Mumbai: Tucked away on a hillock in the suburbs of Mumbai, a missile-proof bunker twice the size of the US White House holds the key to a $3.8 billion puzzle.

The underground vault below a data-storage center is in a compound watched by 84 security cameras and surrounded by a 3.7-meter (12-foot) wall topped with barbed wire, Bloomberg Markets magazine will report in its January issue. The 66,600 fire-resistant metal boxes inside contain 200 million documents with the personal information of 30 million investors in Subrata Roy’s group of companies known as Sahara India Pariwar. That’s more than the combined population of Australia and New Zealand.

The dark corridors of a subterranean chamber are an appropriate place for the documents: Roy, a fit 65-year-old with a bushy mustache, is India’s top shadow financier, part of a largely unregulated industry with assets the Financial Stability Board estimates at $670 billion and that provides financial services outside of the banking system.

Over the past 35 years, Roy has built an empire that Sahara valued at $11 billion at the end of 2012. It owns properties such as New York’s Plaza Hotel, London’s Grosvenor House and at least 120 companies, including television stations, a hospital, a dairy farm, retail shops selling everything from detergents to diamonds and a 42.5% stake in India’s Formula One racing team. Sahara also owns 14,600 hectares (36,000 acres) of land, an area the size of Liechtenstein.

‘Financial inclusion’

While Roy says his personal wealth amounts to less than $1 million, if the assets of the closely held group, including the Mercedes-Benz S350 he’s chauffeured around in, were counted as his own, he’d be the fifth-richest man in India, according to the Bloomberg Billionaires Index.

All the while, Roy has portrayed himself as a crusader for what he calls financial inclusion for the 65% of adults in India who, according to the World Bank, don’t have access to a bank account.

Sahara, which means support in Hindi, collects sums as small as ₹ 20 a day from rickshaw pullers, laundry washers and tire repairmen. Agents working for the company on commission promise to return an agreed-upon amount after a specified period—sometimes enough accumulated savings to pay for a daughter’s wedding or a plot of land. Roy says he performs a critical service, which he calls parabanking, his term for shadow banking.

“We are always taking care of those people who never go to banks," Roy says in an interview at his home, modelled on the White House and nestled inside a 148-hectare walled property in Lucknow, the capital of Uttar Pradesh, along with an artificial lake, a golf course and a helipad. “I can give you millions of examples where a cobbler has become a fruit vendor, or a rickshaw puller who has three rickshaws now."

Court order

Now, Roy is fighting to keep all that he created. Regulators say he doesn’t play by the rules and are asking the Supreme Court to take away his assets, dismantle his companies and throw him in jail. The country’s market watchdog, the Securities and Exchange Board of India (Sebi), has accused Roy of flouting a Supreme Court order requiring Sahara India Real Estate Corp. and Sahara Housing Investment Corp. to refund $3.8 billion they had raised selling convertible debt as investment products to depositors without Sebi’s approval.

The key question—its answer buried in the underground vault in Mumbai where Sebi rents space—is whether Sahara has complied with the court order.

The company says the 31,675 cartons of documents it delivered in 128 truckloads after the ruling, prove it repaid the money. Sebi’s lawyers told the court the math is muddled and the paper trails often lead nowhere.

Duplicate payments

Sebi officials declined to comment. A lawyer representing the agency, who asked not to be identified because he isn’t authorized to speak publicly, offers the example of a man named Anirudh Singh, who appears 1,433 times in Sahara’s documents with the same address and father’s name. The person was marked as repaid 34 times on a single day, the lawyer says. A spokesman for Sahara declined to comment about the duplication.

In October, the Supreme Court directed Sahara to hand over to Sebi title to land valued at $3.3 billion as collateral for investors’ money the regulator says remains unpaid. That’s in addition to more than $816 million Sahara has already deposited with Sebi. On 21 November, it restrained Roy from leaving the country and barred Sahara from selling properties. If the court rules that Roy failed to comply with its previous order, he could be sentenced to six months in jail and forced to forfeit his companies and assets.

Regulatory ‘vengeance’

While Roy says that all of the money has been refunded, he says investors may have chosen to reinvest some funds in other Sahara products. He calls the charges clear-cut vengeance on the part of the regulator, which oversees securities sales, and the Reserve Bank of India (RBI), the central bank, which supervises deposit-collecting businesses, including non-banking companies.

Another Sahara company ran afoul of the central bank in 2008. Sahara India Financial Corp., which raised $11.5 billion in deposits as of June 2011, was ordered by the central bank to return the money with interest to savers by 2015. It said the company ignored regulations, including those requiring payment of minimum interest rates. The company says it fully repaid the money as of March 2012.

“It is very easy to say anything against anyone," says Roy, dressed in a black Nehru jacket and gesturing with his hands, adorned with blue-sapphire and emerald rings. “Someone should prove one thing where we have done some wrong. Prove one thing against values and ethics, and they can hang us."

‘Very mysterious’

Roy defends selling the investment products, a type of bond, saying that Sahara had approval from the ministry of corporate affairs, which oversees unlisted entities such as Sahara, and that the company was never told to seek Sebi’s approval. A spokesman for the ministry declined to comment.

Sebi Chairman U.K. Sinha said in an interview with Bloomberg TV in June that the roles of regulators and government agencies, when it comes to such approvals, have a certain amount of lack of clarity.

“Regulators are wary of companies collecting deposits from the public without oversight," says Sandeep Parekh, a former executive director in charge of enforcement at Sebi who wasn’t involved in the Sahara case.

“We really don’t know who the investors are," he says. “Everything about the Sahara group is very mysterious."

Cross-ownership

Only two of the more than 120 Sahara group companies are publicly traded, and a majority of their shares are held by Roy or other Sahara entities. Sahara Housingfina Corp. Ltd, which provides home loans and consumer lending to the self-employed, is 71% owned by three other firms in the group, according to regulatory filings. Roy is chairman and the biggest shareholder in Mumbai-based Sahara One Media and Entertainment Ltd, which owns television channels and produces films. He has a 24% stake, worth about $5.5 million, while other Sahara companies control 51%, filings show.

A June 2011 order by Sebi against the two Sahara companies said to have sold the convertible debt without the agency’s permission cited a callous lack of transparency regarding the source, collection and utilization of funds. It said filings revealed that some of the money collected through debt sales may have been parked with partnership firms or in accounts controlled by Sahara entities at other banks.

Spokesmen for Sahara didn’t respond to multiple emails and phone calls during a five-month period seeking information on the ownership structure of the group or its companies.

Tire repair

Roy says he offered to help Sebi track down depositors and that regulators rebuffed him. Some of those customers say they appreciate the services the company provides even if they don’t always understand the issues involved in the dispute.

“I’m able to save only because it’s taken away from me daily, or else it’ll get spent on something," says Mohammad Shabeer, 46, sitting by piles of truck tires and dusty rubber tubes alongside a highway in Lucknow. “Who would go to a bank daily to deposit ₹ 20, ₹ 50?"

Shabeer, who lives in a bamboo shack and earns ₹ 7,000 a month repairing tires, or about $4 a day, says he saved enough with Sahara over 20 years to buy a plot of land for $1,000. A Sahara agent comes to his unmarked stall every day to collect ₹ 100, a sum too minuscule for traditional banks.

While Shabeer says he knows the maturity date of his deposit, he doesn’t know how the money is invested or what interest it earns. He says he hasn’t heard of Sebi and doesn’t know if regulators are looking for him.

‘Piggy bank’

Neither does 72-year-old Kailash Chandra Rathore, who deposits ₹ 20 a day earned selling a motley mix of snacks, shampoo sachets and wooden kite reels from a hole-in-the-wall convenience store on a snaky lane in Lucknow’s Dandiya Bazaar.

“It’s like putting money in a piggy bank," he says. “It doesn’t pinch me. His Sahara agent told him the TV controversy about Sahara has nothing to do with my money, and that’s enough reassurance for him," he says.

“No amount is too small for Sahara agents to chase in a country where two-thirds of the population lives on less than $2 a day," says Roy, whose official title is managing worker and whose employees call him Saharasri, a term of reverence.

Roy, the son of a sugar factory technologist in Bihar, was a poor student who eventually earned a degree in mechanical engineering, according to his authorized biography, A Bengali’s Practice of Finance: The Sahara Story. He trained with the National Cadet Corps, a quasi-military outfit that grooms young people for India’s armed forces. When he was selected as a trainee pilot, his mother intercepted and hid the letter, according to the book, by Mani Shankar Mukherjee.

Sahara uniforms

Instead, he tried his hand at selling packaged snacks, electric-fan manufacturing and a metal-testing business before joining a struggling lending company called Sahara Finance in 1978. Roy took over the firm and has changed its deposit-collection model at least six times as regulation tightened. Today, he supervises 1.1 million employees working out of 4,512 offices across the country.

Roy’s military training influenced the way he runs the company. Employees dress in uniform: white shirts, black trousers and black neckties embossed with Sahara’s sunburst logo for men; black-and-white saris for women. They salute each other by placing their right palms over their hearts and have an anthem that lauds coming together in collective prosperity.

Roy says he’s proud that his workers have never gone on strike and that they value loyalty.

“If I call an employee and ask him to stand on one leg, he will stand on one leg and still talk nicely," Roy says. “This is the level of commitment and following."

Mother India

Sahara has an in-house deity, Mother India. A 3-meter-high statue of the goddess riding a chariot pulled by four golden lions and waving an Indian flag stands outside the company’s gated Lucknow headquarters. The image, a version of which is known to every Indian schoolchild, appears in company literature and advertisements.

In May, 121,653 Sahara employees gathered in Lucknow to set a Guinness world record, as verified by two auditing firms, for the most citizens singing the Indian national anthem at the same time in the same place. Afterward, scores of workers touched Roy’s feet and then greeted him with the company salute and congratulated him.

“It is not a cult; it is a culture," Roy said later that day, insisting that an emotional chord binds the Sahara family, a word he used at least five times in a two-hour interview.

‘Emotionally speaking’

Sahara has published full-page advertisements in Indian newspapers countering Sebi’s allegations, including one titled “Emotionally Speaking". Roy calls regulators banning agencies whose policies stifle entrepreneurship.

His most recent marketing campaign features a new deposit-collection programme through Sahara’s retail stores, Sahara Q, which falls outside of Sebi’s purview. Roy says he plans to open 14,000 stores where customers can use savings or cash to buy goods, including rice, beverages and processed foods.

One depositor says the ₹ 5,000 he saved with Sahara were converted without his permission into a voucher to be used at Sahara Q shops.

“I don’t know whose fault it is," says Kailash Verma, 45, who sells chewing tobacco next to an open drain less than 10km from Roy’s home in Lucknow. “I have told my wife, ‘Don’t put any more money in this company.’"

Sebi ran newspaper advertisements in October 2012 advising Sahara depositors not to be forced into Sahara Q conversions. Parekh, the former enforcement chief, says such conversions without consent are illegal. Roy says no deposits were converted without consent.

Air Sahara

Roy says his investments in land have appreciated as much as 10-fold. He also profited by selling Air Sahara, a discount airline he started, to Jet Airways (India) Ltd for ₹ 1,450 crore in 2007, before the country’s aviation industry went into a tailspin.

Sahara is planning to expand its dairy business and wants to add 45,000 hotel rooms, Roy says. He intends to sell equity stakes of as much as 15% in his hospital, hotels, dairy and retail ventures. He says his tussle with Sebi has forced him to curtail spending in order to refund investors, pushing Sahara’s growth plans back almost two years.

When Roy was considering whether to buy the Grosvenor House hotel, which he did in 2010 for £470 million ($765 million), or to purchase a 75% stake in New York’s Plaza Hotel, which he did in 2012 for $575 million, he consulted with Krishna Murari Mishra, his astrologer for 20 years.

Blue sapphire

It was Mishra who recommended that Roy wear a blue-sapphire ring on his middle finger and an emerald on his pinkie to improve his fortune.

“These things are like an umbrella," Roy says of the rings. “They will save you from getting wet in rains but cannot save you from the flood."

Mishra says he suggested the gemstones because the financier was going from one meeting to another for three days without sleep and needed to slow down.

“Every good weather phase for him will come after an initial phase of bad weather," Mishra says. “And these phases have come again and again. But with each setback, he has emerged stronger and gone further."

Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with Sebi. Mint is contesting the case.

Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.

Share Via