Last week, the central corporate affairs department reported that at least 62 dubious chit fund companies are operating in West Bengal and they have amassed close to Rs 15,000 crore. The Securities and Exchange Board of India (SEBI) has decided to crack down on several West Bengal-based agro and chit funds with linkages to media businesses.

With concerns being expressed about these companies raising money from the public and then using their media businesses as dedicated platforms to advertise their products, the board has asked its regional office in Kolkata to send details so that suitable action can be taken.

The Financial Stability and Development Council, the apex coordinating mechanism among financial sector regulators, is backing SEBI on this. The council is headed by the finance minister.

A top source in SEBI confirmed that there were concerns about these Bengal-based non-banking financial companies. The money they raise from the public slips between equities and listed debt issues and so escapes the domain of any financial sector regulator.

The organizations are usually registered with the Registrar of Companies with the suffix “group” just like “ abcd.. Group of Companies”. The specific entity which raises the subscriptions is usually not registered, but claims affiliation with the registered company to gain the confidence of the public. As an example: money market wing of ‘abcd.. Group of Companies’ names ‘abcd.. Investment’ not registered as a financial company yet, though they try to be present themselves as registered company under ‘abcd.. Group of Companies’ and spread out their stings inside public savings deposit and make them bankrupt, just like Santosh Bera, 60, who works as a peon in a Calcutta advertising agency, was just setting out to work when his wife rushed in from outside, crying. “They ran away with all our money,” she sobbed. She then confessed that she had secretly invested the Rs 10,000 they had been saving up for a rainy day in a “chit fund”. Every month for the last ten months, she went down to “an office” in Park Circus in central Calcutta and deposited Rs 1,000 with “an agent”, and was handed a receipt scribbled on a chit of paper in return. She was promised that on the twelfth month she would get back double the amount with interest.

But that day, when she went to the chit fund office, “what she found was a double lock on the door,” says Bera.

Banking regulator, Reserve Bank of India has cautioned customers against such unregistered non banking finance companies (NBFCs) and sec 25 companies dealing with money marketing which allure customers by offering high returns on deposits and claim to have RBI registration.

The central bank has also said that all complaints of this nature should be addressed to the Economic Offences Wing of the state governments concerned.

"It was reported that some individuals, firms, unincorporated association of individuals (unincorporated bodies) or marketing companies and companies engaged in money circulation schemes have been collecting money from the public by making tall promises of high returns, either through issue of advertisements or by sale of products," the RBI said.

"Money circulation schemes are banned under the Prize Chit and Money Circulation Schemes (Banning) Act 1978 and the respective state governments have the power to take action against the persons involved in such schemes," RBI said.

The apex bank has also generated a list of 300 registered NBFCs which are permitted to accept deposits.

"No NBFC outside of this list can accept deposits from public. Doing so is clearly fraudulent and has to be investigated by the law enforcement agencies in the normal course," the RBI said.

West Bengal has the highest number of such schemes in eastern India, with one estimate putting the number of them registered in Kolkata alone at 27.

The endorsement by the Supreme Court of SEBI’s position in the Sahara case has also made it possible for the regulator to investigate many of these companies. In the Sahara case, the board was able to prove that funds raised from the public by two of the Sahara companies were beyond the approval these had secured.

In 2011, SEBI had passed an order against Rose Valley — which began by offering an amalgam of insurance and small savings schemes but has expanded into hotels, tourism, food and an entertainment and news channel — not to collect any money from investors or to launch any scheme.
Other prominent groups in Bengal to have linkages with the media include the Saradha Group and Rice Group. The Saradha Group has interests in realty, cement, agro-business and education and runs Bengal Post in English and Bengali daily Sokalbela, plus news channel Channel 10. The Rice Group is into education business but also launched newspaper Swabhumi recently.

Chit fund companies and the channel/publication they patronise:

Sharda Group : Channel 10, Bengal Post, Sakalbela, Azad Hind and Parama
Rose Valley : News Time, Rupasi Bangla, Dhoom (music channel) and Khobor 365
Angels Group : Abar Jungantor
Shine Group : Shan Bangla
Chakra Group : Ekdin
Rahul Group of Companies : R Plus
Tower Group : Swabhumi, Pratyohik Khobor

Some other groups that SEBI has decided to explore extensively are listed both in the BSE and NSE. Its interests range from poultry to real estate and it also owns a TV channel in the industrial town of Durgapur.

In December last year, the RBI initiated action against two chit fund companies—Sunmarg Welfare Society and Amazon Capital—for using the name of the regulator to solicit deposits from the public. The RBI issued advertisements clarifying that it would not stand guarantee to the investment options being floated by the two companies.

Congress MP Adhir Chowdhury told, “We have alerted the prime minister about the widespread prevalence of this dubious non-banking financial institution in Bengal, which I call ‘cheat funds’, because they are cheating hundreds and thousands of poor people from the villages and small towns of their meagre earnings or life’s savings.” TMC MP Somen Mitra has also sent a similar letter to Manmohan Singh, pointing to the chit fund menace in the state.

By all accounts, Bera, the quintessential ‘common man’, fits the third element of West Bengal chief minister Mamata Banerjee’s “Ma, Mati, Manush”. The question is why Mamata, whose avowed ‘honesty and transparency’ (‘shatotar protik’) played not a small part in her rise, is not initiating action, or at least an investigation, against these chit fund companies?

The answer to that question is intertwined with the answer to another question: who owns some of the blatantly pro-establishment (read pro-Mamata) broadcast channels and print media houses that have mushroomed over the past few years, ever since the Left has been on the decline? The answer: chit fund companies (see box).

While Mamata has never spoken publicly in favour of chit funds, insiders reveal that “unofficially, she protects them”. In fact, it isn’t even that unofficial, if one considers the fact that among her MPs and MLAs are those who have direct links with chit funds.

TMC’s industrialist-MP K.D. Singh owns a chit fund. TMC Rajya Sabha MP Kunal Ghosh edits the pro-TMC Bengali daily Sambad Pratidin and is a top boss at Channel 10. In an interview, Ghosh lashes out at the indiscriminate stigmatisation of all chit funds, and the “dragging of all the chit funds under one generic ‘shady’ umbrella.”

“A distinction should be made. Not all the chit funds are bad. There are allegations against some and I am not condoning those. All the owners of chit funds should be called by the regulatory authorities and the dealings should be investigated thoroughly and the chit funds should be brought under the regulatory bodies,” he says.
Ghosh argues that the present noise about chit funds is politically motivated and a direct fallout of the TMC’s pulling the plug on the UPA-II government. As he points out, “Chit funds grew over a period of several decades, when the Left Front was in power. Why question it now?” Moreover, he observes that chit fund firms are now all-encompassing, having branched out into areas such as real estate and the hospitality industry, not to mention the media. “Chit fund companies employ thousands of people (he puts the employment figure in media alone to at least 4,000-5,000). If chit funds are shut down, all these jobs will be lost,” says Ghosh. And taking a dig at the mainstream media, which looks down upon chit fund-owned media, Ghosh asks: “The media which is shouting against chit funds, can they do without their ads?” Ghosh has a point. Advertisements of chit funds are ubiquitous in Bengal’s non-chit fund-funded, mainstream media, both print and electronic. Nor are allegations by the TMC, that the sudden flagging of the chit fund issue by the Centre is politically motivated, all that impossible.
Scores of people across Bengal—not just in villages and towns but also in Kolkata—have been duped by shady chit fund companies for decades. The notorious Sanchaita episode of the late 1970s, when investors were cheated of hundreds of thousands of rupees, was one of the first such examples.

Making a distinction between the existence of chit funds in their time and now, CPI(M) central committee member Mohammed Salim told, “What makes it dangerous is that at that time the chit fund owners did not control the media the way they are doing now. And we did not depend on such media to reach out to the people.”

Establishing a link between chit fund companies and the TMC, Salim further points out that the sectors in which the pre-election TMC manifesto promised development included tourism and hospitality—the very same areas where chit fund companies have branched out and channelised funds.

Indeed, TMC members speaking did not openly deny close ties with chit fund firms, or even allegations that there exists a symbiotic relationship in which the companies are allowed to thrive in return for the government reaching out to the masses through the media these firms control.

The only thing to which the Trinamool must pay heed—on the pain of popular unrest—is that the masses to whom it reaches out through media flush with chit fund money are made up of the common peoples of Bengal.

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