The Supreme Court has asked the Sahara group to address concerns that its proposal to obtain a $ 650 million foreign loan violates the Foreign Exchange Management Act (FEMA). The loan is a key part of the group’s efforts to meet the bail conditions for the release of its jailed chief Subrata Roy.
The incarceration of Roy appeared set to continue till June next year as the court refused to accept post-dated cheques along with undertakings by the purchasers submitted by the group as compliance of the cash component of the bail requirement. Sahara submitted 21 post-dated cheques for a total of Rs 1,885 crore, the last instalment of which was due on June 22, 2015.
The group is required to pay Rs 5,000 crore in cash and Rs 5000 crore in bank guarantee to secure the release of Roy and two other directors of the group who are in Tihar jail since March 4. “The undertakings were only to ensure that the people who have agreed to buy do not go back on their commitment giving rise to further litigation,” Judge T S thakur said adding, “Let us be realistic. You can only come out with compliance.”
The court also dismissed Sahara pleas to adjust the Rs 900 crore interest accrued on Rs 5,120 crore deposited by the group two years ago and allow a two month parole for Roy till February before adjourning the matter to January 9.
Earlier, Amicus Curiae Shekhar Naphade told the court that the proposed arrangement under which Mirach, a private investment company, was to offer a loan of $ 650 million mortgaging the overseas hotel assets of the group was not permissible under the FEMA provisions. “According to my conception, this requires the special permission of RBI.” He also demanded some documentary evidence of Bank of China’s consent to the whole arrangement.
While the Sahara counsel S Ganesh argued that the arrangement was FEMA-compliant, Sebi counsel Arvind Datar pointed out that the loan agreement allows Mirach to deduct the interest upfront and such a provision is expressly barred under law.
The court directed both Datar and Naphade to put down their queries in this regard in writing and asked Sahara to address these within a week’s time.The court, however, allowed the first tranche of transferring the liabilities due to Bank of China to Oasis to go through.
Sahara proposes to comply with the requirement of providing Rs 5,000 crore bank guarantee through a three-stage process involving its overseas hotel assets. Accordingly, the assets which are now mortgaged for a loan with Bank of China will first be released and mortgaged with another entity called Oasis. Oasis has agreed to takeover the Bank of China liabilities excluding the penal interest of $ 30 million. Another entity Mirach will lend $ 650 million as a subordinate loan based on the same property. The loan would be routed through an escrow account operated by Bank of America. After this, comes the bank guarantee.
The court also allowed Sebi to refund Rs 28.1 crore to 2,781 Sahara investors who had multiple deposits. Having dealt most of the issues relating to the release of Roy on bail, the court is likely to pick up other pending issues such as verification of investors and source of funds.