Saradha with 120 arms and blessings

Calcutta, April 22: Unless Sudipto Sen sings readily, those tracking the money trail of Saradha face the task of looking into as many as 120 companies on paper.

The Saradha Group managed to register so many companies in Bengal alone as it enjoyed an unhindered run under successive governments led by the Left and the Trinamul Congress.

Toss in the 15 more companies registered in Assam, 11 in Odisha and five in Jharkhand and the web becomes more complex.

Such a large number of companies — not unusual in India where some leading conglomerates have floated as many as 300 companies to build opaque empires — could be registered in Bengal because none of the Saradha ventures appeared to have mentioned deposit collection as the motive in the final application.

When the first bells of alarm were rung, the government of the day dragged its feet. The Mamata Banerjee government sat for nearly a year on an internal decision to write to the Registrar of Companies (RoC) asking it not to allow outfits like Saradha to start business in Bengal, sources told this newspaper today.

The state finance department had decided to write the letter to the RoC requesting it to stop registering companies that may raise money from the public in a questionable manner.

The move was initiated after the state government received a series of warnings from the capital markets regulator, the Securities and Exchange Board of India (Sebi), since early 2011 that several companies in Bengal were running collective investment schemes without obtaining a certificate of registration from it.

“It was found that a few companies were raising funds in the name of sale of plots. As the state government had no law to initiate action against them, we decided to write a letter to the RoC urging it to stop giving permission to such companies,” said an official.

“In early 2012, the finance department had taken the decision to write the letter. But the letter was never sent as the top brass of the government wanted to wait for a few more months,” said an official.

However, doubts remain whether the RoC could have done much even if it had received such a letter on time.

If a promoter masks the real reason behind floating a firm and meets the conditions for the stated purpose such as realty or the tour business — Saradha’s favourite vehicles to raise deposits without saying so — the RoC cannot do much to withhold registration, a corporate lawyer said.

The RoC allows registration on the basis of several documents — the most important of which mentions the articles of association or the objective of the business. Usually, the RoC checks if the name clashes with any existing title and if all the documents required to start any ordinary business are in order before it clears the registration.

“If the RoC denies registration, the applicants can go to court. There will hardly be any defence for the RoC,” the corporate lawyer said.

The RoC’s purported limitation suggests that as soon as Sebi alerted the Mamata government, it should have explored other legal options such as filing a police case or approaching a court. Or, it should have armed itself with the act that the Left had passed but could not decree into law.

“No business can survive in a state if the government of the day smells foul play and decides to crack down. Every government knows how to clamp down without attracting legal penalties,” a veteran official said.

A little degree of official alacrity would have easily established that something was wrong. The purposes mentioned in the Saradha applications ranged from construction to trading to retail to automobile to home appliances but not deposit collection.

However, it was apparent that Saradha was openly collecting deposits — so much so that it is still widely but erroneously referred to as a “chit fund”.

Take, for instance, Saradha Realty Ltd and Saradha Tours & Travels Pvt Ltd.

Nowhere in the articles of association of these two companies was it mentioned that they would enter the money market and dabble in collective investment schemes.

On June 6, 2008, the articles of association of Saradha Realty said the company would involve itself in real estate development, including building a biotech park.

On August 16, 2010 — when the Left was still in power — the company decided to alter its nature of business by changing the articles of association. It included manufacturing and marketing of food products ranging from cheese to sausage.

However, a reply from the RoC, Calcutta, to group chief Sudipto Sen even before Saradha Realty was registered suggests a query was asked about non-banking business.

The Telegraph could not access the original query but the registrar, in a letter to Sen, wrote that the company could become a non-banking finance corporation (NBFC) only after getting permission from the RBI.

The June 10, 2008, letter also mentioned that NBFCs needed to have a capital of at least Rs 20 crore to start the business.

However, NBFCs are not allowed to raise deposits directly from individuals. They can source funds from banks or issue shares and debentures after concurrence from Sebi.