By Mula Sneha Goud, JSS Law College, Mysore.

Limited access to formal banking system has made room for another scam. The greed for money and limited knowledge on banking has created a web of informal banking, by moneylenders. However failure to curb the role of these moneylenders and mitigate informal systems gave rise to devious financial operators, introducing attractive schemes like Ponzi.[1]This is a fraudulent investing scam promising high rates of returns with little risk to the investors. Returns under this scheme are generated by acquiring new investors. The Saradha Scam is one of such kind. A major financial and political scandal resulted out of the collapse of Ponzi scheme, run by Saradha Group.

The Saradha Group comprises of companies, incorporated in 2006.[2] Investors were attracted towards these Ponzi schemes as Saradha Group promised exorbitant returns and credible investments. Agents were paid as much as 30% of commission on the deposits along with rewarding gifts that bridge a wide agent pyramid.[3] This scam is a result of the gambling done by the Group to launder money. Saradha Group tried to draw in many companies, to evade regulators. The roots of this scam traced through frontline companies of the Group that collected money from public by issuing bonds, debentures such as secured bonds and preferential debentures.[4]

For the first time, Saradha Group was confronted by the regulatory authority, SEBI in the year 2009.[5] Slowly, Saradha Group created an extremely intricate corporate structure with around 200 new companies, perplexing SEBI’s ability to consolidate blame.[6] Saradha Group like a dynasty was entirely operating in West Bengal and in parts of Jharkhand, Assam, and Chattisgarh. In lieu of high returns, investors invested without knowing the true nature of their investments which was fraudulently sold in the form of a chit fund. SEBI continued to investigate the same and persisted in it.

SEBI issued a notice to the Government of West Bengal briefing the activities of the Group, to control and regulate the same. Government has failed to take precautionary steps resulting in the present disaster. It seems that, Saradha Group kept adding a link to their chain of businesses in consequential to the steps taken by SEBI. Soon, it acquired and sold large numbers of shares of various listed companies by embezzling the proceeds of the sale through accounts, which as of September 2014 have not been identified. Eventually, Saradha Group also extended their money laundering operations in foreign states like Dubai, Singapore etc.[7]

OUT-FIELD PLAYERS: “POLL TRICKS”

CBI received an 18-page confessional letter from Sen, admitting that he had paid large sums of money to several politicians and also accused TMC leader Kunal Ghosh for forcing him to enter into loss-making media ventures and blackmailing him to purchase one of his television channels at below market price.[8] Further investigations made it apparent that Saradha scam involves several political players, who were part of this money laundering scandal and other activities that the Group was involved in.

“Saradha scandal” has become a major campaign for political parties in West Bengal during 2014 elections. Allegations, blames, challenge etc spread chaos throughout the State. While CPM, Congress and BJP accused TMC for facilitating and profiting from the fraud, TMC alleged that the companies were allowed to register during the government run by CPM in the state and Congress in the Centre. More political controversy occurred, when Mr. Modi, Hon’ble prime minister stated his apprehension of Mamata Bannerjee being directly benefited from the Ponzi scheme citing few instances like her paintings being allegedly bought for 1.8 crore (US$280,000) by the Saradha Group.[9] These allegations resulted in violent reactions from the State Government. TMC threatened to initiate a legal action for defamation and called Modi the “Butcher of Gujarat”.[10]

CHAOS SPREAD OVER

The Ponzi scheme was unravelled in the absence of Sen and spread like turmoil in Bengal. Arrest warrant was issued on Sen.

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SEBI has initiated immediate action and took measures to have control over the activities of the Group so as to desist further scandal.[11] After duping hundreds of investors allegedly, the resultant public and investors’ outcry forced the Mamata Banerjee government to quickly form a commission under the chairmanship of retired judge Shyamal Sen to return money to the investors by way of raising taxes.[12]Commission has finished its initial compilation of the list of claimants who were around 1.74 million depositors of which 83% invested 10000 (US$160) or less.[13] Recommended the state government should sell the assets of Saradha Group and proportionally distribute the returns among defrauded investors.

CONTROVERSIES AND ONGOING INVESTIGATION

It has become a major issue in West Bengal resulting in sleepless nights to the ruling party as well to the investors. Investigation shows that many of the Trinamool Congress leaders were key players and are indulged in the activities conducted by Saradha Group.
The Commission established by the government met with limited success, but now stood dissolved. Unearthing the roots of the scam was handed over completely to the two central investigating agencies, CBI and ED. This has resulted in taking custody of few top Trinamool leaders including a state minister, under apprehension. These arrests have come up as an embarrassment to Trinamool Government and Mamata Banerjee later claimed it, as a conspiracy of the Narendra Modi-led BJP government at the Centre with its quest for getting a space in the state’s political sphere as the next assembly polls are due in 2016.[14]

CBI Investigation also revealed the usage of Group’s fund by Bengal Government, which in turn was a huge support for the Group. The involvement of people from same party and prominent faces of the Saradha Group, are unable to explain many of their earlier transactions. CPI (M) blammed Trinamool Congress for the phenomenal rise of these firms while the latter rebutted that the evolution of these companies started during the Left Front rule and the responsibility lay on them. BJP put the blame on both Trinamool Congress and CPI(M) stating that both of them are accountable for the destructive trail which these entities had created. This is more of a blame game trying to put their parties away from the scam. Seems like, the politicians are ready to play the game when the ball falls in their court.

SUPREME COURT ON SARADHA SCAM

PIL was filed by Akhil Gogoi, RTI Activist in Guwahati High Court and Adv. Basabi Roy in Calcutta High Court, seeking CBI investigation against the Saradha Group and other chit fund companies. A division bench of Calcutta High Court observed that “the ramifications of the scam included other states; a central agency would do Justice to the investigation”[15]. The Hon’ble Court gave state government a week’s time to submit its investigation report to see whether the probe was being conducted in a fair manner. Dissatisfied with the order, petitioners appealed to the Apex Court via Special Leave Petition (SLP). On request from the state governments of Orissa, Jharkhand and Tripura, respondents to the case, SC ordered CBI probe into all money collection entities in India.[16] On 9 May 2014, the divisional bench of the Supreme Court ordered CBI to investigate all Ponzi schemes, including Saradha, in Eastern India and also directed the suspected Ponzi companies to reimburse depositors at the end of the judicial proceedings initiated by Enforcement Directorate authorised under federal laws and various state agencies authorised under state laws would also run parallel to the CBI investigation.[17]

The Supreme Court in Subrata Chattaraj petition pertinently observed as follows:[18]“All that we need to point out is that investigation into the scam is not confined to those directly involved in the affairs of companies but may extend to suffer others who need to be questioned about their role in the sequence and unfolding, all events that has caused ripples on several fronts.” The Supreme Court also stated that investigation into the larger conspiracy angle is also necessary for unearthing the truth. There were three separate petitions filed in the present case. The Hon’ble Supreme Court has ordered for clubbing petitions and be kept out of list for the time being and be placed as a “Specially Assigned Matter” before the Division Bench. Recently, Debabrata Sarkar, one of the accused in the said scam filed an application for bail U/S 439 of CrPC is also dismissed by the Hon’ble SC in the public interest.[19]

CONCLUSION

On an average, Indian citizens are hardworking and diligent, but it is the people in charge of the system or with whom the power vests, slows down the progress. However, a tax payer actually realizes the pain of being cheated from his valued contribution of funds towards the development, is spent to build up the loss that arose from the multi crore scams. We had number of scams in India; but none bigger than the scam of Rs 2000 Crore in which 25 lakh gullible investors were duped of their hard earned money. Another feature in the cap of Indian financial and political scandal list is SHARADA Scam. Every scam has something unique in it to make money out of it in an unscrupulous manner, Saradha scam also had all the suspense and drama that the scandal needed to thrive and be busted.

It would be unfair to declare TMC/Mamata Banerjee as criminals when the case is still pending. But it is still not advisable to grant bail, as lakhs of people were swindled of their hard-earned money. They being a powerful Group will try to dole out the proceeds of crime to prevent legal action initiated for violation of laws in its dealings with public. Releasing them on bail, at this stage, would hinder investigation process which is at crucial stage. There is an apprehension that the members involved in the scam being closely associated with a reputed club of the country might use their clout to prevent legal action. The Hon’ble Court must have a different approach in this case as the public interest prevails over individual’s interest and ensure untainted, fair and free investigation in light of justice and equity.

References:

[1]Ponzi Scheme, U. S. Securities and Exchange Commission, available at: http://www.sec.gov/answers/Ponzi.htm (Visited on January 3rd, 2015)

[2]Saradha Group has over 100 registered companies, The Economic Times, available at: http://articles.economictimes.indiatimes.com/2013-04-25/news/38817241_1_Saradha-Group-Saradha-realty-india-investors (Updated on April 25, 2013)

[3] Saradha scam: CBI to record statements of company’s agents, The Pioneer, available at:

http://www.dailypioneer.com/nation/Saradha-scam-cbi-to-record-statements-of-companys-agents.html, (Updated on October 21, 2014)

[4]Section 67, Indian Companies Act, 1956, available at: http://indiankanoon.org/doc/430505/(Visited on January 3rd, 2015)

[5] Saradha Group Financial Scandal, Ghotala.in, available at: http://www.ghotala.in/2015/01/04/Saradha-Group-financial-scandal/ (visited on January 4, 2015)

[6] Saradha Scam – The losers and the gainers, Communist Party of India-West Bengal State Council, available at: http://cpiwestbengal.blogspot.in/2014/10/Saradha-scam-losers-and-gainers.html (Updated on October 06, 2014)

[7] Supra 3

[8] Sudipta Sen Letter to Cbi 18 Page, Reality views, available at:   http://www.scribd.com/doc/137777892/Sudipta-Sen-Letter-to-Cbi-18-Page#scribd (visited on January 4, 2015)

[9] Soudhriti Bhabani, Mamata benefited most from Saradha’: Suspended MP demands interrogation of West Bengal Chief Minister in connection with Ponzi scheme, available at: http://www.dailymail.co.uk/indiahome/indianews/article-2746443/Mamata-benefited-Saradha-Suspended-MP-demands-interrogation-West-Bengal-Chief-Minister-Sudipta-Sen-connection-Ponzi-scheme.html#ixzz3O2SIaex6 (Updated on September 6, 2014)

[10]After fresh Modi attack, TMC calls him ‘Butcher of Gujarat, Times of India, available at: http://timesofindia.indiatimes.com/news/After-fresh-Modi-attack-TMC-calls-him-Butcher-of-Gujarat/articleshow/34303321.cms, (Updated on April 27, 2014)

[11]Saradha chit fund scam at a glance, ET Bureau, The Economic times, available at: http://articles.economictimes.indiatimes.com/2014-12-13/news/57012163_1_Saradha-Group-Saradha-chit-fund-scam-Saradha-realty, (Updated on December 13, 2014)

[12]Ponzi scam brought Trinamool under scanner, Bengal Press Trust Of India, available at: http://ibnlive.in.com/news/Ponzi-scam-brought-trinamool-congress-under-scanner-in-west-bengal-in-2014/519477-3-231.html (Updated on December 23, 2014)

[13]Pariplab Chakraborty, Breaking Down the Saradha Scam, New Eclipse, available at: http://newseclipse.com/304/breaking-down-the-Saradha-scam/ (Updated on May 15, 2014)

[14] Ponzi scam brought Trinamool Congress under scanner in West Bengal in 2014, IBN Live, available at: http://ibnlive.in.com/news/Ponzi-scam-brought-trinamool-congress-under-scanner-in-west-bengal-in-2014/519477-3-231.html (December 23, 2014)

[15]Saradha scam: CBI inquiry, multi-agency probe launched, HT Correspondence, Hindustan Times, available at: http://www.hindustantimes.com/news-feed/chunk-ht-ui-indiasectionpage-bengalscam/Saradha-scam-cbi-inquiry-multi-agency-probe-launched/article1-1050764.aspx (Visited on January 4, 2015)

[16]CBI probe into Saradha scam not allowed by HC, Rediff.com, available at: http://www.rediff.com/news/report/cbi-probe-into-Saradha-scam-not-allowed-by-hc/20130619.htm (Visited on January 4, 2015)

[17] Supra 14

[18] Basabi Rai Chowdhury vs Union Of India & Ors , available at: indiankanoon.org (Visited on 3 January, 2015)

[19] Satlingappa Mhetre vs State Of Maharashtra And Ors, available at: indiankanoon.org ( Visited on January 3, 2015)

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