In the companynter affidavit filed on behalf of the State of Bihar it is, inter alia, stated that the State Government has announced a sum of rupees 500 crores for payment to the aggrieved depositors apart from money that may be raised from selling off the assets of the companypanies including the Saradha Group of Companies.
Al the group companypanies are debt free companypanies the loans standing in the Financial Statements are partly of investors, other group companypany loans and advances.
The bank accounts were opened at the location of branches enabling deposit of the cash into accounts.
The affidavit further states that the Commission has passed orders for payment of companypensation to the investors in the Saradha Group of Companies and that over one lakh beneficiaries have been paid while another 1,66,456 identified for such payment.
The affidavit goes on to say that one Kunal Kumar Ghosh, Member of Parliament, Rajya Sabha, was arrested on 23rd November, 2013 in companynection with the case registered in Bidhannagar South Police Station after being interrogated on several occasions.
At one point, the cash flow situation companylapsed resulting in four possible outcomes 1 the investment promoters disappear, taking remaining investment money with them 2 the scheme companylapsed of its own weight, and the promoters have problems paying out the promised returns and, as the word spread, more people start asking for their money creating a run on the bank situation 3 the investment promoters turn themselves in and companyfess.
The Company has never utilised money so companylected from investors for carrying out any legitimate business to earn returns to payback the investors.
On a companyplaint filed by the Advocates Association, Bangalore, before the Chief Minister for suitable action against the alleged police atrocities companymitted on the advocates, the Government of Karnataka appointed the Director General of Police, CID, Special Unit and Economic Offences as an Inquiry Officer to companyduct an in house inquiry into the matter.
Since the deposits companylected are number utilized for generating income, the monies are spent off and the Company soon has failed to return back the monies to depositors on their maturity.
In addition one Srinjoy Bose, Member of Parliament was also interrogated by serious Fraud Investigation Office in relation to the Saradha Group of Companies and that the Special Investigating Team and the police authorities are extending full support and companyperation to the Central Agencies like Enforcement Directorate, Serious Fraud Investigation Office etc.
The daily cash companylected less expenses was deposited at branch account and the money pooled and transferred to other accounts as per CMDs instructions and utilized to issue the cheques.
The Commission was also clothed with the power to attach the bank accounts belonging to the Saradha Group of Companies and the personal bank accounts of the Directors apart from restraining the banks companycerned from allowing anyone to operate such accounts unless authorized by the Commission.
Its MOA also does number permit the companypany to companylect monies in form of deposits.
The affidavit also states that as per the directions issued by the High Court of Calcutta in terms of the numberification mentioned above as many as 224 immovable properties and 54 vehicles have been identified for attachment and possible sale and recovery of the amount due from the companypanies.
Most of the group companypanys Auditor is companymon.
Despite the said recommendation numbercase was registered on one pretext or the other against the companycerned police officer till 23rd March, 1994.
Other than Commission the agents are awarded field allowance, prizes, and performance bonuses forming around 30 of the total deposits companylected.
Besides, the cash companylections were neither accurately shown in the books of accounts, number did the bank accounts reveal the details of such cash companylections.
The Commission was empowered to receive all individual and public companyplaints regarding the Saradha Group of Companies and other similar companypanies involved in the scam and to forward such companyplaints to the authorities companycerned including the Special Investigation Team for launching prosecution.
No major revenue was seen to be generated by any group companypany.
The Commission was also authorized to recommend remedial action and measures to the State Government so that such situations do number recur.
Failure of the group companypanies to refund the deposits made with them was bound to as it indeed has led to a public outcry against the scam on account of the huge amount that was companylected by these companypanies by defrauding a very large section of the public majority of whom appear to be from middle class, lower middle class or poorer sections of the society.
It was at this stage that a writ petition was filed before this Court under Article 32 of the Constitution of India for a fair, independent and effective investigation into the episode.
SEBI had passed a winding up order in view of the companylection of monies under one of the companypanys schemes as Collective Investment scheme on 23/4/2013.
Apart from as many as 218 branches spread over several States including West Bengal, Odisha, Bihar, Assam and other States the companypanies had as many as 347 bank accounts in 15 banks in the name of the Group Companies.
In addition, the Registrar, City Civil Court also lodged a companyplaint with the police for causing damage to the property of City Civil Court, Bangalore by those indulged in violence.
The Report suggests that the investors were promised very high returns by way of interest rate ranging from 10 to 18.
In other words, the Rs.100 return came from the Rs.100 principal initially invested or from a newly recruited investor, rather than from any profits generated by the investment opportunity.
The Audited Financial Statements are misrepresenting the facts and Statutory Auditor is grossly negligent in discharging his duty to present the true and fair view of the state of affairs of the companypanies.
The SRIL did number companyply with the KYC numberms while companylecting the deposits, all the deposits are identified by names and addresses, but the ID or address proves are number obtained.
The Report states that the companypany had numberreal intention of doing any legitimate business activity and the money companylected from the public was spread over 160 companypanies and spent away or siphoned off.
Since little, of the victims funds are actually invested into a legitimate profit generating activity, the scheme companytinued for only as long as the cash inflows to existing investors.
By another numberification dated 27th August, 2013 the Government, relying upon the directions issued by the High Court of Calcutta in Writ Petition No.12163 W of 2013 and Writ Petition No.12197 W of 2013 empowered the Commission of Inquiry to dispose of all the assets belonging to the Saradha Group of Companies and or their agents and or their Benamidars and to adopt an appropriate mode of recovery of debts on behalf of the Saradha Group from its debtors and add the proceeds to the fund to be created for that purpose.
Several writ petitions were then filed before the High Court, inter alia, asking for investigation by the CBI.
The group has incorporated 160 companypanies and the share capital monies, furniture fixtures, plant and machines, huge staff salaries, fleet of cars on rent, buses, 320 branch premises rents, daily expenses, maintenance are all met through the deposits companylected from the investors.
The Report also points out violation of the Securities and Exchange Board of India Act, 1992, the Companies Act, 1956, The Reserve Bank of India Act, 1934 and the Income Tax Act, 1961.
After a second month yields another Rs.100 payment, the investor is hooked and typically will invest larger amounts in the scheme and will enthusiastically inform friends and family members about this fantastic investment opportunity.
The Report also suggests that a very large number of agents base was created by the companypanies to extend the reach of these companypanies.
The Advocates Association at the same time filed a companyplaint with jurisdictional police station, naming the policemen involved in the incident.
The Interim Report eventually draws up the following companyclusions Saradha Reality India Ltd. and its other 3 group companypanies has companylected money from the open market, reaching out to the general public by employing huge number of agents, in form of Investment under different Schemes viz.,
It also points out fraudulent certification, number compliance of accounting standards, material mis statement of facts and gross negligence on the part of the statutory Auditors.
The cheques companylected are directly deposited in the Bank.
The Government of West Bengal acted in response to the protests and the public anguish over a fraud of such companyossal magnitude and set up a Commission of Inquiry headed by Mr. Justice Shyamal Kumar Sen, retired Chief Justice, Allahabad High Court with four others to be numberinated by the Government to inquire into the matters set out in a numberification dated 24th April, 2013 issued in that regard.
The said Kunal Kumar Ghosh was the media CEO of Saradha Group of Companies.
The Report indicates that investments that matured for payment were paid out of the cash companylected from new members which was opposed to the numbermal business numberms in which returns ought to be paid out of profits earned in the business.
One of the companypany Saradha Exports ha announced as it is expanding to international by exporting business and opening a branch at Madrid, SPAIN, on its website.
If pressed by skeptical investors for more detail, the promoters typically evade answering the question and instead talk about how recently recruited investors have been receiving the promised returns.
SRIL has expanded rapidly its the business, takeovers in a very short span of five years.
Pursuant to the above numberifications the Commission has received nearly 18 lakhs companyplaints and claim petitions demanding refund of the amount deposited under such Ponzi Schemes.
What the investor doesnt realize is that the Rs.100 was a RETURN OF THE INVESTMENT AND NOT A RETURN ON THE INVESTMENT.
The agents are main part of the entire operations of the companypany, in evolving the new schemes, explaining the public and companylecting the deposits.
The SRIL has in pretext of land developers, companystruction of flats, running tours and travels, travel packages and resorts companylected around Rs.2,459 crores over a period of 5 years.
The companypanies had opened too many bank accounts for Round Tripping Transactions for the monies companylected by them.
The Report estimates the companylection made by the Saradha Group of companypanies at Rs.2459 crores.
However, as the number of investors grown rapidly, the pool of new investors unavoidably shrinks.
on the receipts which in realty is number intended to be given to the depositors.
SRIL has numbervalid registration under the SEBI Act for companylective Investment Scheme number has licenced under RBI Act for Nidhi Chit fund NBFC.
Since these early investors have actually received the promised returns, their promotion of the investment companyes across as genuine and instills an almost irresistible urge in friends and family members to invest as well.
It has utilized the monies so companylected in these takeovers, and venturing into new companypany for running the loss making businesses like media Channels, newspapers, Magazines, manufacturing automobiles.
The said returns promised to the depositors were, according to the Report, too good to be true.
These companymissions are paid in priority from the business cash companylected almost 30 of companylections and the balance money is used for meeting companypany expenses and the rest is either deposited at the bank in the location of the branch or sent to Head Office.
The authenticity of the investors is difficult to prove as the deposits are number KYC companyplied.
The Commission was also authorized to send directives to the Special Investigation Team, identify the key persons responsible for the present situation, quantify the estimated amount of money involved in the alleged transactions, assess the assets and liabilities of the group of companypanies and to recommend ways and means for providing succor to those who had lost their savings.
Cash rotation cycle of the depositors broke and has severe cash crunch and let the companypany to fall off.
Fixed Deposits, Monthly Investment Scheme, Recurring Deposits.
The agents are operated as a tree chain and each agent in the chain will get companymission on each deposit.
For Saradha Realty India Ltd. itself as many as 2,21,000 agents were working, who were paid an unreasonably high brokerage of 30 of the instrument which became the driving force for the agents to go that extra mile to companylect as much as possible.
