The embattled Sahara conglomerate has been funnelling cash from small savers to fund one of its biggest projects, a luxury resort south of Mumbai, according to documents Reuters reviewed.
Sahara has ploughed at least Rs15bn ($221mn) from two of its credit co-operatives into the Aamby Valley resort project through investments in preference shares, according to documents filed with India’s companies regulator.
It is doing so as some investors in its credit co-operatives complain they have struggled to get Sahara to pay out their matured time deposits - even for sums as low as Rs30,000.
The credit co-operatives investments into Aamby Valley are not illegal. Co-operatives are allowed to invest in shares and bonds of infrastructure and real estate companies after board approval, if they are in the interest of the co-operatives, according to the law under which these co-operatives operate.
Responding to Reuters queries, a spokesman for Sahara Credit Co-operative Society Ltd said in an e-mailed statement that “all required approvals” were in place and the investments would not put investors at risk. He did not elaborate.
Sahara Credit Co-operative had shares worth Rs10.39bn in Aamby Valley, according to Aamby Valley’s 2014 annual report.
Saharayn E-Multipurpose Society Ltd, which had shares worth Rs4.6bn in the resort, did not respond to requests for comment.
But some experts say if Sahara is using deposits from the co-operative societies to finance Aamby Valley, members of the co-operatives might face difficulty recouping their money. That’s because the conglomerate is under pressure to sell of some of its prized assets to pay off investors in a savings deposit scheme the Supreme Court has declared illegal.
The two credit co-operatives could be hit “if Aamby Valley is monetised and the proceeds are given up to the investors of the earlier financial schemes, which is sitting in the Supreme Court,” said Prem Rajani, founding partner of Mumbai-based law firm Rajani Associates, which works in the areas of banking and finance, and corporate litigation.
The Supreme Court will decide tomorrow whether to appoint a receiver to auction off some of Sahara’s properties as part of efforts to refund investors in the banned savings deposit scheme.
A senior official from the Ministry of Agriculture’s credit co-operatives division, which regulates the co-operative societies that operate across state lines, said Sahara could be “misusing provisions of the law” that govern credit co-operatives by investing some of the co-operative funds into Aamby Valley.
Co-operative funds should not invested in a struggling company or project, or be used for any risky investment, the official said, declining to be named as the person was not authorised to speak to the media.
The division will look into the matter if they receive any complaint on this, the official said.
Over the past four decades, Sahara founder Subrata Roy used his series of small deposit plans to build Sahara into an empire that encompasses businesses ranging from New York’s Plaza hotel and London’s Grosvenor House, to television stations, property projects and a stake in a Formula One racing team.
But Sahara has been struggling financially since the Supreme Court ordered the conglomerate in 2014 to repay investors in a 2008-11 Sahara time deposit plan that it declared was illegal.
Roy has been in jail for the past 22 months for not complying with the court’s order to return Rs360bn ($5.4bn) to investors.
Credit co-operatives are widely used by the rural poor. A lack of banking services in India - nearly two-fifths of its 1.27bn people have no bank accounts - has helped shadow banks such as the credit co-operatives thrive for decades.
Reuters has spoken to dozens of savers who said Sahara had not given them their money when their deposits matured. Instead, they complained, Sahara’s agents and branch officials tried to persuade them to switch their matured savings deposits into new schemes offered through credit co-operatives run by Sahara.
In the e-mailed response to Reuters, Sahara said it was not aware of this practice.
Spread over 10,000 acres in the hills of western India, Aamby Valley bills itself as India’s first planned city since independence: a sprawling resort of luxury chalets, manmade lakes and an airport, favoured by the business elite and Bollywood stars.
Sahara said in a statement to Reuters the Aamby Valley project was valued at about Rs1tn ($14.76bn), citing a 2014 report of property consultant Knight Frank’s India unit.
India’s markets regulator the Securities and Exchange Board of India (SEBI), which had asked the Supreme Court to order Sahara to repay millions of investors in its 2008-11 time deposit plan, has pegged the valuation of lands owned by Aamby Valley and its units at about Rs405bn ($5.95bn).