An Indian businessman jailed for failing to repay investors in an illegal bond scheme is scrambling to raise a whopping $1.6 billion dollar bail. Many questions swirl around the scheme that first fueled his meteoric rise and then brought his fortunes tumbling down.
Just a year ago, the flamboyant Subrata Roy, 66, lived on a sprawling 300-acre estate in the northern Lucknow city and ran a business empire that included real estate, hotels, television channels, and a Formula One racing team. As the head of Sahara Group, Roy hobnobbed with top politicians and Bollywood stars.
But since last March, Roy has been an inmate of New Delhi’s sprawling Tihar jail, while he has been trying to negotiate deals to raise the massive amount he needs to walk out on bail.
He was imprisoned for failing to repay millions of small investors from whom he claimed to have gathered billions of dollars to fund his Sahara conglomerate. The bond scheme has been ruled illegal.
The bail is the largest ever set by an Indian court.
Roy is hoping to raise the cash from two prized hotels his group owns: Grosvenor House in London and the New York Plaza. But the going is not easy - a recent bid to clinch a deal with a U.S. based capital group headed by an Indian is mired in controversy.
“Essentially this is an order against him saying that that you guys need to refund this money to the investors... so it is not exactly a condition of bail but more a kind of concept of “you have not been in compliance with our order, and therefore we will hold you till you comply with the order,” Sandeep Parekh, the head of Mumbai-based financial sector law firm, Finsec Law Advisors said, explaining the rationale behind the massive bail order.
Securities analyst Prithvi Haldea of Prime Database in New Delhi said the bail is linked to the size of the alleged scam. “This is really mammoth, and we have seen that Mr. Roy despite all his professed wealth has not been able to cough up this amount in almost now a year. Several attempts to put together the money have failed,” he said.
At the heart of Roy’s fall from grace is the $4 billion- bond scheme, which helped him grow his business from scratch.
Roy said he raised the mammoth sum through regular deposits of as little as 30 cents a day from poor, daily-wage workers like rickshaw pullers and laborers in small towns and villages who have no access to banking. The money he said was paid back when they needed it - to fund a marriage or a medical emergency. He was dubbed a messiah of the poor and said he has repaid most investors.
But capital market regulators investigating the scheme have found it difficult to trace many of the 30 million investors for whom Sahara supplied records in 2012 after many requests. Hundreds of letters sent to the addresses given came back undelivered.
That prompted the Supreme Court to comment that many names on the investor list “may well be fictitious, concocted and made up.”
Mumbai-based financial sector lawyer, Sandeep Parekh, said it has been difficult to establish the money trail. “Nobody really knows, whose money it is, where it came from and where it went, whether it was refunded, how much was refunded. There are no investors claiming money, they are actually looking for the investors, they can’t find them,” Parekh stated.
That has led to speculation that the Sahara Group’s bond scheme could have been a cover for money laundering, creating fictitious investors who help channel criminal proceeds into legitimate businesses. The company strongly denies such suggestions and has not been charged with the crime.
But commentators have noted that Roy’s bond scheme has not raised a political outcry despite the fact that it apparently involves so many poor people.
Prithvi Haldea said there has been speculation on the political silence in the case. “There is obviously curiosity regarding why the political force in this country across various parties has not really demanded more transparency figuring out whose money it is," Haldea noted. "And therefore if one is to put two and two together there is a sense in many people’s mind that this could be political money.”
The Supreme Court has said that if the investors are not traced, the money will go the government. But years after regulators began to examine the Sahara case, it is being compared to a jigsaw puzzle, which may never be solved.