 "West Bengal tops the chart in inviting new companies")
Surprisingly, in spite of the gloom surrounding West Bengal, some 16477 new private companies got registered in West Bengal in 2011-12—the highest among all states in India.
Delhi saw second highest number of new private companies, about 16316, in 2011-12, according to the 6th Annual Report on the Working and Administration of the Companies Act, 1956 for year ended 31st March, 2012 . The third highest number of new private companies was registered in Maharashtra, nearly 16217.
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However, in terms of authorized capital, the 16477 private companies in West Bengal add up Rs 1826 crore, against Rs 4260 crore in case of Delhi and Rs 6371 crore in case of Maharashtra. Quite reasonably, it is a breed of increasing number of small companies in West Bengal which have outnumbered their counterparts in the financial and national capitals of India.
What brings so many small companies to West Bengal?
Logic defies that start-ups would like to lay their foundation stones in a state, reputed for frequent strikes, lock-outs and allegedly poor work culture. With a debt burden exceeding Rs 2 lakh crore, the government has hardly any additional sops for the business community.
Absence of stringent state laws to safeguard against ponzi schemes is one the theories that justifies the spurt of small companies in the recent days.
“One reason behind the trend could be the insufficient law to check ponzi schemes in West Bengal. Several states, like Maharsahtra and Tamil Nadu, have specific laws to prevent fraudulent companies from raising deposits. In West Bengal there is no sych law, leading to mushrooming number of ponzi schemes,” said Ashok Ghosh, a chartered accountant based in Kolkata.
Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997, protects investors against Financial Institutions who failed to return the deposit or interest. Tamil Nadu was one the first states in India to enact laws to protect small investors against unscrupulous money-raising entities. The Maharashtra Protection Of Interest Of Depositors (In Financial Establishments) Act, 1999, Gujarat Protection of Interests of Depositors (In Financial Establishments) Act, 2003, The Karnataka Protection of Interest of Depositors in Financial Establishemnts Act, 2004 and Sikkim Protection of Interests of Depositors Act 2010, and Delhi Proteciton of Interest of Depositors (In Financial Establishments) Act, 2001 are some of the other examples of state laws to protect small investors.
Only recently, after the Saradha scam, the West Bengal Assembly passed the The West Bengal Protection of Interest of Depositors in Financial Establishments Bill, 2013. However, the Bill is still awaiting Presidential assent to be converted into an Act.
Meanwhile, the ministry of corporate affairs received complains against at least 73 companies from West Bengal for indulging in ponzi schemes, according to a Lok Sabha document.
Most of these companies have been raising money from the public as advances. According to Companies The present Companies Act does (Acceptance of Deposits Rules, 1975) allow companies to raise advances. However, under Section 67 of the Act any issue of preferential shares to more than 50 people, is deemed as a public issue.
Financial instruments like secured debentures, bonds, Limited Liability Schemes, and advances against hotel room booking has been under regulatory glare much before the Saradha scam. All these schemes are collectively referred to as collective investment schemes (CIS), a financial instrument recognized by Sebi since the 1990s. In the last one year, Sebi has passed at least four orders against deposit-taking entities.