SARADHA SCANDAL

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 SARADHA SCANDAL

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• An urge to earn : The large number of low-earning rural people in India who cannot access formal banking channels, are easily vulnerable to shiny offers that promise doubling or tripling of the principal sums. Ponzi schemes come into picture.
• Other problems : In the rural economy, two helplines are generally not available - (i) to place their monies safely in deposits and (ii) to to borrow money for needs like buying seeds for the next crop or marriage in the family. For all this, a parallel set of moneylenders has developed, charging high rates of interest. Many are wealthy landlords and politicians, charging exorbitant rates of interest.
• Moneylenders Acts : To control all this, various State governments of India enacted the laws but failure to offer mainstream banking has brought in the Ponzi schemss. Greed does play a role.
• West Bengal case : The prosperous rural economy of West Bengal previously relied on small savings schemes run by the Indian Postal Service, but the low rates of interest in the 1980s and 1990s encouraged the rise of many Ponzi schemes like Sanchayita Investments, Overland Investment Company, etc. All failed ultimately. But the regular decline in interest rates, lack of investor awareness and political patronage encouraged more companies to come in.
• Two ways to raise funds : Such companies raise money through (a) legitimate channels like collective investment schemes, non-convertible debentures and preference shares, or (b) illegitimate channels like fraud financial instruments (such as teak bonds, potato bonds etc.). West Bengal became the "Ponzi capital of India".
• Saradha Group financial scandal : It was a scam and a political scandal caused by the collapse of a Ponzi scheme of the Saradha Group, which was a group of over 200 private companies running collective investment schemes (wrongly called chit funds), across Eastern India.

1. It collected around Rs.30,000 crores from more than 18 lakh depositors before collapsing in April 2013.
2. Soon, the State Government of West Bengal (Saradha Group HQ) instituted an inquiry commission.(c)The State government also set up a fund of Rs.500 crore to help the low-income investors.
3. The central government (Income Tax Department and Enforcement Directorate) launched a multi-agency probe to investigate it.
4. In May 2014, the Supreme Court of India transferred all investigations into the Saradha scam and other Ponzi schemes to the Central Bureau of Investigation (CBI)
5. Many prominent personalities were arrested for their involvement in the scam including two Members of Parliament (MP) - Kunal Ghosh and Srinjoy Bose, former West Bengal Director General of Police Rajat Majumdar, a top football club official Debabrata Sarkar, Sports and Transport minister in the – Madan Mitra.
6. Sudipto Sen was the chairman and managing director of the Saradha Group. In his youth, he was a part of the Naxalite movement in West Bengal. The land bank he formed in around 2000 became the catalyst for enticing early customers into his Ponzi scheme.
7. The Saradha Group invested heavily in the building of its brand, by putting money in high visibility sectors, like the Bengali film industry, where it recruited actress and Trinamool Congress (TMC) Member of Parliament (MP) Satabdi Roy as its brand ambassador. Bollywood actor and TMC MP Mithun Chakraborty was brought in as the brand ambassador of Saradha Group's media platform.
8. The earliest public warnings started in 2009, and soon the SEBI investigation came up. In December 2012, the RBI governor Duvvuri Subbarao said the West Bengal government should initiate suo motu action against companies that were indulging in financial malpractice. By that time, the Saradha Group Ponzi scheme was already beginning to unravel.
9. Collapse starts : In January 2013, the group's cash inflow was, for the first time, less than its cash payouts. This is inevitable in a Ponzi scheme that is allowed to run full course.
10. On 6 April 2013, Sen wrote an 18-page confessional letter to the CBI, admitting that he had paid large sums of money to several politicians.

• Special Investigation Team (SIT), West Bengal Police : An FIR was filed against Sudipto Sen and Kunal Ghosh on 14 April 2013, and many from Saradha Group were arrested. The investigation was headed by the detective department of Bidhannagar police. The head of SIT was Rajeev Kumar, who came in the eye of storm in 2019 when CBI reached his home.
• Justice Shyamal Sen Commission : By mid-August 2013, the Justice Shyamal Sen Commission finished its initial list of claimants. Around 17.4 lakh depositors filed claims with the Commission, of which 83% invested Rs.10,000 or less. The Commission then recommended that West Bengal state government sell the assets of Saradha Group and proportionally distribute the returns among defrauded investors.
• Central agencies : On 30 April 2013, the CBI started investigating into the Saradha Group scandal in Assam at the request of the state government. In West Bengal, because the criminal investigation had not initially been handed over to the CBI, the Enforcement Directorate (ED) led the investigation and arrested the absconding wife, son and daughter-in-law of Sudipta Sen. ED alleged that West Bengal police has not cooperated with it and obstructed its investigation.
• Supreme Court : In May 2014, the SC transferred all investigations in the states of West Bengal, Odisha, Assam, Jharkhand and Tripura, to CBI. As per Supreme Court's order Bengal SIT handed over all arrested suspects including Sudipto Sen, Debjani Mukherjee and Kunal Ghosh over to CBI. Former Assam DGP Shankar Barua who was a suspect in the Saradha scandal and whose house was searched by CBI, committed suicide.
• Developments in 2019 : The Mamata Banerjee-led West Bengal government and the central government were at loggerheads over the CBI investigation into the Saradha chit fund scam.

1. The standoff started after the CBI reached Kolkata Police Commissioner Rajeev Kumar's residence on Sunday to question him on the scam. Kumar was the head of the Special Investigation Team (SIT) Mamta Banerjee's government had set up to investigate the Saradha scam back in 2013. 
2. In response to the CBI's action, the Mamata Banerjee started an indefinite dharna in protest against the Centre.
3. The CBI filed a petition in the Supreme Court, seeking directions to Kolkata Police Commissioner Rajeev Kumar to cooperate with the investigation in the chit fund cases.
4. The West Bengal government has also moved Calcutta High Court against the CBI's attempt to question Kolkata police chief. The West Bengal Governor Keshari Nath Tripathi has sent a report to the Home Minister Rajnath Singh on the prevailing situation in the state.
5. The Supreme Court, on 05 February 2019 asked the CBI to question Rajeev Kumar at a neutral location (Shillog) and not arrest him

• Political overtones : Since 2019 is a major election year, and the TMC and BJP are at loggerheads for a long time, this issue is likely to keep simmering for a long time.

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