) in the case; on Tuesday (2 September), the Supreme Court refused to humour him too, as this Hindustan Times report says.

In Subrata Roy’s case, where a bail could easily have been granted so as to enable him to negotiate the sale of his assets and pay Rs 10,000 crore, the Supreme Court steadfastly refused to play ball. Instead, all the court would allow was to let him use the conference room at Tihar jail to conduct negotiations to sell his hotels abroad. The court knows that the entire OFCD issue could not have been made to legitimate investors. Parts of it could have been benami. This was probably why it could not let him do his deals independently.

Arrogance vs contrition
Mallya and Roy are paying the price because they chose to show defiance at a time when all democratic institutions are trying to re-establish their damaged credibility by looking beyond the technicalities of the law and going after the powerful.

Both Mallya and Roy failed to understand that when it was time to show contrition, they showed arrogance.

India’s institutions are in internal reform mode, and powerful people are not going to get away lightly by pretending they can buy their way out with just the help of smart-talking lawyers.

There are lessons here not just for Mallya and Roy, but all of India’s powerful politicians and businessmen.

 

From jail, Roy finds golden suitors for hotels abroad

 BS Reporter  |  New Delhi  

August 15, 2014 Last Updated at 00:59 IST

MoUs inked at 50% higher value, lawyers tell SC; court gives 15 days more for deal talks

Within a week of moving to his make-shift office in Tihar jailhere, Sahara group chief Subrata Roy seems to have achieved what his men could not in months. The 66-year-old tycoon has convinced several suitors to sign preliminary agreements to buy the group's prime hotel properties in New York and London.

Some of the potential buyers were valuing these assets at prices substantially higher than indicated earlier, the group's lawyers told the Supreme Court on Thursday, and sought a 15-day extension for Roy's jail-office set-up. The court granted this but made it clear that there would be no further extensions of this arrangement.

The extension implies Roy can operate out of his jail-office till September 9 and arrange the amount required to be paid for his interim bail.

The court had in March said that Roy and two group directors could get interim bail, provided the group deposited Rs 5,000 crore in cash and another Rs 5,000 crore in the form of bank guarantees. Of the required sum, Sahara has so far paid Rs 3,117 crore. The group's dues, according to market regulator Securities and Exchange Board of India (Sebi), have touched Rs 39,000 crore.

The apex court had ordered two group firms - Sahara India Real Estate Corp and Sahara Housing Invest - to refund sums raised from 29.6 million investors with a 15 per cent interest. The group is trying to raise this amount by selling assets, mostly real estate and hospitality-sector properties, as the court has refused to accept its claims of having directly refunded most investors.

On the block are the group's stakes in London's Grosvenor House Hotel and New York's Plaza and Dream Downtown hotels. According to earlier submissions in the court, based on international valuers JLL and CBRE, Sahara's stakes in these assets were valued at around $1.72 billion (around Rs 10,500 crore at an exchange rate of Rs 61 a dollar). Grosvenor House was valued at $879 million (Rs 5,361 crore), the Plaza holding was worth $592 million (Rs 3,611 crore) and the Dream Downtown stake was valued at $252 million (Rs 1,537 crore). The total of these comes to $1.72 billion. But Sahara lawyer S Ganesh on Thursday told the court that some buyers had now valued these assets at $2.58 billion, nearly 50 per cent higher.

If indeed the valuation has seen such an increase, this could enable the group to meet the bail requirements even without an outright sale of these properties. The group had indicated in the past that it might try to come up with some mortgage arrangements.

In a statement issued after the hearing, Sahara advocate Gautam Awasthi said: "By utilising the facilities made available to the detenues, a considerable progress has been made in relation to negotiations on the three foreign properties and for furnishing the bank guarantee. Appreciating the progress made, the Supreme Court allowed an extension of 15 working days starting August 20 to facilitate fruition of the continuing negotiations. The jail authorities have also appreciated the discipline and conduct of Saharas in using the facilities in a constructive manner."

Awasthi added the three applicants "will effectively negotiate with prospective purchasers of the foreign properties and for furnishing the bank guarantee towards compliance of the Supreme Court order".

Media reports had suggested Pune-based billionaire Cyrus Poonawalla and US-based Madison Capital Holdings were interested in these properties. However, Poonawalla said in a statement on Thursday: "Getting a partner that is valuing the Grosvenor House more than what we valued is not possible. We did not hear back from them after our conversation almost a month ago. They did not even approach us to see if we were interested in increasing our bid. As for us, we were interested in a particular asset, that too for its location and history. All the best to Sahara." Poonawalla was ready to pay up to £550 million (around Rs 5,500 crore), according to these reports. The group also has to meet its commitments towards Bank of China, which will have precedence over the claims of the market regulator.

BREAKTHROUGH?
Value of Sahara stake in key hotels abroad*

Grosvenor House, London
$879 million

The Plaza, New York
$592 million

The Dream Downtown, New York $252 million
Total
$1.72 billion

Total valuation
** according to Sahara: $2.58bn
Difference: $860 mn (50%)

* According to international valuers’ report filed in court
** According to the Sahara lawyer’s statement

Can Subrata Roy get an office: SC to jailers

TNN | Jul 26, 2014, 12.10AM 

The Supreme Court on Friday asked Tihar Jail authorities in Delhi whether they could make available office space with Wi-Fi and internet facilities to help detained Sahara group chairman Subrata Roy finalize negotiations for sale of three hotels in London and New York. Roy and Sahara group had identified a guest house within the Tihar Jail complex but solicitor general Ranjit Kumar informed the court that it was close to the staff quarters and had not been designated as a prison.

"Communication facilities can be set up at the guest house, which could also be designated as a jail by the lieutenant governor for a specified period of the day during which Roy and Sahara group's identified personnel could use it for negotiations for the sale of assets," he said.

Appearing for Roy, senior advocate K T S Tulsi said important prospective buyers from abroad were in Delhi and the Sahara chief would like to participate in the final phase of negotiations to get the best price for the assets so as to enable him to raise the money needed for getting out of jail on interim bail. A bench of Justices T S Thakur, A R Dave and A K Sikri asked the SG to explore the possibility of providing Roy office facility in Tihar, where he has been lodged since March 4. The court had told him that he could come out on interim bail if he deposited Rs 5,000 crore in cash and Rs 5,000 crore in bank guarantee with market regulator Sebi.

SC retains bar on Subrata Roy's foreign trips

BS Reporter  |  New Delhi  January 10, 2014 Last Updated at 00:36 IST


Asks Sahara to reveal source of Rs 20k cr claimed to have been returned to investors

Retaining the bar on Sahara group chief Subrata Roy's visits abroad, the Supreme Court on Thursday asked his two real estate companies to disclose in two weeks the source of the Rs 20,000 crore these claimed to have refunded to the investors in their optionally fully-convertible debentures (OFCDs).

The companies, Sahara Housing Investment and Sahara India Real Estate,  maintain these have repaid 90 per cent of the investors. If that was so, the judges said, the source should have been reflected in their balance sheets.

The court had ordered the group to make refunds two years ago but, according to the Securities and Exchange Board of India (Sebi), that has not been done.

The bench headed by K S Radhakrishnan told the Sahara counsel the companies would have to return the money. "Now we will call the registrar of companies to find the source of money and even order a CBI (Central Bureau of Investigation) inquiry into the whole affair," the judge said.

"The court is not helpless; we will see our order is fully complied with," the bench said. The judges said the order to return the money was passed two years ago and nine months ago Sebi had moved the court for contempt action. "We don't want to burden Sebi any more," the judges said, threatening to take the matter to the Registrar of Companies, which, they said, was doing little in the matter.

"We have given maximum indulgence. We are driven to call the registrar," the court said. "If you take the history of the case, there is inconsistency in every affidavit filed by the Sahara companies. We have been most generous in this matter, but you don't appreciate our indulgence."

Though the court expected the companies to provide sufficient securities in the nature of title deeds of assets to guarantee the refund, Sebi counsel Arvind Datar on Thursday said all the property titles were shaky. The Aamby Valley project in Maharashtra was riddled with litigation and false power-of-attorney transactions, for which a key person had been arrested. Also, the entire project was without environment clearance and litigation for this was pending, he said.

Some other properties in other parts of the country had also been valued exorbitantly to meet the court's demand for adequate security. In several cases, the property was bought for a sum and the valuation showed more than 50 times appreciation over 10 years. Some deeds were not traceable, Datar said.

In view of the objections of Sebi about the title deeds, there was no arguments about Roy going out on business as the permission was conditional on sufficient security to the satisfaction  of Sebi.


Sebi had raised contempt action with regard to Sahara’s advertisements in all leading papers about the pending cases.  The court had at last hearing ordered publication  of apology in all the papers with equal prominence. The judges said in a lighter vein that they read all the newspapers and they have not been able to spot any apology so far. It should be done before Janauray 28, when the case will be heard again, after the production of title deeds with adequate security.