The Sahara episode is a commentary on the failure of governance — that even the most brazen transgressions of law should require the apex court’s intervention.

To a world accustomed to viewing things in nuclear terms, India came up with the idea of a ‘Hindu Undivided Family’ as a basic social unit to refer to an extended family of siblings and close relatives living under one roof. The notion that all living things on Earth constituted a universal family (Vasudhaiva Kutumbhakam) is also India’s contribution to the global repertoire of philosophical thought. But none of these ideas, grand though they may be in their conception, can be a guidepost for regulating mundane, this-worldly, activities, such as raising funds from the capital markets. Such decisions must necessarily rest on far narrower criteria than the emotional construct that the Sahara Group sought to lay emphasis on, in mounting its defence over the dispute with Securities and Exchange Board of India (SEBI). In the event, the Supreme Court was entirely justified in dismissing the Group’s claim that its act of raising Rs 26,000 crore was purely an internal affair involving its employees, friends and affiliated entities and hence, outside the pale of regulatory oversight by SEBI.

The Apex Court’s verdict — directing the two companies to refund the entire amounts mobilised (along with 15 per cent interest), or remit to the Government’s account monies due to subscribers who could not be traced — is a shot in the arm for healthy corporate governance practices in India. There can be no two opinions about the need for effective regulatory mechanisms, when it comes to raising funds from the public in whichever form. The logic here is linked to investors not being always fully informed about the intentions of those to whom they are entrusting their monies. The job of regulation is to enforce proper disclosures to address such information asymmetries that are behind most scams and financial frauds.

This is a case that should never have gone all the way to the Supreme Court. At stake was a simple proposition namely, whether the Companies Act does lay down a threshold limit of 50 subscribers for a fund-raising programme to be deemed a ‘public offer’. Further, the issue at stake is also one of whether such an offer to the public must invariably be accompanied by a promise to get the instrument listed for trading in a recognised stock exchange. These questions have taken three long years to resolve, and close to Rs 26,000 crore has been raised from the public in what has clearly been the biggest public offer in the history of India’s capital market. The Sahara episode is thus at a more fundamental level also a commentary on the capability of institutions of governance, post-Independence. That even the most brazen transgressions of law should require the intervention of the apex court to put a halt to it is something to ponder over.

(This article was published on September 2, 2012)
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