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Saradha effect: Sebi stirs up hornets’ nest

July 13: Breaking out every now and then like an awkward rash, a virus from the Saradha strain is needling its protectors again.

The capital markets watchdog has carried out surprise inspections of two Bengal-based companies in connection with investigations into “money-pooling” schemes — one of the few activities that has flourished in Bengal in the past few years.

The companies that have drawn the attention of the Securities and Exchange Board of India (Sebi) this time are Pailan Group and Prayag Group, both of which can count Trinamul luminaries among their well-wishers.

An inspection by a regulatory authority is an investigation process and does not presuppose guilt. But the significance of the Sebi action lies in the fact that the watchdog is using powers it did not have when funds-collection companies like Saradha made merry in Bengal with political patronage.

Two months after Saradha chief Sudipta Sen was arrested, the Centre had promulgated an ordinance in July last year that gave Sebi search-and-seizure powers. Parliament is yet to pass the related bill but the ordinance was renewed more than once — the last in March this year.

It is this ordinance that has empowered Sebi to inspect the premises of the two companies in Calcutta on Friday. Calcutta police teams accompanied Sebi investigators during the searches in Behala and Hare Street.

The ordinance also empowers the markets regulator to seek information, including telephone call data records, from persons or entities in connection with the securities transactions being investigated.

The activities of Saradha were initially misconstrued as “chit fund” operations, although its schemes scooped up cash by promising high returns or banked on an incentive-driven chain that roped in more and more subscribers to funds mobilisation schemes.

Such collection drives fell in the twilight zone of regulation because the companies would describe themselves as industries with other activities and insist that they are not answerable to Sebi that deals with capital markets instruments. Some cash-collection companies had also perfected the art of seeking legal injunctions from lower courts against Sebi.

But since the uproar over Saradha and spurred by an uncompromising stand taken by the Supreme Court in the Sahara case, Sebi has become more proactive.

Last month, Sebi had told Rose Valley, another company based in Bengal, to refund within three months the money collected through a scheme and barred the promoters from the securities market. On the eve of the elections, the Enforcement Directorate had picked up Saradha boss Sen’s wife and son, whom Bengal police could not find.

Against this backdrop, the inspections at Pailan and Prayag assume significance. Some Prayag companies had figured on a list of firms, tabled in Parliament, against which complaints had been levelled by investors.

It is not clear on which specific issue Sebi carried out the inspection at three offices of Pailan, a Joka-based group whose website lists interests in education, food production, healthcare and real estate.

Pailan officials could not be contacted by this newspaper.

At least two senior ministers and a veteran politician from Behala are said to be close to the group. A person associated with the group was also often seen with a minister at a hangout in a city hotel.

Market sources suggested that not all companies that joined the funds-collection bandwagon mushroomed overnight. Some were already operating in other fields but could not resist the temptation of easy money when those like Saradha were flaunting their newly acquired riches and rubbing shoulders with those in power, the sources said.

Prayag, whose events were also graced by ministers, was in the limelight during the elections because actor-candidate Dev was shooting at its film city before hitting the campaign trail. Dev is now an MP from Ghatal in West Midnapore.

A Prayag official had said during the elections that there was a huge demand for its helicopters, including from another state, for campaigning.

Calls to Avik Bagchi, the Prayag managing director, did not connect till late this evening.


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