Though Subroto Roy’s Rs 24,000 crore of funds-raising hogged the limelight for years, thanks to the Sahara promoter’s high-profile, political connections and shenanigans—when Sebi asked for proof of the group refunding a large part of the money it had raised, it sent 17 trucks with 31,669 cartons of meaningless documents to Sebi’s office, causing a minor traffic jam—the Pearl Agrotech case in which Sebi has attached the company’s assets is several times larger. In this case, while land worth around R10,000 crore is said to have been attached, the amount owed is around R60,000 crore, according to Sebi. And, in between, there have been cases like Rose Valley and Saradha that have come to light where investors have been duped of tens of thousands of crore of deposits. The specifics of each company differ, but the pattern is similar. While RBI banned residuary non-banking finance companies (RNBFCs) from collecting deposits, these groups floated unlisted firms (Sahara) or pretended it was not fixed deposits that were being collected—in the case of collective investment schemes (CIS) with more than 50 investors, Sebi’s writ comes in—but merely deposits against real estate (Saradha, Pearl). In each case, while it took time for Sebi to realise what was happening, the companies went to court to delay the Sebi process.
In the Sahara case, the money was raised between 2008 and 2011, and it was purely by chance that Sebi discovered this—it was buried in the regulatory filing of a group firm that wanted to raise money; in this case, the court process took just a few years. In Saradha’s case, similarly, Sebi had been investigating the case for 3 years during which it was given 63 boxes of useless documents and even told the data was residing in servers in Boston which could not be accessed. In the Pearl case, while the money collection started in 1990, it was in 1999 that Sebi asked the company to comply with the CIS rules—this was successfully challenged by Pearl in the Rajasthan High Court and it was only in 2013 that Sebi won the case in the Supreme Court.
While investor ignorance and greed and more greed are behind all such schemes, the larger lesson is that regulatory powers in India are still fluid and too fragmented—the so-called High Level Coordination Committee on Financial Markets which was to ensure nothing slipped between the cracks has simply not worked, and the court process has led to decades of delay during which valuable time has been lost and firms have been allowed to carry on raising money—it doesn’t help that, unlike an SEC which has 4,000 employees and much lesser firms to regulate, Sebi has just 600 employees, no powers to tap phones and a fraction of the surveillance capacity. Under the circumstances, it is hardly surprising that a Sahara gets repeated in the form of a Saradha, a Rose Valley or a Pearl Agrotech with such regularity.