Likely to be key defence in Sahara’s reply to ED notice; Roy and his sons Sushanto and Seemanto face charges of FEMA violation by over-funding Grosvenor House deal in 2010; Sahara says will respond to the allegations and deal with it at appropriate time
The Reserve Bank of India has cleared an application by the Sahara group to bring back investments made in London’s Grosvenor House Hotel in December 2010, a senior group executive told Business Standard.
The clearance assumes significance as the four-year-old investment was the subject of a showcause notice issued by forex law watchdog enforcement directorate in February.
“Recently, the company requested the RBI to permit it to bring back the said investments inward to India.
“Along with this application, the company had filed all the requisite documents of the outward remittance.
“The permission was granted by the RBI for the same without making any adverse comment on outward remittance,” the Sahara spokesperson said in an email response to a Business Standard questionnaire seeking its response to the Enforcement Directorate notice.
The Sahara spokesperson contended: “While the allegations contained in the notice have no merit, the ED has a right to make any inquiry; so we will respond to the allegations and deal with it at an appropriate time.”
When contacted, RBI clarified that, “According to our records, a total of three remittances have been allowed by two authorised dealer banks.
“These remittances were towards equity investment in the above JV and loan extended to it and were as per powers delegated to them under the automatic route.
“On the issue of repayment of loan (£490 million), the designated authorised dealer bank referred the matter to us seeking clarification/approval for the proposed inflow on account of repayment of loan.
“This was also directed in the order passed by the Honourable Supreme Court.
“The RBI clarified the matter from Foreign Exchange Management Act angle to the authorised dealer bank.”
The ED had in February issued showcause notices to Sahara group firm Aamby Valley and its directors including the group chief Subrata Roy, his sons Sushanto and Seemanto. Another Noida-based AVL director, Madhukar, has also been issued showcause.
The agency has also issued notices to top private lenders Axis Bank and ICICI Bank for facilitating transfers of £527 million (Rs 3,600 crore according to 2010 rates) outside India AVL, allegedly in violation of various provisions of the Foreign Exchange laws.
The seven entities named in the showcause notice have not replied to the ED yet.
“They asked for an extension of a month, which has been granted to the noticees,” said a source.
“The new deadline would be by the end of next week.
If the agency did not find the responses satisfactory, it would proceed to issue the final order and the penalty could be up to three times the amount involved, ED sources said. This could mean another Rs 11,000 crore (Rs 110-billion) burden on the group, which is struggling to raise the Rs 10,000 crore (Rs 100 billion) require to bail out Roy, who is now lodged in Tihar jail.
The directorate in its notice has said AVL made this remittance called overseas direct investment in RBI parlance, under the ‘automatic route’ in three tranches.
The money was utilised to fund the purchase of its interests in London’s Grosvenor House between October and December 2010.
However, the ED has found that at the time of the transaction, AVL and some of its promoters were under investigation by the Securities and Exchange Board of India and the ED itself.
Because of this, the facility of ODI through the ‘automatic route’ was not available to these entities.
They were required to take the approval of the RBI for this transaction.
However, AVL allegedly violated this rule by not disclosing the details of the pending investigations in its ODI application form as mandated and illegally transferred this sum under the automatic route.
The ED has charged the banks with violations under Section 10 (5) of the Fema for allowing the transactions without being ‘reasonably satisfied’ and failing to report the matter to RBI.
Further, the agency has charged that Aamby Valley (Mauritius) (AVML), the 100 per cent arm of AVL, which received the money, of not reporting the setting up/acquisition of several step-down subsidiaries abroad.
AVML, incorporated in October 2010, invested in eight overseas subsidiaries. Sahara Grosvenor House Hospitality and Aamby Hospitality Services were based in the UK. While Aamby Hospitality was based in Mauritius itself, two entities were registered in British Virgin Islands (Sahara Hospitality Support Services, OT Global Holdings) and three in British West Indies (Aambyside, Riverpark and Wharfside.
The Sahara spokesperson said, “At the outset, please be informed that there has been no violation committed in the process of outward remittance and all necessary disclosures were made, as per law, to the authorised dealer of the Reserve Bank of India, who after being satisfied with the same and upon RBI issuing the necessary code number for the remittances, the AD had executed the request of remittance.”
The first two tranches of $60 million and £18 million were executed by ICICI Bank between October and December 2010.
However, it had put on hold the request for a third larger tranche of £472 million citing the market regulator’s interim order against Sahara India Real Estate corp, one of AVL’s parents.
However, it gave AVL a no-objection certificate to change its designated authorised dealer. ED has also questioned this NOC.
In the interim order dated November 24, Sebi had said SIRECL and Sahara Housing Invest Corp were under investigation for illegal mobilisation of funds and that it had banned them from raising money from the public.
On December 13, the Lucknow Bench of the Allahabad High Court had stayed the operation of the ban order, but the court allowed Sebi to proceed with the enquiry.
After this, Aamby Valley got the transfer done through Axis Bank on December 24, 2010.
Axis is said to have allowed the transaction after some ‘oral clarifications’ by Sahara group staff on reasons for change of the authorised dealer and leaving the investigation columns blank.
The official spokesperson of Axis bank said in an email response: “The bank maintains high standards in respect of customer on boarding that are fully compliant with the existing regulations.
“The transaction in question was undertaken for an existing KYC-compliant customer of the bank after ensuring strict compliance of relevant rules and guidelines and was processed on the basis of Fema compliant documents as a bonafide capital account transaction.”
The spokesperson added: “As the matter is under investigation by the Enforcement Directorate, Government of India, we are not in a position to comment further. We wish to add that the bank is committed to providing all necessary assistance to the concerned authorities in this matter."
The Bank has robust anti-money laundering processes and procedures in place, the Axis spokesperson added.
ICICI Bank did not respond to email questionnaires and subsequent reminders.
While the matter was under investigation since 2011, the ED show cause notices came in February after the Sahara group had put forth a plan to repatriate these transfers funded by debt-cum-equity funding by Florida-based Mirach Capital Group.
The Mirach-funded repatriation was to enable the group to pay up a substantial part of the sum required to bail out Roy from the Tihar jail.
In January, the court had directed Sahara to seek the approval of RBI for this plan. Coincidentally, the deal with Mirach also ran into heavy weather after Sahara alleged fraud and forgery by Mirach around the same time.
While the ED complaint and showcause notice are dated February 5 and 6, the Reuters report which talked about Bank of America withdrawing from the deal was splashed across international media on February 5.
A spokesperson for Mirach, which has now filed an application with Supreme Court for buying Grosvenor House and other assets in an outright purchase deal, said: “Mirach was not aware of Sahara’s troubles with ED. Mirach was looking to reverse Sahara’s problems in totality.”
On the coincidence of different events that led to the face-off between Mirach and sahara, the Mirach spokesperson said: “Mirach has publicly stated that we believe this to be a concerted effort on Sahara’s part to derail or scuttle the transaction.”
TANGLED DEAL
- Sept 29, 2010: Board meeting of Aamby Valley to approve loan to proposed subsidiary
- Oct 5, 2010: Aamby Valley (Mauritius) Incorporated as wholly-owned subsidiary of AVL
- Oct 28, 2010: $60 million remitted to AVML through ICICI Bank
- Nov 24, 2010: Sebi interim order against SIRECL and SHICL
- Dec 13, 2010: Stay on Sebi order by Allahabad High Court
- Dec 15, 2010: £18 million transferred by ICICI Bank;
- Dec 15-22, 2010: AVL wants to transfer £472 million; ICICI Bank seeks more details for larger transfer;
- Dec 23, 2010: AVL wants NOC for change of authorised dealer in favour of Axis Bank
- Dec 24, 2010: Axis Bank executes transfer of £472 million
- 2011-12: ED correspondence with ICICI Bank, AXIS Bank, Sahara and RBI
- Jan 2015: Supreme Court directs Sahara to seek RBI approval for repatriation funded by Mirach
- Feb 5, 2015: ED frames charges and files complaint; Reuters news report on troubles with Sahara-Mirach deal; allegations of fraud and forgery by Sahara
- Feb 6, 2015: ED issues show cause notice
- Mar, 2015: Bank of China appoints Deloitte as administrator to liquidate Grosvenor assets of Sahara due to loan default
