The collapse of West Bengal’s Saradha Realty may have come as a big surprise to investors, but the state’s authorities and the capital market regulator Securities and Exchange Board of India have been pursuing the case for over three years while failing to make any headway. During this time, Saradha ran circles around Sebi, giving it 63 cartons of meaningless records, promising another 170 more boxes, and even saying the records were located in servers in Boston, the codes of which were with staffers.
In other such collective investment schemes that Sebi is pursuing, the markets regulator has admitted that companies have found it easy to get stays from various courts. According to a Sebi official, Sebi also took up the matter at the level of the Financial Stability and Development Council — the highest authority in India dealing with the financial sector — and asked for the Sebi Act to be amended to give it full powers to monitor such schemes.
The Saradha story began in April 2010 when the West Bengal Economic Intelligence Cell sent a letter to Sebi alerting it about Saradha’s modus operandi. Sebi investigated the matter and found that, under the guise of real estate business, the company was just collecting deposits with a promised return of 12-24% per annum.
The way it worked, according to Sebi, deposits were collected for land/flats and, in case the land/flat was not taken, the investor would get 12-24% returns. In one sample checked by Sebi, two “sales” were made on January 1, 2010, to Dhruba Bose and Arindam Pani for flats 1A and 1C in the same building. While one flat cost R37.7 lakh, the other — one flat away — cost R1.2 crore. This, Sebi said, clearly showed the records being submitted to it were all fictitious.
Coming to this conclusion, however, was both tortuous and time-consuming. Sebi sent letters to Saradha on June 3,August 13, October 12 and November 3, 2010, but got, in Sebi’s words, “voluminous and irrelevant information”. No information was provided, for instance, of the land bank it had from which the plots/flats was to be given to those paying for them.
Another reply to Sebi was sent on January 3, 2011, in which Saradha denied all allegations of it running a “collective investment scheme” or that it was promising returns of 12-24% — the only money being got, the group said, was for purchasing flats.