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Former type Privately owned
Industry Financial services, infrastructure management, automobiles, manufacturing
Genre Deposit mobilising company
Fate Allegations that this consortium of companies is a Ponzi scheme
Founders Sudipto Sen
Defunct April 2013
Headquarters Kolkata, West Bengal, India
Key people Sudipto Sen, Chairman & MD
Debjani Mukherjee, Director
Kunal Ghosh, CEO, Media Div.
Employees 16000+
Divisions Saradha Realty
Saradha Exports
Global automobiles
Saradha media group
Website saradhagroup.biz

The Saradha Group financial scandal is a financial scam that was caused by the collapse of a Ponzi scheme run by Saradha Group, a consortium of over 200 private companies that was believed to be running a wide variety of collective investment schemes (popularly but incorrectly referred to as chit fund)[1][2][3] in Eastern India.[4] The group collapsed in April 2013, causing an estimated loss of INR 200–300 billion (US$4–6 billion)[5][6] to over 1.7 million depositors.[7] In the aftermath of the scandal, the State Government of West Bengal, where the Saradha Group and the majority of duped investors were based, instituted an inquiry commission to investigate the collapse[8] and also set up a fund of INR 5 billion (92 million USD) to ensure that low-income investors are not bankrupted.[9] The Union Government through the Income Tax Department and Enforcement Directorate also launched a multi-agency probe to investigate the Saradha scam, as well as other similar Ponzi schemes.[10] In May 2014, the Supreme Court of India citing inter-state ramifications, possible international money laundering, serious regulatory failures and alleged political nexus transferred all investigations in the Saradha Scam and other Ponzi schemes to Central Bureau of Investigation, the federal investigative agency.[11][12]

Background[edit]

India has a large low-income rural population with low access to formal banking facilities.[13] A web of parallel informal banking arose to fill the vacuum. At its centre were moneylenders, who used to charge exorbitant rates of interest; to curb this practice several Moneylenders Acts were enacted by the state governments by the 1950s.[14] However failure to replace the role of moneylenders gave rise to fly-by-night financial operators who ran Ponzi schemes in various disguises.[15] However some commentators place the blame for these kinds of Ponzi schemes on greed rather than exclusion from formal banking systems.[16][17][18]

The relatively prosperous rural economy of West Bengal had previously relied on small savings schemes run by Indian Postal Service. However, low rates of interest in the 1980s and '90s encouraged the rise of several Ponzi schemes in speculative ventures such as Sanchayita Investments, Overland Investment Company, Verona Credit and Commercial Investment Company. Together, these scams eliminated close to 10 billion INR in investor wealth.[19][20]

In spite of this history of Ponzi schemes, the continuing decline in interest rates, rapid financialisation of household savings, lack of financial literacy and investor awareness, political patronage, absence of adequate legal deterrence, and regulatory arbitrage encouraged the growth of similar companies.[21] These companies either raised their funds through legitimate channels such as collective investment schemes, non-convertible debentures and preference shares, or illegitimately through hoax financial instruments such as teak bonds, potato bonds or fictitious ventures in agro-export, construction, manufacturing, etc. As of 2013, 8 out of every 10 multi-level marketing and finance schemes against which complaints have been received are based in West Bengal, giving the state the sordid title of 'Ponzi capital of India'.[22] It is estimated that these Ponzi funds have altogether amassed around INR 10 trillion (short scale) (200 billion USD) from unsuspecting depositors in Eastern India.[23]

Modus operandi of Saradha[edit]

Financial operations[edit]

The companies that made up Saradha Group were incorporated in 2006. Its name is a cacography of Sarada Devi, a highly revered spiritual icon of the region and the wife and spiritual counterpart of Ramakrishna Paramahamsa, a nineteenth-century mystic of Bengal.[24] This association gave Saradha Group a veneer of respectability.[25]

Money collected by Saradha Group of companies per year in billion INR. 95% of the fund was collected in the last three years of the scam. Source: 2014 SIT Report

Like all Ponzi schemes, Saradha Group promised astronomical returns in fanciful but credible investments.[26] Its funds were sold on commission by agents who were recruited from local rural communities. As much as 25–40% of the deposit was returned to these agents as commissions and lucrative gifts to quickly build up a wide agent pyramid.[27] To keep ahead of regulators, the group used a nexus of companies to launder money.[28]

Initially, the front-line companies collected money from the public by issuing secured debentures and redeemable preferential bonds.[29] However, under Indian Securities regulations and section 67 of the Indian Companies Act, 1956 a company cannot raise capital from more than 50 people without issuing a proper prospectus and balance sheet. Its accounts must be audited. It must also have explicit permission from the market regulator Securities and Exchange Board of India (SEBI).[30]

SEBI first challenged Saradha Group in 2009. Saradha Group responded by opening as many as 200 new companies to create more cross-holdings. This created an extremely complex tiered corporate structure which made it difficult to pin blame on any one company.[31]

However, SEBI persisted in its investigation through 2010.[32] In response, Saradha Group changed its methods of raising capital. In West Bengal, Jharkhand, Assam and Chhattisgarh, it now ran variations of collective investment schemes (CIS), such as tourism packages, forward travel and hotel booking timeshare credit transfer, real estate, infrastructure finance, and motorcycle manufacturing.[33][34] The investors were rarely informed about the true nature of the investments. Instead, many investors were told only that they would get high returns after a fixed period.[35] 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.[36]

After SEBI warned the state government of West Bengal about Saradha Group's apparent chit fund activities in 2011,[37] Saradha Group changed its methods again. This time, 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.[38] Around this period Saradha Group started laundering a large portion of its funds to Dubai,[39] South Africa[40] and Singapore.[41]

By 2012, SEBI was able to identify the group's activities as CIS, not chit fund, and demanded that it immediately stop operating its investment schemes until it received proper permission from SEBI.[37] However, Saradha Group ignored SEBI, and continued to operate in the same manner until it collapsed in April 2013.[42]

Building brand and non-financial businesses[edit]

Like previous Ponzi schemes, Saradha Group invested strongly in building its brand.[43] With enormous funds at its disposal, Saradha invested in high visibility sectors, such as the Bengali film industry,[44] where it recruited famous actress and Trinamool Congress (TMC) Member of parliament Satabdi Roy as its brand ambassador.[45] Famous bollywood actor and Member of parliament from Trinamool Congress Mithun Chakraborty was engaged as the brand ambassador of Saradha Group's media platform.[46][47]

Saradha Group also enlisted Kunal Ghosh, another Trinamool Congress Member of parliament, to act as the CEO of the media group.[45] Under Kunal Ghosh, the group went on a spree of buying and establishing local television channels and newspapers, investing around INR 9.88 billion in the media group.[48] By 2013 it employed over 1500 journalists and owned eight newspapers in five languages: Seven Sisters Post and Bengal Post (English dailies), Sakalbela and Kalom (Bengali dailies), Prabhat Varta (Hindi daily),[49] Ajir Dainik Baturi (Assamese daily),[50] Azad Hind[51] (Urdu daily) and Parama (Bengali weekly magazine). It also owned two Bengali news channels (Tara Newz and Channel 10), two Bengali general entertainment channels (Tara Muzic and Tara Bangla),[52] one Punjabi general entertainment channel (Tara Punjabi),[53] one international channel aimed at Indian diaspora (TV South East Asia)[54] and one FM radio station.[55] Noted auteur Aparna Sen was made the editor of Parama.[56][57]

In 2011, Saradha Group bought Global Automobiles, a heavily indebted motorcycle company, to front the latest version of its Ponzi scheme. Even though the company immediately stopped most production, it kept 150 workers on payroll who "pretended to work whenever truckloads and busloads of prospective depositors of Saradha Realty visited the plant for a first-hand check before investing."[58] It also bought similar shell companies like West Bengal Awadhoot Agro Private Ltd in North 24-Parganas and Landmark Cement in Bankura to showcase them to agents and depositors and convince them that the Saradha Group had diversified interests.[59]

As part of its corporate social responsibility program, Saradha Group donated motorcycles to the Kolkata Police. On 19 July 2011, it persuaded Mamata Banerjee, the Chief Minister of West Bengal to launch its ambulances and motorcycles for the Jangalmahal area of West Midnapore.[60]

To further etch itself in the socio-cultural milieu of Bengal, Saradha Group invested in football rivals and the best known football clubs in Bengal: Mohun Bagan A.C. (INR 18 million in 2010–11) and East Bengal F.C. (INR 35 million since 2010).[61][62] The group also generously sponsored various Durga Puja celebrations organised by local political leaders.[63][64]

Political patronage[edit]

Several political leaders received financial support from Saradha Group, including several Members of Parliament of Trinamool Congress, the incumbent ruling party of West Bengal.[26]

Member of Parliament Kunal Ghosh drew a salary of INR 1.6 million per month from Saradha Group. Member of Parliament Srinjoy Bose, son of Swapan Sadhan Bose, was directly involved with the media operations of Saradha Group.[65] Transport Minister Madan Mitra headed the employees' union of Saradha Group, and publicly encouraged people to invest their savings with the company.[66] Sudipto Sen reportedly spent Rs 18.6 million to buy paintings by Mamata Banerjee, whose government later issued a notification that public libraries should buy and display newspapers of Saradha group.[67] The loss making Lamdmark Cement company co-owned by textiles minister Shyamapada Mukherjee, was bought at a premium by Saradha Group.[68][69] The group also had financial dealings with Ganesh Dey, the confidential assistant of the finance minister of the erstwhile Left Front government, who was later expelled.[70]

Politicians outside West Bengal also benefited from Saradha Group. The Health and Education Minister of Assam, Himanta Biswa Sarma, may have profited personally from the Ponzi scheme.[71][72] Sen had claimed of paying Rs 250 million to Manoranjana Singh, wife of former Congress Member of Parliament from Assam and Union Cabinet minister Matang Singh, Rs 30 million to her father K N Gupta to buy shares in a TV channel, allegedly at an inflated price. As per ED officials investigating the case, the actual amount paid could be almost double of what is being claimed.[73][74]

Some commentators also state that this Ponzi scheme only survived for so many years because of its heavy political patronage.[75][76]

Collapse and unravelling of the scam[edit]

The earliest public warnings about the reckless and fradulent CIS in West Bengal started in 2009, from members of parliament Somendra Nath Mitra and Abu Hasem Khan Choudhury and West Bengal Consumer Affairs Minister Sadhan Pande.[77] However, apart from the SEBI investigation, no executive actions were taken at this time.

On 7 December 2012, RBI governor Duvvuri Subbarao stated that the West Bengal government should initiate suo motu action against companies that were indulging in financial malpractice.[78] By that time, the Saradha Group Ponzi scheme was already beginning to unravel.

In January 2013, the cash inflow of Saradha Group was less than its cash payouts for the first time. This outcome is inevitable in a Ponzi scheme that is allowed to run full course. Although Sudipta Sen tried to calm uneasy depositors and agents, the tide had irrevocably turned.[79]

On 6 April 2013, Sudipto Sen wrote an 18-page confessional letter to the Central Bureau of Investigation, in which he admitted that he had paid large sums of money to several politicians.[80] He also stated that TMC leader Kunal Ghosh had forced him to enter into money-losing media ventures and blackmailed him into selling one of his channels at below market price.[81] After posting this letter on 10 April, Sen fled.

In his absence, the Ponzi scheme unravelled into a full-blown crisis. On 17 April, approximately 600 collection agents claiming to be associated with Saradha Group assembled at the headquarters of TMC and demanded government intervention.

The mood of despondency quickly spread across Bengal. As described by a Times of India interviewee, "'The entire Dakshin Barasat today looks like it was hit by a cyclone. Every home has a bankrupt depositor or a fugitive agent. People who were friends have turned enemies. Happy households have become miserable. Students have stopped going to school. Traders have lost interest in opening shutters. There is a sense of treachery that has replaced the warmth of a neighbourhood. Suddenly everything has become vicious."[79] By this time, the Saradha Group financial scandal had colloquially become known as "Bonzi", a portmanteau of the words Ponzi and Bengal.[82]

On 18 April, an arrest warrant was issued for Sudipto Sen.[83] By 20 April, the news of potentially the largest Ponzi scheme ever seen in India had become ongoing headline news in West Bengal, and then front-page news nationally.[84][85][86] After a massive manhunt, Sudipto Sen, Debjani Mukhopadhdhay, and Arvind Singh Chauhan were arrested in Sonmarg, Kashmir on 23 April 2013.[87] On the same day, SEBI stated that both chain marketing and forward contracts are forms of CIS, and officially asked Saradha Group to immediately desist from raising any further capital and return all deposits by three months.[37][88]

Key people[edit]

  • Sudipto Sen was the chairman and managing director of the Saradha Group. He was arrested in Kashmir on 23 April 2013, after having been on the run for over a week.[89]
Sen was described as a soft-spoken, charming, yet forceful orator. At the time of his arrest he was in his mid-50s. In his youth, he had a different name, Shankaraditya Sen, and was part of the Naxalite movement in West Bengal. He changed his name to Sudipto Sen and may have had plastic surgery sometime in the 1990s,[90] after which he became associated with land development projects in South Kolkata. The land bank he formed at the turn of the century became the initial vehicle for enticing early customers into his Ponzi scheme.[91]
At the time of her arrest Debjani was in her early 30s. Her early training was as an air hostess. Although she originally joined Saradha Group in 2010 as a receptionist, she rose rapidly to be the 'number two' in the group hierarchy.[95] She was well known locally for her generosity to her community.[96]

Aftermath and reactions[edit]

State government reaction[edit]

  • West Bengal government: On 22 April 2013 the West Bengal government announced that a four-member judicial inquiry commission headed by Shyamal Kumar Sen, retired Chief Justice of the Allahabad High Court, would probe the scam, the commission was named Justice Shyamal Sen Commission of Enquiry (Saradha Group of Companies and other similar companies). Mamata Banerjee was reported to have commented "ja gechhey ta gechhey" (whatever has gone has gone).[97] On 24 April 2013, Mamata Banerjee announced a controversial Rs 500-crore relief fund for the low income depositors of the Saradha Group, introducing a 10 per cent additional tax on tobacco products to raise the money and in jest asked smokers "to light up a little more" to quickly fill up the requisite fund,[98][99] a comment that displeased anti-tobacco groups.[100] The propriety of the fund was later questioned by the Governor of RBI.[101] The West Bengal government also set up a Special Investigation Team (SIT) u/s 36 of the CrPC, with officers drawn from WB CID and Kolkata Police, to pool all the criminal cases and expeditiously probe the investigation.[102] The WB State Government staunchly opposed all investigations by federal investigative agencies like CBI, ED and SFIO; conceding only after the Supreme Court ordered the federal agencies to take up the reins of investigation.[103]
The state government decided to repeal an existing bill passed by the Left Front Government in 2009, which had not received the approval of the President of India.[104][105] On 30 April 2013 the new Bill titled, The West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013, was passed in a two-day special session of the West Bengal Legislative Assembly, having provisions for retrospective effect, search and seizure, enhanced penalties, establishment of special courts, confiscation of property.[106][107][108] As the Bill legislated on subject matter pertaining to the Concurrent List of the Indian Constitution, on which a federal law was already in place, the Bill required approval from the President. The Bill was sent to Union Home Ministry, which sent it back to the West Bengal Assembly on 6 June 2013 stating that the Bill has penal provisions implemented with retrospective effect, this falls foul of Basic structure doctrine of Indian constitution and the established criminal law jurisprudence.[109] On 12 December 2013, the West Bengal Legislative Assembly passed an amended version of the original bill, incorporating changes suggested by the Financial services, Revenue and Economic Affairs Departments in New Delhi. The new Bill was then sent for Presidential approval.[110]
On 8 May 2013, Mamata Banerjee stated that West Bengal was actively considering setting up a government backed small savings fund to encourage small depositors to invest in it rather than in Ponzi scams.[111] However doubts have been raised if a cash starved state with high debt burden has the financial acumen or political will to independently administer such a fund.[112]
On 23 May 2013, Chief Minister, Mamata Bannerjee indicated the willingness of West Bengal government to take over Saradha owned television channels Tara News and Tara Muzic, which had earlier been sent under administration by Calcutta High Court.[113]
  • Assam government: On 4 April 2013, the Assam Legislative Assembly unanimously passed the Assam Protection of Interests of Depositors (in Financial Establishments) (Amendment) Bill, 2013 to enhance the protections available to depositors and curb fraudulent financial schemes.[114] Soon after the Saradha scam, Assam Government sent the bill to Governor for his approval so that the bill may be forwarded to President of India for his assent.[115] On 22 April 2013 Assam Police sealed five offices of Saradha Group amid protests by depositors, agents and employees and accusations that a minister, a former DGP and government officials had facilitated the group's business ventures in the state of Assam.[116] Unlike in West Bengal where the probe is based on FIRs filed by defrauded depositors, the Assam Government suo motto registered 222 cases against 128 companies including Saradha Group, Rose Valley, Unipay 2U, Jeevan Suraksha, Prayag, Abyss Assam Group Co, Basil International Ltd., Alliance Vision Marketing Pvt. Ltd and Daffodils Group of Companies after widespread protests rocked Assam. In 17 cases, charge sheets have been filed against 42 persons belonging to 15 companies while altogether 303 persons have been arrested for swindling public money. The government had also seized nearly Rs 9.4 million in cash from the arrested and 106 bank accounts with total deposit of Rs 240 million have been frozen while a number of plots totalling more than 99 bighas, besides buildings, have been identified and necessary steps are being taken for their attachment.[115] On 6 May 2013 Assam handed over the investigation of the scam to CBI.[117]
  • Odisha government: On the basis of complaints filed by over 6000 depositors (mainly from districts adjoining Bengal), the Government of Odisha ordered the Crime Branch of Odisha Police to start investigation on the Saradha scam.[118] The Economic Offence Wing (EOW) of the Crime Branch of Odisha Police registered criminal cases against Sudipto Sen and Saradha Group; on 3 May 2013 Odisha police seized documents and sealed the local offices of Saradha group.[119][120][121] At the time of handing over investigation to CBI in May 2014, EOW had registered as many as 207 cases relating to 43 of the 44 companies and had arrested 440 persons. Chargesheet for cheating and criminal conspiracy was filed in 120 cases under provisions of the Indian Penal Code, the Prize Chits and Money Circulation Schemes (Banning) Act and the Odisha Protection of Interest of Depositors (in Financial Establishments) Act.[122]
  • Sikkim government: On 4 May 2013, based on complaints filed by depositors/investors under Sikkim Protection of Interests of Depositors Act, Sikkim Police conducted raids on Gangtok office of Kolkata-headquartered Rose Valley Group, which was also running unregistered collective investment schemes similar to Saradha group.[123][124]

Central government reaction[edit]

In March 2013, Union corporate affairs minister Sachin Pilot said in the Lok Sabha that his ministry has received complaints against West Bengal's Chakra Infrastructure, icore E-Service, MPS Group, Prayag Group, Rose Valley Group, Tower Infotech, Vibgyor Group, URO Group, Saradha Group and many others for their involvement in Ponzi or multi-layer-marketing schemes.[20] However no action was taken, it was only after the unravelling of the scam that a host of measures were announced. On 25 April 2013, Income Tax department and Ministry of Corporate Affairs started separate investigation into Saradha Scam and the other similar Ponzi funds masquerading as NBFCs or CIS.[125] On the same day the Enforcement Directorate (ED) registered a money laundering case, under the provisions of the Prevention of Money Laundering Act (PMLA), at its Guwahati office as the Assam police has registered an FIR against the Saradha group to probe the allegations of financial irregularities by numerous depositors against it.[126] On 1 May 2013, commenting on the regulatory loopholes, the Chairman of SEBI remarked that 'there should be one single regulator for entire collective investment schemes.'[127]

On 7 May 2013, the Union Government set up an inter-ministerial group with members from corporate affairs ministry, SEBI, Reserve Bank of India and officers from the Income Tax Department. The group is supposed to unify the regulations of investment schemes by NBFCs, banks and companies, which at present are governed by different laws and regulations leading to regulatory loopholes etc.[128]

In light of the scam, SEBI requested sweeping powers to investigate and prosecute any fraudulent collective investment schemes.[129] In August 2013, Central Government amended the SEBI Act and gave SEBI powers to search and seize without prior magisterial permission to crack down on illegal money collection schemes.[130][131]

Political reactions and protests[edit]

The crash of the Ponzi scheme and the publication of the letter written by Sudipto Sen led to a barrage of cross party accusations, CPM accused TMC of hobnobbing with the 'chit fund', TMC on the other hand alleged that Union Minister of Finance's wife Nalini Chidambaram had taken lawyers fee from Saradha Group to incorporate its companies and should be investigated,[132] TMC also blamed CPM for letting Ponzi funds grow in Bengal.[133] CPM demanded that the investigation should be done by CBI as many TMC leaders are involved in the scam thus an independent probe by state agencies is impossible.

Saradha Scam became a major campaign issue amongst the political parties in West Bengal during the Indian general election, 2014.[134] Allegation and counter allegations were hurled by all the political parties in the state. While the CPM, Congress and BJP once again accused TMC of facilitating and profiting from the scam, TMC retorted that the companies were allowed to register during the government run by CPM in the state and Congress in the centre.[135] Mamata Bannerjee, Chief Minister of West Bengal and Chairperson of TMC, launched a scathing attack on P. Chidambaram, the finance minister of the central government, alleging political vendetta in the timing (coinciding with the parliamentary elections) of a spurt in Enforcement Directorate (which is under the supervision of central government) investigation.[136] Yet another round of political controversy broke when Narendra Modi, the prime ministerial candidate, alluded that Mamata Bannerjee may have directly benefited from the ponzi scam when her paintings were allegedly bought for Rs. 1.8 crores by the Saradha group;[137] TMC retorted sharply to the allegations threatening legal action for defamation and taunted Modi as 'Butcher of Gujarat'.[138][139] 0n 11 September 2014, West Bengal law minister Chandrima Bhattacharya led approximately 100 TMC women supporters in an indefinite sit in protest against CBI, alleging biased and 'politically motivated probe'.[140][141]

There have been ongoing street protests around West Bengal, sometimes it has resulted in ransacking of offices of various Ponzi funds.[142] The agents and depositors of various money mobilising funds in West Bengal organised themselves under the banner of Chit Fund Sufferers Unity Forum (CFSUF) and demanded swift investigation along with reimbursement of deposits.[143] The Forum engaged in several high visibility disruptive protests[144] and was allegedly threatened and intimidated by TMC, the ruling political party.[145][146]

As per news media reports around sixty agents/depositors and executives/directors of various money pooling companies have committed suicide in the aftermath of the scandal.[147]

International reaction[edit]

In September 2014, Anandabazar Patrika, a reputed Bengali newspaper, citing several domestic and foreign intelligence reports published a series of investigative pieces which reported that Saradha Group through Ahmed Hassan Imran, a parliamentarian of Trinamool Congress, engaged Jamaat-e-Islami, a banned Bangladeshi extremist organisation, to funnel money out of India.[148][149] It has also been reported that Jamaat-e-Islami used its brokerage from the laundering operation to fuel its militant protests against the war crime trials of its founders[150] and destabilise the Awami League government in Bangladesh.[151] In response to the expose, Bangladesh Government led by Sheikh Hasina, who already had a tense relationship with Mamata Bannerjee over the latter's scuttling of Teesta River water sharing agreement, ordered formation of a high powered commission to further investigate into the matter.[152] In retort Mamata Bannerjee summoned the Deputy High Commissioner of Bangladesh to lodge protest for alleged protocol violation for 'selective leaks in media'.[153]

Judicial reactions[edit]

On 22 April 2013, separate Public Interest Litigations (PIL) were filed, in Guwahati High Court by RTI activist Akhil Gogoi and in Calcutta High Court by advocate Basabi Roy Chowdhury, both seeking CBI investigation against the Saradha Group and other chit-fund companies.[154] On 25 April, responding to the PIL, a division bench of Calcutta High Court comprising Chief Justice Arun Kumar Mishra and Justice Joymalya Bagchi said that since the ramifications of the scam included other states, a central agency would, perhaps, do justice to the investigation. However it gave state government one week to submit its investigation report to see if the probe is conducted in a fair manner.[155] On 7 May 2013, Calcutta High Court appointed a three member administrator group to run Tara News and Tara Muzic.[156] The High Court then allowed the SIT to continue with the investigation and ordered it to submit timely progress report before the court.[157] However the petitioners were dissatisfied with the order and appealed before the Supreme Court of India in July, 2013 via a Special Leave Petition (SLP).[158] Before the Supreme Court the Government of West Bengal stated that the investigation into the scam was being successfully conducted by the SIT.[159] However all the other state governments of Orissa, Jharkhand and Tripura who were respondent to the case requested for CBI enquiry.[160] The SC bench led by Justice T.S. Thakur and Justice C. Nagappan in April, 2014 hinted that SC may order a CBI probe in all money collection entities around the country.[161] On 9 May 2014, the same bench of the Supreme Court of India ordered CBI to investigate all Ponzi scams in Eastern India including Saradha scam.[162] The Court also clarified that concurrent attachment and auction of the assets of suspected Ponzi companies, to reimburse duped 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.[163] On May 12, 2014 The apex court came down heavily on regulators in the Saradha Group chit fund scam. The Supreme Court observed that a scam of such magnitude having gone undetected for years indicates a deep-rooted apathy if not criminal neglect on the part of regulators.[164]

Macroeconomic and microeconomic effects[edit]

Graph shows the fall of savings in government schemes with the rise of Ponzi funds (figures on y axis are in Crores INR)

Companies illegally mobilising deposits diverted considerable funds (estimated to be around INR 240 billion in the last three years) from small savings funds promoted by state government. Official data show a steady slide in small-savings deposits and a spurt in withdrawals, which left a thin slice for the state government to borrow from to make ends meet. This had ripple effect on the overall macroeconomic situation of the state, as because instead of being used by government for public purpose the money went into Ponzi schemes which either were siphoned off to foreign locations or were put to use for private gains.[165]

On microeconomic front it is feared that legitimate Non-banking financial companies and micro finance institutions would be stigmatised and would lead to a vicious cycle of low depositor trust, higher interest rates, lower lending and a localised credit crunch.[166] Furthermore as the majority of the depositors in Saradha group came from the lowest economic strata, the loss of the investment would result in a further decrease in social mobility.[167] On the positive side, the scam has drawn attention on similar illegal deposit mobilising companies which are facing increasing regulatory heat.[168][169] Many such companies which have been following variations of time share travel schemes on which there are little clear regulations[170] are trying to register as cooperative societies to continue their financial operations.[171]

Criminal prosecution and ongoing investigations[edit]

Central agencies[edit]

On 30 April 2013, Central Bureau of Investigation (CBI) started investigation into the scam in Assam at the request of the state government.[172][173] It had been indicated by Chief Minister of Tripura that Tripura may also order CBI probe into Saradha chit fund scam.[174]

In West Bengal as the criminal investigation had not been initially handed over to CBI, the Enforcement Directorate (a Central agency which primarily probes money laundering) led the investigation on behalf of the Central Government. In April, 2014 ED arrested the absconding wife, son and daughter-in-law of Sudipta Sen all of whom were directors in various companies of Saradha Group at some point. ED also questioned two TMC MPs Ahmad Hassan and Arpita Ghosh about their financial transactions with Saradha Group.[175] ED alleged that West Bengal police has not cooperated with it and has created hurdles in its investigation.[176][177][178]

In May 2014, Supreme Court transferred all investigations into 44 deposit mobilising companies, including Saradha Group of Companies, suspected of running variations of Ponzi scams in the states of West Bengal, Odisha, Assam, Jharkhand and Tripura to CBI.[179][180]

Special Investigation Team (SIT), West Bengal Police[edit]

FIR was filed against Sudipto Sen and Kunal Ghosh on 14 April 2013.[181] Around 6 officials from Saradha Group have been arrested. Numerous others from various illegal ponzi funds have also been arrested in several districts of West Bengal.[182] The investigation is being headed by detective department of Bidhannagar police. The general ambit of investigation has also widened to include other Ponzi funds which has scripted rags to riches stories for their promoters.[183] Kunal Ghosh along with other Ponzi fund officials from Saradha were repeatedly questioned by police to determine the true assets of the company and other facets of the fraud.[184] Kunal Ghosh was arrested by SIT in November, 2013 after he named posted a list of 12 names on his Facebook page, there were names of at least four Trinamool MPs and Trinamool supremo and West Bengal Chief Minister Mamata Banerjee.[185]

As per the initial SIT reports Saradha Group had mobilised an amount of Rs 2,459.59 crore through issuance of their policies.[186] By April 2014 around 385 FIRs were filed against Sardha Group in which SIT managed to file 288 chargesheets, while 453 FIRs were filed against other money pooling companies and ponzi funds where 75 chargesheets were filed before the court.[187][188][189]

Since 2 May 2013, after complaints from depositors, state government ordered SIT to increase its investigative ambit and conduct search and seizure at offices of two companies MPS Greenery Developers Ltd and Prayag Infotech Hi-Rise Ltd, both of whom were running unregistered collective investment schemes similar to Saradha group.[190][191] By 6 May 2013 police had also arrested directors of two more similar Ponzi companies ATM group[192] and Annex Infrastructure Pvt Ltd[193] on charges of defrauding depositors.

As per news-reports at the time of handing over all investigation proceedings in Saradha Scam to CBI, SIT had arrested eleven persons related to the scam, had traced 224 immovable properties, seized 54 vehicles and had managed to file chargesheet in close to 300 pending cases.[194]

Justice Shyamal Sen Commission[edit]

By mid-August 2013, Justice Sen Commission finished its initial compilation of the list of claimants. Around 1.74 million depositors filed claims with the Commission. Out of which 83 per cent invested Rs 10,000 or less.[195] The Commission recommended the state government to sell the assets of the company and proportionally distribute it among duped investors.[196] By April 2014, the Commission had refunded 0.4 million depositors of the Saradha Scam who had invested less than Rs. 10,000. The Commission received claims from 0.5 million depositors who were duped by ponzi funds other than Saradha, however the Commission did not refund any of these depositors, the Calcutta High Court in April 2014 sought a report from the Commission on the discriminatory yardstick being applied to refund the depositors.[197]

Former Assam DGP, under scanner in Saradha scam, found dead[edit]

Former Assam DGP Shankar Barua who was under scanner in the Saradha scam was found dead at his house in Guwahati on 17.09.2014. After the CBI raided his residence for investigation, he committed suicide. [198]

Convictions and sentences[edit]

In February, 2014, Sudipta Sen was convicted in a case where 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.[199]

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