Thursday, July 18, 2013

Chit fund companies defy HC order, CBI probe - Scam-dance continues

Lucknow: A number of chit fund companies have rapidly seen growth in the last decade. There are dozens of companies, illegal in the eye of government, that are running in Uttar Pradesh, Madhya Pradesh, Rajasthan, Bihar, Haryana and many more states, where they are flourishing by the day on the promise of paying back the amount, added with 15-20 percent interest to the investors. Companies have worked upon several schemes as per investor’s financial potential, and are thereby assaulting the families economically. The government is well known of the datum and Gwalior bench of Madhya Pradesh High Court has even nodded in yes, at the presence of such companies, ordering a CBI probe into the same but the investigating agency has been slothful to take down these companies and nab the culprits. One of the recent example of such company, that came in to limelight, is Saradha Group, where the investors and employees were taken to the edge of braving “rigged” circumstances where many committed suicide and others were thinking to.

The chit fund scam from West Bengal, which surfaced in April saw the income of several families, going in the dump. Millions hoarded to the company in the pursuit of secure investment and invested their income, which for many came as daily wages into it for the guarantee that it will act as their insurance for a secure future. The supervising division of the group had everything planned to make sure that people invest in the company. In order to win the trust of commoners, they named the company after the wife of a blest saint Swami Ramkrishn Paramhans, Saradha Devi. The group penetrated by keeping agents from the same communities they aimed for, again for building faith in public. The syndicate even took help of a Bengali film for winning trust and even recorded its presence in real estate sector. But there is no clue of where the investors’ amount stands today.

Majority of populace, living in northern India, come under low income bracket. They are the ones who fall for the deception as collecting the amount in the bank does not guarantees them the 15-20 percent, vowed by these companies. Company agents convey the investors that it will be buying land with the expanse of collected investment and later will return the amount with interest from the profits earned by reselling the land.

Kalptaru Biotech Corporate Limited/KBCL India Ltd. and KMJ land Developers are two such companies that have got the same business flourishing in ten states including Uttar Pradesh, Madhya Pradesh, Bihar, Rajasthan, Chhattisgarh, Odisha and Haryana. Both these companies work on similar grounds and strategies. KBCL India Ltd. Operates from Mathura and KMJ Land Developers is operated from Gujarat via super luxury offices. The smallest link to this widespread business is the agent, who works on commission and brings business from small towns and other citizenry. The company has a variety of schemes according to the capability of investors, ranging from Rs 100/month to one time investments.

According to the information given by the officials of KBCL to CBI, the company is running since 1993. It then got registered in Company Registrar Office in Kanpur, in 2003. The chief grind of KBCL was building, expansions of residential colonies in city and villages, building residential apartments, plotting and acquisition of land lease. This company is involved only in real estate business. Company says that it has got clients which opt for either installments or invest in a lump which, according to the rules and regulation of the company, are specified a piece of land. Those who capitalize the amount in one go, the land is allocated to them after a year and those who furnish the amount in installments, the land is allocated after they have paid 50 percent of the amount. The registry of the land is prepared after 100 days of land allocation to one time investors while the registry of the land comes after a year for those involved in installment schemes but only after they have worked upon the scheme and paid all the installments.

Until March 2012, company had 3,97,532 clients, to whom 15,51,381.5 square yards of land was allocated. 14,706 allocation letters were issued during the period, out of which 13,911, according to the policy, rendered full investment amount to the company. According to the CBI report, there is no mention of this fact in company’s contract that after the completion of the policy, there is a choice of giving an approximated value of the land instead of the land itself. Also the land, on which the company is trying to score a client, is disputed.

Since most of the investors (falling in low income bracket) do not go deep in extracting details of the company, for them it is mere a finance company that gives higher interest rates than banks therefore investing in it, sounds a lucrative deal to them.

Reasons why these companies are mushrooming?
- Uneducated investors find the 15-20 percent interest rates by these companies, more ideal than the 4-8 percent rate given by government banks or other institutions. For them, finding a quicker way to grow their income is a priority.
- People have to go through lots of formalities to open an account while companies put agents in between and issue a policy in no time.
- Commission seeking agent comes and collects the installment on time whereas in government policies, people stand in queue for hours.
- Illiterate investors are ignorant in finding the reality of the company or what it does with the money pooled with such schemes.

The Reality
- These companies are only registered as real estate companies, thereby, they only have the authority to sale-purchase land and develop residential infrastructure. They do not have permission to collect capital investments from market.
- The company distributes 40 percent part of the investors’ money to the 12-level agent chain as their commission which comes down to 10 percent in 2nd year and 6 percent in 3rd year.
- According to Indian Banking Act 1949, these companies are not authorized to run such fiscal schemes and collect money from any person. Investing in capital markets too is illegal according to SEBI.
- The allocation of land only happens after investors have given 60 percent of the total amount. And proceeding of giving land to the client happens after complete investment has been melted via policy.
- Investors face problems in withdrawing their money if they fail to give installments, timely.
- The money is invested in the form of fixed deposit which cannot be withdrawn in between.
- Acquisition of land lease is mere a formality to play with legalities.

In a PIL filed in the Gwalior bench of Madhya Pradesh High Court, request for probe has been asked against 33 such companies. Court, on PIL number 3332/2010, ordered CBI to investigate the matter since it was related to lakhs of investors having low incomes. The preliminary investigation has revealed that the companies (listed at the bottom) are illegally involved in collecting investments from capital market via chit fund schemes.

Out of 33, there are 20 companies which have been found to have running the business in 15 states including Madhya Pradesh. A commissioner was appointed to lead the CBI enquiry into the matter. The court said that the enquiry is necessary for country’s economy and for the interest of common man. However, CBI Bhopal was unable to go deep into the investigation and hence the inquiry was transferred to the EQ-III branch, CBI, New Delhi. But still, no action has been taken against these companies nor have they been ordered to, at the least, stop their fraudlent craft in the form of chit fund schemes. SEBI, ED, IT Department, State Government, Company Law & Order Board haven’t turned to even get hold of what these companies are up to.

An ex manager at Meerut branch of KALPTARU, Ataullah Khan shares, “I was getting salary plus commission on deposits, I worked hard and connected many people and got approx. Rs 37 Crore deposits within 6 years as FD/TD/RD, but I was not knowing about company profile. A year ago, company closed all the offices in western UP. After that the investors never got their return.”

He even tells about the difficulties he faced after the company took a trip, out from the state. Explaining he was hassled by the investors, he says, “I have returned some amount to investors from my commission and promised that company will return their investment and reopen offices too. But investors came to my house on everyday basis. I ran away and left my village permanently with family.” The report of same was sent to several DIGs and IGs of the state but it only gained frozen responses.

As one can see, the company not only cheated investors but in a way, did a double-dealing with its employees too.

Companies Under Scanner
- Madhya Pradesh Lok Vikas Finance Ltd.
- Samruddh Jeevan Foods India Ltd.
- Garima Real Estate and Allied
- Saksham Dairy India Ltd.
- Green Fingers Agro Land Maintenance Private Ltd.
- Royal Son Marketing and Insurance Service
- Sky Lark Land Developers and Infrastructure India Ltd.
- Adhunik Housing Development Pvt. Ltd.
- Jeevan Surbhi Dairy and Allied
- Parivar Dairy and Allied Ltd.
- JSV Developers India Ltd.
- KMJ Land Developers India Ltd.
- Sun India Real Estate
- Madhur Real Estate and Allied
- BPN Real Estate and Allied
- KBCL Pvt. Ltd.
- GN Land Developers
- Kim Future Vision (Kim Infrastructure & Developers Ltd.)
- PACL India Ltd.
- MKD Land Developers India Ltd.
- Kamal India Real Estate and Allied Ltd.
- Sarthak India Ltd.
- RBN Real Estate and Infrastructure India Ltd.
- Sai Prasad Food India Ltd. & Sai Prasad Properties
- Galav Leasing and Finance Ltd.
- GCA Marketing Ltd.
- Chanderlok Fin-vest Pvt. Ltd.
- State Citizen Sakh Sehkari Marya
- Madhur Tourism and Markential Pvt. Ltd.
- Madhur Dairy and Allied Ltd.
- Royal Sun Marketing

Pardaphash will bring you the status report of the CBI enquiry on these chit fund companies soon. If you are an investor in any such finance company, we advise you to stay alert otherwise you too can fall prey to the same.

Published: Mon, 13 May 2013 at 03:30 IST

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