‘Boxed in’, Sebi too late - Saradha given three months to refund investors

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  • Published 24.04.13

Mumbai, April 23: The Securities and Exchange Board of India (Sebi) today asked Saradha Realty India to wind up its collective investment schemes and refund investors within three months.

The company as well as its managing director Sudipto Sen have been prohibited from accessing the capital markets until all collective investment schemes are wound up and the refunds are complete. Legal proceedings and steps to wind up Saradha Realty would also be initiated.

The 12-page Sebi announcement that carried some hints of haste may not mean much for the depositors unless the money is safe and is traced immediately. Besides, Saradha Realty is only one of the 120 companies registered by the group in Bengal.

But the Sebi document offered a fascinating peek into the audacity with which the group is alleged to have operated and smothered the capital markets watchdog with carton after carton (170 boxes on one occasion) of “irrelevant” information.

Sebi had received a letter from the economic offences investigation cell of the Bengal government as early as on April 23, 2010 — three years ago to the day — according to the statement issued today by Rajeev Kumar Agarwal, a whole-time member of the watchdog.

The letter informed Sebi “Saradha Realty India Limited… is collecting contributions of monies from the public, particular (sic) in rural areas of the state of West Bengal. The letter was accompanied by a brochure purportedly circulated by the noticee (Saradha Realty) to public containing the details of mode of mobilisation of monies from public in contravention of Sebi Act and regulations,” the statement said.

The key question was whether the Saradha company was running a collective investment scheme or not. If it was established that the deposits fell under such a scheme, it could be operated only with a certificate of registration from Sebi, which Saradha Realty did not have. Saradha insisted that it was “engaged purely in real estate business…” Sebi said.

Sebi eventually concluded that Saradha Realty was engaged in fund mobilisation from the public by floating collective investment schemes. “Since the noticee (Saradha Realty) has launched the ‘collective investment schemes’ without obtaining certificate of registration from Sebi, it has contravened” Sebi provisions, the watchdog said.

But the process took too long — for which Sebi has blamed delaying tactics by the company.

The Sebi statement listed the hurdles the watchdog allegedly faced after it asked Saradha from June 2010 to furnish information to establish if the company was running a collective investment scheme or not.

After seeking time, on September 3, 2012, Saradha “submitted 16 cartons that contained voluminous documents…. On perusal, it was observed that the noticee (Saradha Realty) has not submitted the relevant information”.

Sebi said Saradha was “specifically informed of the deficiencies” and was advised to re-submit the information.

On September 14, the company furnished another 19 cartons to the Sebi office in Calcutta. Three days later, another 170 boxes of back-up papers were sent. On one occasion, “it had sent 35 cartons as a strategy to avoid submitting the specific information”, Sebi said.

The watchdog granted “another opportunity of personal hearing” on September 27 when the company was directed to furnish only relevant and specific information.

“Finally in the course of hearing on December 19, 2012, the noticee (Saradha Realty) produced certain documents in 28 cartons. It was very clearly advised… that the noticee should avoid furnishing irrelevant and extraneous documents.... Therefore, the 28 cartons… were not taken on record and were returned.”

The Sebi statement said subsequently: “It can be reasonably inferred that by avoiding production of relevant documents/information and by furnishing irrelevant and incomplete documents/ information, the noticee (Saradha Realty) has tried to delay the proceedings and mislead the regulatory authority.”

On March 26 this year, the company was asked to authorise a representative “acquainted with the facts” to verify the documents on March 28.

What followed, according to the Sebi account, has an incredulous ring.

“After persistent follow-up by Sebi, two persons viz. 1) Avishek Roy and 2) Sudipta De came to Sebi Kolkata Office on behalf of the noticee (Saradha Realty). However, neither of them were acquainted with the facts of the case. They informed that they are data entry operators and do not know about the case,” the watchdog’s statement said.

Exchanges over letters continued till April 2 this year — a week before Saradha group chief Sudipto Sen fled.

On April 1, Saradha Realty sent a letter whose purported contents would rub salt into the wounds of the staff now on the streets.

“It has claimed that its brokers had adopted fraudulent practices and created false and dummy codes and generated false money receipts without any authorised signature. It has further submitted that the data is stored in servers at Boston, USA, and is under the control of the staff members and brokers. It has further claimed that it is unable to locate the actual investors and identify the money due to the acts of unscrupulous staff members and brokers,” Sebi said.

The watchdog said it came across glaring inconsistencies while verifying claims on two flats. The Saradha Realty scheme involved taking deposits from people and giving them the option of either receiving property (land or buildings) or a multiplied amount.

The Sebi statement said: “On sample study of the data… provided by the noticee (Saradha Realty), veracity of which cannot be verified, it is noted that agreements for sale was entered into with two investors namely Dhruba Bose and Arindam Pani on January 1, 2010, for flats having number 1A and 1C, respectively, both measuring 1,437sqft area in the same building, i.e., Ten Katha.

“It is further noted that the consideration amount for flat number 1A was Rs 37,69,000 (37.69 lakh) and for flat number 1C was Rs 1,17,75,850 (1.17 crore). It is highly unlikely that in a real estate business the difference between consideration amounts for sale of two similar flats at the same building on the same day shall be in the ratio of 1:4. The possible inference will be that the allotment of plots/flats are simply a farce, and might have been done to mislead the regulatory authority.