What the govt balance sheet shows The words and deeds

Read more below

  • Published 23.04.13

Calcutta, April 22: Chief minister Mamata Banerjee today flagged a four-member panel headed by a retired judge, a task force and an ordinance in her first comprehensive comments on the Saradha Group collapse that has triggered fears of a default contagion in Bengal.

It was not clear if it was a stray remark or addressed at those seeking immediate relief for depositors but the chief minister also said that “ja gechhey ta gechhey (whatever has gone has gone)”.

Mamata advised people to “please cross-check in future before investing in such companies…. But you please be patient. The law will take its own course… we will introduce a new law.”

The Telegraph assesses the claims made by the chief minister at Writers’ Buildings on Monday afternoon.

Claim: In 2003, the Left government had sent a law to the Centre for approval. In 2006, then President Pratibha Patil sent a letter to the state government saying that there were several loopholes in the law and sought a fresh law. But even after that the Left did not withdraw that law…. We have written to the Centre informing it of our decision to withdraw the law and bring a new one immediately.

Reality: The bill — the West Bengal Protection of Interest of Depositors in Financial Institutions Act — was first sent for presidential assent in 2003 following which several exchanges took place between the state and the Centre as well as various agencies like the RBI, as New Delhi sought clarifications on some provisions. “A lot of exchanges took place. But there are no records of the President asking for withdrawal of the bill in 2006,” said a senior official in the law department. Some other officials echoed him.

According to another state government official, the first “presidential message” the state received on the bill was in 2009, when the state was asked to withdraw the bill and tweak two provisions.

“First, it was suggested that the maximum punishment be made life imprisonment. The second suggestion was to exclude companies under the purview of RBI from the ambit of the law,” the official said. A fresh bill was drawn up and sent to Delhi in early 2010.

Late last year, the Mamata government did write to the Centre expressing its desire to “recall” the earlier bill and introduce a new one but the process was faulty, said a source who drew a distinction between “recall” and “withdraw”.

“According to Article 201 of the Constitution, a new bill cannot be introduced without withdrawing the existing one and the state government was informed of it. The state government has not yet written to the Centre about its intention to withdraw the bill,” said the official.

Crux: Instead of fast-tracking the new bill, the government is willy-nilly delaying its introduction.

Claim: The draft of the new act is ready. It has provisions for inspection, search and seizure, which the earlier bill did not have. Our main concern is that people should get back their money. The new act also has far more stringent provisions.

Reality: The earlier bill had all the provisions that Mamata said she wanted to introduce in the new legislation.

According to Section 5 of the bill, the government is empowered to “attach the money or other property acquired either in the name of such financial establishment or in the name of any other person on behalf of such financial institutions”. The same section includes the provision to attach the “personal assets of the promoter, partner, director, manager….”

The maximum punishment can go up to life imprisonment and the offence would be “cognisable and non-bailable”, the bill states.

The bill has provisions to liquidate the assets of the companies or their owners following the approval of the court and distribute the proceeds among the depositors.

“It is still not clear why the new government did not lobby with the Centre for its speedy approval,” said an official.

Sources in the law department, which will have to draft the new bill, said that they were not aware of any fresh bill being drafted.

Crux: The much-delayed 2009 bill would have served the purpose. The new bill exists only on paper.

Claim: This menace has been going on since the 1980s. These companies are duping people in the absence of a law, which the previous Left Front government never pushed for…. We did not know that all this was happening. We took steps as soon as we received the complaints.

Reality: As the state government has not yet formally communicated to the Centre its decision to withdraw the earlier bill, the enactment of the new legislation will take time. The bill has to be first passed in the Assembly and then sent for presidential assent. Even if the bill is cleared in Delhi fast, it will take at least two months.

“Does that mean the government would not do anything till then?” asked an official.

According to him, the government can follow what the Left had done to return money to the depositors. The previous government had filed a public interest litigation (PIL) in Calcutta High Court in the early 1990s to protect the interests of small depositors.

On March 21, 1995, the high court appointed a special officer to take charge of all movable and immovable assets and bank accounts of a particular company. The officer was also given charge of the movable and immovable properties diverted to the company’s subsidiaries and the promoters’ relatives, agents and employees. The officer was tasked with distributing proceeds from the seizures among the depositors.

According to finance department officials, the liquidation process is still on and some of the investors have already received part of their investments back. “This could have been done easily in the case of Saradha too as there is already a precedent,” an official said.

Crux: A new bill is not the sole solution.

Claim: We came to know about this (malpractices by the Saradha Group) only two to three months ago when Sebi wrote a letter to us regarding the company….

Reality: Finance and home department officials said that Sebi had been sending a series of warnings since January 2011. “The state government was informed that some companies were running collective investment schemes without permission from Sebi. But the state government never reacted,” said a finance department official.

When Sebi started sending the warnings in January 2011, the then Left Front government was counting its last days in power and did not initiate any step, sources said.

“But Sebi sent a series of letters between December 2011 and August 2012. All these letters gathered dust at the state secretariat,” an official said.

The state finance department’s economic offences wing — set up by the Left government to crack down on sham companies — remained inactive over the past one year or so.

Crux: The warnings were ignored and the sham companies went on collecting the deposits.