Critics, including activist groups, say Sahara's investment products are designed to evade oversight by financial regulators and that it lacks transparency on the source and use of its funds, selling products to investors who do not understand the risks and ploughing the proceeds into real-estate projects.
Under the scheme rejected by the Supreme Court, two firms owned by Sahara had offered bonds to small investors, promising, in some cases, to return three times the face value after 10 years.
The court ruling that it raised money by "dubious" means follows another rebuke in 2008, when the RBI ordered a Sahara company to stop taking deposits from the public.
In a country where "black money", or undeclared wealth, is rampant, Sahara's size and spending power have long fuelled speculation over how the company operates.
Sahara, headed by Subrata Roy Sahara, its chairman and self-described "managing worker", says it helps small investors outside the banking system and that it has never defaulted on them.
"Sahara agents motivate people who would otherwise spend the money on liquor, gambling, etc," said Guddu Pandey, a school teacher and Sahara agent in Uttar Pradesh, echoing an argument made by Sahara after the court verdict.
The company did not respond to several attempts to get answers to written questions.
Roy was not immediately available to be interviewed, Sahara said.
Sahara has not said how it will refund the money to investors, although it has said it is healthy and investors need not worry.
Image: Subrato Roy seen here with Tennis star Sania Mirza after an IPL match.