MCA agonised over fraud probe as cheat funds ran riot

Written by Rishi Raj | Ashish Sinha | New Delhi | Updated: May 8 2013, 06:35am hrs
It was not that the ministry of corporate affairs (MCA) was unaware of the explosive state of affairs of around 57 chit fund companies operating in West Bengal, including the Saradha Group. Based on a complaint by a Congress MP from the state in September 2011 (which he later withdrew), the MCAs registrar of companies (RoC) West Bengal had initiated a probe that year itself and unearthed a series of irregularities. However, going through internal file notings, correspondence and some officers in the MCA asking for permission for a probe by the Serious Fraud Investigation Office (SFIO), the matter seemed to be moving in the slow lane in the last almost one and a half years.

In fact, as late as April 2, 2012, the MCA was not convinced about the need for an SFIO probe as it was not sure of the findings of the RoC eastern region. A note dated April 2, 2012, put up by the additional secretary, MCA for the approval of the corporate affairs minister concluded: As regards Saradha Realty India Ltd and its group, it may be noted that the complaint was earlier withdrawn by the honble MP. RoC has also not conducted an inquiry required under Section 234 (7) of the Act, which provides for opportunity to be given to the company to reply to the allegations earlier made by the honble MP. RoC needs to be fully satisfied before recommending an investigation into the affairs of the company.

The note was based on the inputs by RoC, West Bengal citing detailed irregularities in four firms: Sunshine India Land Developers Ltd, ICore Services, Saradha Realty and Rose Valley Real Estate Construction. Each group had a dozen or more holding companies and offered a host of services.

An SFIO probe by the corporate affairs minister Sachin Pilot was ordered on April 24. As is known, the Saradha Group chit fund scam broke in the national media by the third week of April.

In fact, for the first time, an inquiry a by multi-special task force into the affairs of the four firms mentioned above was made in September 2012 by deputy director (investigation) in the MCA. Since the scope of investigations and activities involves several regulatory bodies, the inherent complications need a special task force with experts from the financial sector, capital market, accountancy, forensic audit, IT and customs including CAG and Sebi, the note said.

In February this year, the recommendation for an SFIO probe was made by an assistant director, investigation in the ministry. The note by the additional secretary, MCA on April 2 was based on these two reports.

In September 2012, RoC, West Bengal had recommended referring the matter to Sebi and the economic offences wing of the state government, income tax department and in some cases, to the state police.

Sample this: During the RoC probe of these four entities and companies related to them, it was revealed that Icore Services had unsecured loans of nearly R40 crore but had not disclosed the same to its lenders. Also, it received advances (R305 crore) and deposits of R66 crore from customers without any details of the customers.

Similarly, in the case of Saradha Realty India, no allotment of shares were made against share application money of R11 crore received in 2009-10. But the company made allotment of equity shares of R10 crore to Saradha Construction, another group entity and R35 crore to Sudipta Sen and another R9 crore to Saradha Tours & Travel and was left with share application money worth R5 crore as on March 31, 2011.

Sunshine India Land Development and eight group entities collected around R21.71 crore from the public without Sebi approval.

In the case of Rose Valley Real Estate and 18 group companies, RoC reported that the companys balance sheet as on March 31, 2012, showed a negative net worth of R611 crore, liabilities worth R2,094 crore mainly comprising of advance against plot bookings of R1,540 crore and loans/advances worth R378 crore. Also, the company had tangible assets of R142 crore and cash of R573 crore, which is half of its outstanding liabilities.