HAPPENINGS OF THE SCAMA Kolkata based Saradha group of companies whose chief is Sudipta Sen is been reportedly accused for its multi crores chit fund scam where it has cheated its lakh of investors both poor and rich. Saradha group has more than 100 firms registered with the ROC (Registrar of Companies) and deal with a number of business like real estate, automobile, education and entertainment. Most of the firms associated with the Saradha group is registered with the company name starting with Saradha but of course there are few others belonging to the same group in different names too. According to the Corporate Affairs Ministry it is not only the same company name but also most of these have registered in the address of Diamond Harbour Road in Kolkata. But however most of the companies belonging to the Saradha group were dealing with real estate in the names of Saradha Build-Dev, Saradha Realty India, Saradha Infra Properties, Saradha Township, Saradha Villa and Saradha Housing.
SARADHA GROUP OF REGISTERED COMPANIES - ASSOCIATED WITH VARIED FIELDSSaradha group of registered companies were all associated with varied fields like education, exports, automobiles, shopping mall, agro development, tour and travels and much more. Saradha Education Enterprises, Saradha Exports, Saradha Automobiles India, Saradha Tours and Travels, Saradha Biogas Production and Saradha Printing and Publication also fall under the Saradha group of companies. Saradha chit fund financial scandal was caused by the sudden fall of Ponzi scheme run by the Saradha Group which involved an association of nearly 200 private companies managing an elaborate collective investment schemes. However in April 2013 the Saradha group had a major disintegration resulting in an estimated loss of INR 200-300 billion (US$4-6 billion) involving nearly 1.7 million depositors. After this an enquiry commission was put in motion to investigate the downfall and also it was decided at that part of time to set up a fund of INR 5 billion (92 million USD) to ensure that low-income investors are not bankrupted or wiped out.
THE INCOME TAX DEPARTMENT AND ENFORCEMENT DIRECTORATEThe Income Tax Department and the Enforcement Directorate of the Union Government initiated a multi-agency probe to investigate the Saradha scam, as well as other similar Ponzi schemes. However due to unwelcome consequence of actions in the state like failure of rules and regulations in the international money laundering activities, apparent political influence and much made the Supreme Court of India to transfer the investigations related to Saradha scam and other Ponzi schemes to Central Bureau of Investigation, the federal investigative agency. The Securities and Exchange Board of India ( SEBI ) which regulates the share market is also probing into the fund raising activities of the Saradha group of firms in Kolkata. Sebi has also instructed the Saradha Realty India to close all its collective schemes and refund the money collected from investors within three months. It was only after Sebi interfered that the bubble burst where they started cracking the whip on chit fund companies for defied rules, triggering pressure on the group's finances.
INVESTIGATIONBeing a big group of companies the turnout per year was billion INR and the most notable feature is that at least 95% of the fund was made in the last three years of the scam. Just like any other Ponzi schemes, Saradha group of chit funds also guaranteed heavenly returns in an attractive but convincing investment. The company hired people from the local rural communities as agents and started to sell the funds through them on basis and terms of commission. However at least 25-40% of the deposit money was given to the agents as commission along with some attractive gifts. Thus the Saradha group of company to keep themselves much ahead in the market, used a group of series of connections of companies to conceal the origin of the illegal money which was got. The company worked in such a way that initially the organizations which were in the front end collected money from the public by issuing secured debentures and redeemable preferential bonds.
THE SECTION 67 OF THE INDIAN COMPANIES ACTBut however this was against the Section 67 of the Indian Companies Act for a company cannot raise capital from more than 50 people without issuing a proper prospectus and balance sheet. It is a must for an official financial inspection of money. There should be a detailed consent or authorization from the market regulator Securities and Exchange Board of India (SEBI). Already in the year 2009 the Saradha group of companies was challenged by Sebi for which the company counteracted by opening at least 200 more companies so as to form more cross holdings which resulted in a complex tiered corporate structure which made it difficult to pin blame on any one company. With continuous interference from SEBI, Saradha group responded by changing the way in which they collected or raised the capital. They ran variations of collective investment schemes (CIS) not only in West Bengal but in adjoining states like Jharkhand, Assam and Chhattisgarh. Some of the collective investment schemes include tourism packages, forward travel and hotel booking timeshare, credit transfer, real estate, infrastructure finance, and motorcycle manufacturing.
THE INVESTMENT WAS FRAUDULENTLY SOLD AS A FORM OF 'CHIT FUND'
The true nature of the investment pattern was not kept clear among the investors for they were only given a fancy picture of the expected high returns after a specific period. To other investors, the investment was fraudulently sold as a form of 'chit fund'. Under the Chit Fund Act (1982), chit funds are regulated by state governments rather than SEBI. Sebi already in the year 2011 warned the state government of West Bengal about the illegal chit fund activities of the Saradha group. After this the Saradha group once again changed its working pattern where it acquired and sold large numbers of shares of various listed companies, siphoning off the proceeds of the sale to accounts which have not yet been identified. By 2012 Sebi very strictly warned the Saradha group stating that they fall under activities of CIS and not chit fund and immediately ordered to stop all the activities of the various investment schemes. But Saradha group did not take this into consideration and kept working the same way until it collapsed in April 2013.
The Court also shed light on the simultaneous attachment and auction of the assets of suspected Ponzi companies, to return back to the depositors who were cheated. It also stated that judicial proceedings initiated by Enforcement Directorate (authorized under federal laws) and various state agencies (authorized under state laws) would also run parallel to the CBI investigation. The chairman of Saradha group of companies was declared to be guilty on the grounds of criminal offence by the verdict of a jury on February 2014. He was charged under various provisions of employment law, as a Director of Saradha Group for his failure to deposit with the provident fund authorities Rs. 0.03 million that his firm owed to its employees; he was sentenced by the trial court to three years in jail, it was the first conviction in a series of civil and criminal cases, relating to corporate fraud and non-payment of deposits, pending against him.
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