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 Saradhas 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 Sebis 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.
Believe it or not, matters dragged on till May 15, 2012, and when not much information was received, the next date of June 14 was fixed. Finally, on September 3, 2012, Saradha submitted 16 cartons of documents to Sebi, which did not contain the relevant information. On September 14, another 19 cartons were submitted to Sebis Kolkata office and, three days later, the group sent another letter saying it had a fresh set of 170 boxes of back-up papers should Sebi wish to inspect them.
On December 19, 2012, another 28 cartons of documents were submitted but those were returned by Sebi saying only irrelevant and extraneous documents were being submitted.
The case moved on to March 2013 and, on one occasion, two data entry operators were sent to Sebis Kolkata office.
On All Fools Day, Saradha told Sebi the sales were all done by brokers who were generating dummy codes and false receipts and that the data was actually stored in servers in Boston and that the codes for these were with brokers and some of the staff members who had turned rogue.
Based on the data company brochures for instance it studied, however, Sebi concluded that since investors were being promised 12-24% returns in case they didnt take the plots/flats, these were collective investment schemes. The brochures, Sebi says, do not even identify a land unit as to where the proposed flat is to be located.
In other such schemes, Sebi wasnt given the same mountain of papers, but it found itself being thwarted in different ways. In the case of Rose Valley Real Estate & Constructions Ltd, which had raised Rs 1,272 crore as on march 31, 2010, Sebi passed an order on January 3, 2011 asking the company to stop collecting money the company, however, got an interim order from the Kolkata High Court restraining Sebi and the case is still being heard.
Similarly, in the case of MPS Greenery Developers, which collected Rs 1,520 crore as on September 30, 2012, the Sebi order has been challenged in various civil courts in one case, Sebi approached the High Court to set one of the orders set aside.