* Supreme Court asks Sahara to pay in instalments by Feb
* Sahara to deposit $3.2 bln with capital markets regulator
* Court said funds raised by "dubious" means (Adds Sahara statement, lawyer comment)
By Suchitra Mohanty and Devidutta Tripathy
NEW DELHI, Dec 5 (Reuters) - The Sahara conglomerate was given more time by India's Supreme Court to repay billions of dollars to millions of small investors who bought the company's bonds that were later ruled to be illegal.
The court on Wednesday asked Sahara to make an initial deposit of 51.2 billion rupees ($937 million) with the capital markets regulator and pay 100 billion rupees in the first week of January and the remainder in the first week of February.
Unlisted Sahara, one of India's biggest business groups and a household name through its sponsorship of the national cricket team, was ordered on Aug. 31 to repay within 90 days sums raised by what the court called "dubious" means from nearly 30 million small investors, with 15 percent interest a year.
It is not yet clear how much Sahara has to repay in total as the regulator, which is overseeing the refund process, is yet to scrutinise the investment documents. After the court ruling on Wednesday, Sahara said it was ordered to pay 174 billion rupees ($3.2 billion) along with interest.
It said in a statement quoting one of its lawyers that its auditor had certified its outstanding liability on the bonds to be 26.2 billion rupees. Sahara has said it has already redeemed most of the funds to bond investors.
Lawyers for the regulator have estimated the payout to be about 240 billion rupees plus interest of 15 percent a year.
A copy of the court's Wednesday order was not available.
The top court had asked Sahara in August to deposit the amount with the capital markets regulator. It had also ordered Sahara to submit detailed documents with the regulator if it had refunded any money collected through the outlawed bonds.
The case was back in court after the regulator said Sahara had not complied with the order, while Sahara argued the regulator "deliberately refused" to accept documents and information submitted by it.
The court granted extra time to Sahara despite objections from lawyers representing the Securities and Exchange Board of India (SEBI), a lawyer for the regulator said.
Sahara, whose interests range from finance and real estate to sports, has acquired a string of trophy properties in recent years, and recently bought the Plaza Hotel in New York.
In 2008, India's central bank ordered a Sahara company to stop taking deposits from the public.
SEBI issued advertisements in late October saying it had received complaints from investors that they were being "forced" by Sahara agents and officials to switch the money held through the banned bonds to other investment products sold by the group.
Sahara has sought a review of the court's August order. The court is yet to give a verdict on the review petition. ($1=54.6400 Indian rupees) (Editing by Tony Munroe and Mike Nesbit)