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SHARADA CHIT FUND

SCAM
What is a Chit Fund?
• A kind of savings scheme practiced in India.
• Can be conducted by financial institutions or
between groups of friends and family.
• Popular because other savings schemes run by
Indian Postal Service , etc . give a low rate of return.
• Chit funds are also misused by their promoters and
there are many instances of the founders running a
Ponzi scheme and absconding with their money.
SARADHA GROUP
• Key people:
1. Sudipto Mukherjee
2. Debjani Mukhopadhdhay
• Originally a financial concern but invested heavily in
brand building.
1. Bengali Film Industry
2. Local Television Channels
3. Newspaper
• In 2011, Saradha Group buys Global Automobiles, a
heavily indebted motorcycle company.
• CSR activities – donated motorcycles to Kolkata
police.
• The group has also nvested in football groups like
Mohan Bagan and sponsored Durga Pooja.
OPERATIONS AND SCAM
• Like all Ponzi schemes, Saradha Group promised
astronomical returns in fanciful but credible
investments.
• Its funds were sold on commission by agents
recruited from local rural communities.
• The group used a nexus of companies to launder
money and evade regulators.
• Initially, the frontline companies collected money
from the public by issuing secured
debentures andredeemable preferential bonds.
• Under Indian Securities regulations and section 67
of the Indian Companies Act (1956), a company
cannot raise capital from more than 50 people
without issuing a proper prospectus and balance
sheet. Its accounts must be audited and it must
also have explicit permission to operate from the
market regulator Securities and Exchange Board of
India (SEBI).
• SEBI first confronted Saradha Group in 2009.
• Creation of more than 300 companies.
• Saradha Group reacted by changing its methods of
raising capital. In West Bengal,
Jharkhand, Assam and Chhattisgarh, it began
operating variations of collective investment
schemes (CIS) involving tourism packages, forward
travel and hotel booking timeshare credit transfer,
real estate, infrastructure finance, and motorcycle
manufacturing.
• Investors were rarely informed about the true
nature of their investments.
• With other investors, the investment was
fraudulently sold in the form of a chit fund. Under
the Chit Fund Act (1982), chit funds are regulated
by state governments rather than SEBI.
• SEBI warned the state government of West Bengal
about Saradha Group's chit fund activities in 2011,
again prompting Saradha Group to change its
methods.
• Saradha Group started laundering a large portion of its
funds to Dubai South Africa and Singapore.
• By 2012, SEBI was able to classify the group's activities
as collective investment schemes rather than chit
funds—and demanded that it immediately stop
operating its investment schemes until it received
permission to operate from SEBI.
• Saradha Group did not comply with this ruling and
continued to operate until its collapse in April 2013.
• The scam summed upto Rs. 2460 crore and about 80%
of money still unpaid to depositors.
• They used three schemes namely monthly income
deposit, fixed deposit and recurring deposit.
REACTION
• On 7th December,2012, the RBI Governor said that
the West Bengal government should enact suo
moto action against companies engaging in
financial malpractices.
• Sudipto Sen wrote a confessional letter to CBI in
2013 and fled. He was later arrested.
• PIL was filed on 22nd April in Guwahati High Court
and Calcutta High Court.
• CBI investigation started.
LEGAL RAMIFICATIONS
• On 22 April 2013 the West Bengal government
announced that a four-member judicial inquiry
commission headed by Shyamal Kumar Sen, retired
Chief Justice of the Allahabad High Court, would probe
the scam.
• West Bengal's Chief Minister Mamata Banerjee was
reported to have said, "ja gechhey ta gechhey"
(whatever has gone has gone).
• On 24 April 2013, Banerjee announced a
controversial ₹500 crore (US$77 million) relief fund for
the low income depositors of the Saradha Group,
introducing a 10% additional tax on tobacco products
to raise the money and in jest asked smokers "to light
up a little more".
• In the light of the scam, SEBI requested sweeping
powers to investigate and prosecute any fraudulent
collective investment schemes.
• On 7th May ,2013 , Calcutta High Court appointed a
three member administrator group to run Tara
News and Tara Music.
• Mamata Banerjee said West Bengal was
considering setting up a government-backed small
savings fund to encourage small depositors to
invest in it rather than in Ponzi schemes.
• On 23 May 2013, Bannerjee indicated the West Bengal
government's willingness to take over Saradha-owned
television channels Tara News and Tara Muzic, which
had earlier been sent into administration by Calcutta
High Court.
• As per Supreme Courts order, Bengal SIT handed over
all arrested suspects including Sudipto Sen, Debjani
Mukherjee and Kunal Ghosh over to CBI.
• CBI arrested West Bengal Transport Minister, Madan
Mitra on the charges of criminal conspiracy, cheating,
misappropriation and deriving undue financial benefits
from the Saradha Group.
CHIT VIGILANCE CELL
• To detect unauthorized chits and other
irregularities committed by the Chit Fund
Companies, a Chit Vigilance Cell has been formed
which is headed by the Additional Registrar of
Chits.
• The Personal Assistant to Inspector General of
Registration and Chit Inspectors of Chennai- north,
south and central, are all members f the cell