Pune-based Shubham Karoti barred from raising public funds

SEBI found that Shubham Karoti Foods was collecting money from common people in Silvassa through certain food schemes without due authorisation


Market regulator Securities and Exchange Board of India (SEBI) has barred Pune-based Shubham Karoti Foods Pvt Ltd and its two directors from mobilising money from investors and launching any new scheme.


The capital market regulator found that the company was collecting funds from common people in Silvassa through certain food schemes without due authorisation.


The Pune-based company is stated to be engaged in the business of food products including tea, groundnut, soya oil, mineral water, among others in Maharashtra.


"Protecting the interests of investors is the first and foremost mandate for SEBI and therefore steps have to be taken in the instant matter to ensure only legitimate investment activities are carried on by Shubham Karoti Foods and no investors are defrauded," the SEBI said in an order.


Accordingly, SEBI has directed the company and its directors -- Somit Kishanchandra Saxena and Sudhir Nathuram Pawar "not to collect any more money from investors including under the existing schemes" and "not to launch any new schemes".


Besides, the entities have been asked not to dispose of any of the properties or alienate any of the assets of the schemes and not to divert any funds raised from public.


The company has to furnish all information regarding the schemes with details of the investors and also details of insurance policies and compensation given under the policies as part of the schemes, to SEBI.


The directions shall take effect immediately and shall be in force until further orders, SEBI said.


The regulator said that the company "is prima facie engaged in mobilising funds from the public, by floating or sponsoring or launching 'collective investment scheme...without obtaining a certificate of registration from SEBI".


SEBI had begun a probe in the matter after receiving a reference on 20 November 2013 from the Reserve Bank of India (RBI) about the company.


Can there be an effective safeguard against bank frauds?

The common denominator in all bank frauds is the lack of internal control, lack of integrity and the epidemic of misconduct among officials


Experience is the best educator, but it seems that some people refuse to learn, the latest culprit in this category being a multinational bank. It is the latest addition to the endless list of fraudsters. This bank’s  fraud has a striking similarity to the Allied Irish Banks (AIB) and Barings Bank cases, in both instances one man incurred huge losses without any other person within the organisation getting wind of it. Barings Bank collapsed as a result and AIB barely survived the debacle.

The similarities are in the manner the funds were invested. Rusnak of AIB was a currency trader who gambled on the world's financial markets and incurred huge losses.


A combination of incompetence, ignorance and ineptitude, coupled with little or no supervision and internal control, enabled him to do what he did. It was after about a year had passed that the trader's actions came to bite the bank and it lost about 10% of its equity capital, but somehow survived the ordeal.

Barings was not as lucky, Nick Leeson was trader with Baring and in 1995 went one step further than Rusnak and ended up bringing down Barings, the UK's oldest merchant bank. Leeson was dealing in dodgy derivatives rather than currencies, this case had a striking resemblance to the AIB debacle. Shivraj Puri, the alleged mastermind behind a fraud worth about Rs400 crore, more or less operated as Leeson did. Like Leeson, he also invested most of the funds in the derivative instrument called “Nifty Options”.

Sumitomo Bank's Yazoo Harmonica, Daiwa Bank's bond trader Toshihide Iguchi, Princeton Economics International’s Martin Armstrong and the list is endless, but the common denominator in all frauds is the lack of internal control within banks, lack of integrity and an epidemic of misconduct among officials.

It is estimated that a typical organisation in the US loses 6% of its annual revenue to fraud and that employees are responsible for more than 75% of the fraudulent transactions. Shivraj Puri's fraudulent operations, which became public in 2012, brought to light a bank with a "lack of integrity, no compliance, discipline and transparency, no due diligence and no strategy".

Most, if not all of the factors that contribute to fraud, can be neutralised with strong internal checks and  controls. The essence of 'Internal Control' therefore lies in the separation of the three functions of 'Authorisation'- the initiation of the transaction, 'Custody'- the handling of assets involved in the transaction' and 'Recording'- the creation of documentary evidence of the transactions and it's entry in the accounting records.
This will involve the division of responsibility in the various procedures, whereby, transactions are Authorised, Performed, Recorded and on completion are Verified and Reconciled independently.

Know your customer (KYC), an essential precaution, must be coupled with know your employees (KYE):

Thorough check on employees' credentials, proper screening of candidates to prevent hiring fraudsters

Rotation of personnel, surprise job rotation

Compulsory annual leave

Competent personnel

Assignment of responsibility

Division of work /Separation of Functional duties

Separation of accountability from custodianship

Adequate records and equipment

Physical protection of assets

Strong Internal and external auditing

These imply that the financial and accounting controls should be such as to facilitate efficient working and at the same time obviate any chance of Fraud or error. Here the practical division of duties should be such as to ensure that the internal check system is operating at all stages. Internal Check forms a valuable part of the Internal Control System. It arises from the "Separation of Function" in such a manner that no single task is executed from it's beginning to its final destination by any one person and the work of each person is an independent check in the course of another person's duties. “Internal Check" is a form of "Verification" that aims at minimizing errors and frauds.  It is a line function.

The failures in several recent cases, demonstrate that inadequate internal controls can lead to significant losses for banks. The types of control breakdowns typically seen in these cases can be grouped into the following categories:

Lack of management supervision, accountability and failure to develop a strong control culture within the bank.

Inadequate recognition and assessment of the risk of certain banking activities, whether on or off balance sheet

Key control structures and activities, such as segregation of duties, approvals


verification, reconciliation and review of operating performance.

Inadequate communication of information between levels of management within the bank, especially in the upward communication of problems.

Inadequate or ineffective audit programs and monitoring activities.

It is a fact that an organization implementing and maintaining a robust internal control system would, in most cases, prevent any fraud. If banking organisations do not go down that road, it is inevitable that they will be more prone to fraud. A good internal control system will keep any damage down to a minimum. Organisations should try to develop a culture that constantly accounts for ethical questions in its functions.

(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)



Dipakkumar J Shah

3 years ago

No. There is no safe guard even in C B S Branches. In one of C B S Branch , Fraudsters Branch , Pondicherry ( Pundicherry ) JPIMR Branch. Where Mr. Amaldos Loan account was closed by paying cash!!! E M I was stopped after paying the Loan amount outstanding. EMI was stopped for three months!! All of a sudden after three months lesser e mi was started debiting. Who authorised these transactions for closing the Account and also after three months lesser amount of EMI who authorised , no answers are given from any authority , Chairman's office to Branch, Regional office and all!! Where is security?
Shah D J

Murthy AVSN

3 years ago

For a fraud to occur or be perpetrated, it is not enough if we have hired people with good character and conduct;

Hoenesty has to be tested time and again as moost of the human beings are susceptible to pressures, look for opportunities and also get emboldened if they precieve the correction/ conrolling machinery to be complacent or non-skeptical or partisan and selective in bringing the culprits to book.
At the same the checks and controls need to be continuiosly reviewed/ revisited keeping the threats in the emerging/existing operating environment even outside the same orgainization.
With increasing materialism as well as spending habits people tend look for opportunties to grab or gain even by unethical means when they think they will be not caught.

Further, the culture of rewarding honest cum hardworking employees need to be recognized and rewarded besides the assuring and demonstrating that the whistle blowers will not be harrased and victimised.
Thanks and regards.

Murthy AVSN


3 years ago

Like any scam, only probity and character of the people can contain Bank frauds. In an India that routinely elects criminals to office, uplifts and admires the worst, this is unlikely. After 67 years of Quota-Corruption Raj, I would not be surprised to see Dawood Ibrahim made President of India.

Nagesh Kini

3 years ago

Authorization, Custody and Recording may have worked in the good old days.They are all valid on paper. Today the prime cause of loans going bad is bad monitoring of the end use of the funds post disbursal.There are massive frauds underlying here. In connivance with the bank officials unscrupulous borrowers are known to siphon out large chucks of the advances for unrelated purposes which ought to have been stopped by the branches. They don't pull up the borrowers for not submitting the periodic stock statements neither do they make visits to the sites for a physical verification of inventories and receivables pledged thereby permitting the borrower to avail much more than the legitimate drawing power.When all these are steadfastedly carried out the posibilities of the assets getting stressd are mitigated. Any measures thereafter only tantamount to locking the stable after the horse has bolted.


Dayananda Kamath k

In Reply to Nagesh Kini 3 years ago

They dont want to lock the stable at all. the officers who do their duty deligently are harrassed and eased out with every govt authority helping them in thier endevour.including th judiciary. i have a classic case reported to every authority but no action. even those who are involved are promoted.

Who likes what on Facebook?

Have you ever spotted a suspect “like” on your Facebook profile, especially a sponsored advertisement carrying a 'like' endorsement from your friend?


My friend doesn’t drive a Subaru. So when I saw a Facebook ad for a Subaru dealership with his endorsement, I had to wonder: What’s up with the Jetta?

The sponsored ad appeared on the right side of my homepage where, as of this article, Facebook also presents events, birthdays, and “trending” news articles.

Sponsored ads sometimes carry a friend’s endorsement in the form of a “Like” of the company’s Facebook page, and that was the case with the Subaru ad.

But knowing my friend drove a Volkswagen, I had to ask: Did you really like this page for a dealership in Stamford, Connecticut. His text back: What?!! Why would I like Subaru?
As the happy owner of a Subaru myself — which I imagine was why the ad had surfaced in the first place? — I could have given him a few reasons, but that was beside the point.


Earlier this year, a class-action lawsuit against the social media behemoth alleged that Facebook unlawfully misrepresents its users by liking pages without their knowledge or consent, and in doing so creates “a false impression that its customers are promoting a particular company or product.”

The three plaintiffs each cited a page that they alleged Facebook liked without their permission – the three company pages belonging to USA Today, Duracell, and Kohl’s. In the cases of USA Today and Duracell, the likes were featured in sponsored ads visible to Facebook friends, the complaint alleged.

The lawsuit sought millions of dollars in punitive damages for the millions of Facebook users potentially affected by the alleged unauthorized endorsements. But in a motion to dismiss, Facebook called the claims “baseless” and argued that the plaintiffs probably liked the pages and forgot or “inadvertently” clicked the like button on Facebook or elsewhere.

Less than five months after the suit was filed in January, the three plaintiffs dropped their case in May. And they withdrew it with prejudice, meaning the case can’t be brought back to court. The reason for the withdrawal was not made public. reached out to Facebook for comment on the case and its outcome but did not receive a response.



We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)