The recent faceoff between the West Bengal police and the CBI over the investigation of the Chit Fund scam has been given a political colour by the West Bengal Chief Minister Mamata Banerjee. So it is imperative that we understand what the whole scam is all about.
What is Saradha Group?
The Kolkata based Saradha group, has more than 100 firms registered with the RoC (Registrar of Companies) for businesses across sectors including real estate, automobile, education., exports, shopping mall, agro development, tour and travels, and entertainment. Most businesses operate under the Saradha name with their registered address at Diamond Harbour Road in Kolkata.
As part of the group’s brand building exercise, eminent personalities are connected with the group.
What is the Saradha Scam About?
- According to Serious Fraud Investigation Office (SFIO), the Saradha Group was using collections from new investors to make payments to previously enrolled members, rather than from income generated through investments, a typical Ponzi scheme.
- The group companies were found to be in serious violation of the Companies Act, the Sebi Act, and several provisions of the Indian Penal Code.
- The group had mopped up money from over 17 lakh depositors through a ponzi scheme before it went bust in 2013.
- Rose Valley was another related chit fund scam done by a set of people directly or indirectly connected with the Saradha scam.
- According to Enforcement Directorate (ED), a portion of the money was also used to bribe politicians so that the scam can run smoothly.
- Marketing agents who promoted investment schemes of the controversial Saradha group of companies among investors in various states were earning a high commission of 35 per cent till the time the alleged scam became public, says an ED probe report
- A high interest rate of 18 per cent was assured to investors if they invested in the groups’ schemes for a period of 3-5 years.
The Big Guns Involved
- By end of 2014, CBI had arrested prominent persons in connection with it. Trinamool Congress MP Srinjoy Bose, suspended party MP Kumal Ghosh, former Director General of of West Bengal Police Rajat Majumdar, Assamese singer Sadananda Gogoi, East Bengal club official Debabrata Sarkar and businessman Sandhir Agarwal, besides Sudipta Sen, the Chairman and Somnath Dutta, the vice president of Saradha’s media group
- West Bengal textiles minister Shyamaprasad Mukherjee: who illegally sold off government land along with the cement factory to the Saradha group
- Nalini Chidambram, Congress’ P Chidambram’s wife has been chargesheeted by the CBI for accepting a bribe of Rs 4 crore.
- Manoranjana Sinh: the estranged wife of former Congress Union minister Matang Sinh was arrested by the CBI for allegedly taking money from Sudipto Sen.
- Mamata Banerjee: When CBI seized around 20 or more paintings, she has come under the scanner especially in the wake of Sudipto Sen buying one of here paintings for a whopping Rs 8 crore.
- Rajeev Kumar: The Commissioner of Police of Kolkata has been at the centre of most recent controversy when he allegedly sought to prevent CBI officers from questioning him on account of the alleged attempt to brush the wrongdoings in Saradha scam under the carpet.
The Amount Involved
Nearly Rs 20,000 to 30,000 crore were raised from lakhs of depositors before collapsing in April 2013.
Rose Valley scam was even bigger than the Saradha scam and according to Enforcement Directorate estimates more than Rs 15,000 crore was reportedly collected from depositors across India mainly from West Bengal, Assam and Bihar. However, according to a report by News18, the all India small depositors association pegged the amount at Rs 40,000 crore. Few reports pegged the amount at over Rs 60,000 crore.
What does Law Say?
- Chit Funds Act, 1982: Chit funds in India are governed by the Chit Funds Act, 1982. Under this Act, the chit fund businesses can be registered and regulated only by the respective State Governments.
- Prize Chits and Money Circulation Scheme (Banning) Act, 1978: It is aimed at banning the promotion and circulation of prize chits and money circulation. It enables the State government to keep a control on easy money-making schemes which lures a lot of innocents who are willing to make money by investing into chit fund or money circulation schemes.
- Involvement of a host of govt agencies: A large number of government investigative agencies are involved: Ministry of Corporate Affairs, the ED the CBI, SEBI, the SFIO, the Income Tax department, the Crime Branch in states and the courts
The Course of Justice
- Initially, in 2013, when the Saradha Group of companies went bust, the investigation was entrusted to the Bidhannagar (Salt Lake) police commissionerate by the state government.
- West Bengal government had formed the SIT in 2013 with officers drawn from the state’s CID and Kolkata Police.
- However, owing to public complaints, Corporate Affairs Minister decided to order a probe into the issue.
- Then the Supreme Court had to transfer the case to CBI in 2014 after serious allegations of international money laundering, severe regulatory failures and political nexus surfaced.
- ED registered a criminal case in the Saradha scam under the Prevention of Money Laundering Act (PMLA) in West Bengal, Odisha and Assam.
- By early 2014, under the provisions of Prevention of Money Laundering Act, based on the details collected on the ponzi scheme scam, the ED had attached properties worth Rs 34 crore in West Bengal and Rs 1.4 crore in Odisha.
- According to the SEBI, one of the companies, Saradha Realty was engaged in the fund mobilisation activity from public through investment contracts by floating CIS and it had launched such scheme without obtaining certificate from Sebi. The CIS operations are regulated by Sebi and any entity raising funds through this route requires a prior approval from the capital markets regulator.
- So, on Sardha Realty, Sebi had imposed a fine of Rs 2 crore on the company, its chief Sudipta Sen and two directors for failing to comply with its earlier directions to wind up illicit money-pooling schemes and refund the investors
- Sardha Realty was asked by Sebi through an order in April 2013 to wind up all existing collective investment schemes and (CIS) to refund the money collected from investors, with returns, within three months.
- The Corporate Affairs Ministry had also authorised the Serious Fraud Investigation Office (SFIO) to file winding up petitions against these companies on behalf of the Centre.
- According to a report filed by SFIO before NCLT, The companies had been formed for “fraudulent and unlawful purpose” and as such the directors of the respective companies had been guilty of “misfeasance or misconduct”. The promoters/directors of all the companies appeared to be guilty of offences of fraud, misfeasance and misconduct relating to affairs of the companies.
- According to SFIO, the corporate frauds investigating agency had concluded that directors of the companies had cheated the public at large, violated provision of Companies Act, 1956, misappropriated Rs 2,542.62 crore, misappropriated funds of Rs 59 crore through illegal transfer of shares and prepared false financial statements, among others.
- National Company Law Tribunal’s (NCLT) city bench has ordered winding up of 13 defunct companies of the Saradha Group and directed the official liquidator to take possession of assets and properties of all these companies.
- CBI has filed over 80 chargesheets in Rose Valley and Saradha scam so far while over Rs 1,000 crore of public money has been recovered.
Now that the Chief Minister herself is under question with the two parties having approached the Supreme Court, it is up to the highest court to settle this extremely complex matter. However, a more important question is why Mamata Banerjee is all of a sudden so jittery about the CBI interrogating the Commissioner of Police in the matter. Is she scared that the long arm of the law might just reach her doorstep?