Cracking down on unauthorised money-raising entities in West Bengal, which is yet to recover from the shock of the Saradha scam, is proving to be a hard task for Securities and Exchange Board of India (Sebi).
In the past year alone, the market regulator has passed at least four orders against deposit-taking entities. However, the business, at least on paper, remains unscathed. The unorganised market of money-raising is so deep now that some companies are even issuing regular pass-books to depositors, according to Sebi.
Strategy
The companies have adopted the strategy to put up a large number of agents as litigants in fighting legal cases against Sebi orders, that too in remote districts, says a Sebi official. In the process, the companies are able to obtain ex-parte stay on Sebi orders at district level courts, which is a major hindrance in curbing the operations of such companies.
"The strategy of these companies is to file civil suits in remote areas and obtain ex parte interim order in our absence. Often, it is difficult for us to send representatives to such places. In many cases, these companies easily obtain stay orders on the ground that a large numbers of livelihoods will be hurt. This is leading to a dilatory action," says a Sebi official.
For example, out of the 12 cases filed by MPS Greenery against Sebi, the company was able to obtain interim orders in eight cases.
Sebi has been able to vacate orders in six cases, while it is still fighting two cases in district courts, says the official.
MPS has been mobilising funds through collective investment schemes (CIS) for a long time through instruments such as teak, agro and plantation bonds.
Last year, Sebi had ordered the firm to deposit Rs 1,169.39 crore in the escrow account of a public-sector bank and stop running the schemes.
"We have provisional registration and court order to run CIS schemes," says P Manna, chairman of MPS Greenery.
"The difficulty in tracking these errant deposit-taking companies lies in the fact that we first need to find out the nature of the deposits.
"In some cases, they are raised as fixed deposits. Some companies are even issuing pass books to the depositors. RBI says that does not fall in their jurisdiction as the companies are not registered as NBFC (non-banking financial company). If we go to the police, we are being asked who has filed the complaints," says the Sebi official.
Most companies raise deposits in the guise of advances for unknown real estate projects or booking hotel rooms.
The firms offer three options: fixed deposits, monthly interest schemes, and recurring deposits. There is no stated rate of interest, only promises of double the money in five years' time.
After the Saradha crisis, Sebi had published advertisement against MPS and Rose Valley, cautioning depositors against these companies' schemes. After the crisis, investors have been seeking early withdrawal of their deposits.
Trina Ray, one such investor, had deposited about Rs 3,000 in a monthly investment scheme spanning over five years of MPS.
After contributing in the scheme for one year, Ray wanted to withdraw from the scheme. However, the company's agent informed Ray that early withdrawal is not allowed.
"There is no provision of early withdrawal in CIS schemes, as we have already invested 90 per cent of the money raised through such schemes in different projects," says Manna. MPS has a liability of about Rs 1,600 crore through different schemes, he adds.
On June 21, 2013, Sebi passed an order against another company, Alchemist Infra Realty, to wind up all such deposit schemes and refund the money collected from public investors, amounting to more than Rs 1,000 crore, within three months. According to an agent of the company, the company has not started any refunds, as the case is sub-judice.
Alchemist has been raising money as advances against booking the company's township projects.
