SEBI has stopped Rose Valley from accepting deposits, but it is just one of the several dubious conglomerates flourishing in the communist-ruled states of West Bengal and Tripura, thanks to a combination of financial illiteracy and political protection
It was more ubiquitous than Coca-Cola and Pepsi and could almost vie with the ruling party's logo. Over the past five years, if you looked at hoardings and watched TV channels, you could not have spent more than a few minutes without coming across the name Rose Valley. As sponsors of prime time news, at every major event and finally as the promoter of a brand new channel, Rose Valley was in your face. Now it has got into the national media for the wrong reasons. Suddenly this week, the market regulator Securities and Exchange Board of India (SEBI) clamped down on Rose Valley Real Estates and Construction Limited for raising funds from the public, without a registration certificate for 'collective investment schemes'.
But Rose Valley is just one. In the last couple of years, West Bengal has seen the emergence of quite a few chain-marketing companies and homegrown business conglomerates. Amazingly, these groups are all Bengali-owned, but they're hardly an example of Bengali entrepreneurship of any kind.
Among them, Rose Valley, Icore Group MPS Group and Saradha group are the most visible. They are all about a decade old and claim to be highly diversified conglomerates today. Collectively, chain-marketing schemes are whispered to have raised over Rs10,000 crores, mostly from lower-middle class people in West Bengal and Tripura, both communist-ruled states. With that money they have bought media space and acquired legitimacy. Rose Valley has been a big advertiser with Ananda Bazar Patrika (ABP) group. ABP has gone out of its way to promote them and celebrate their "entrepreneurship".
MPS Greenery Developers Limited, the flagship company of the MPS group, is based in Jhargram, and deals in agro-products and food processing. Rose Valley started as some kind of insurance and small-savings scheme, but it has now expanded into a long list of sectors such as hotels (Hotel Rose Valley), foods (Taste Me), amusement parks (at Agartala and Kolkata), resorts, media (Ruposhi Bangla, a Bengali entertainment channel, and News Time, a news channel) and garments (RV Fashions). Rose Valley's representatives claim that the company has 10,000 acres of land all over India, 14 regional offices, 500 branch offices, 5,000 employees, and so on. Rose Valley claims it is setting up many housing projects, hotels and hospitals. But its website is down since SEBI clamped down on its schemes.
Nobody knew exactly where the money was coming from for these companies, but everybody suspected that it was some kind of a pyramid marketing scheme, made infamous 30 years ago by the failed Sanchaita Investments. SEBI says, Rose Valley does not have the required registration and appears to be raising funds through collective investment scheme(CIS), by collecting money from people on the promise of land. As the SEBI order points out, Rose Valley's application was rejected in 2003, and the company was unable to produce the required documents about deals with customers.
The CID and state finance department officials had once raided Rose Valley's office in Tripura, but to everyone's surprise no arrests were made. Many people have attributed the outcome to the group's soy relations with the Left Front.
In internet complaints forums, many people have raised questions about the company's credibility and asked for financial details, which its representatives have ignored. Interestingly, one of the agents claimed that Rose Valley has all the required certificates, including a SEBI registration.
Under its 'Ashirvad' scheme, Rose Valley mobilised Rs1,207 crore by selling 508,792 plots, but handed over only 9,045 plots. While the company claims to have a land bank in several upcoming and industrial areas of West Bengal, the question is, how did they get access to all those vast stretches of land that are traditionally used for agriculture?
As Moneylife has reported earlier, Rose Valley Chain Marketing System Ltd, which is a corporate agent for LIC since 2002, has openly violated rules of the Insurance Regulatory and Development Authority. As for the company's insurance business, there is no answer to the question about who will be responsible to the investors if the company collapses. Their media connections have ensured that no details are leaked out about their goings-on. Rose Valley group is not rated by a credit rating agency either.
Let's look at the other 'big' company, MPS (Multi Purpose Scheme - the name is self explanatory). MPS's website features praises by several Left Front ministers for its Jhargram-based fisheries/hatcheries/piggery, etc. Among these government figures are land and land reforms minister Abdul Rezzak Mollah, environment minister Shailen Sarkar and food and civil supplies minister Paresh Adhikari. It also lists a number of certificates, some of them ISO certificates.
What it does not list is a SEBI certificate for any collective investment scheme. According to SEBI, the application of MPS Greenery Developers Private Limited was rejected in 2003 (simultaneously with that of Rose Valley) and a wind-up order was issued. As is apparent from their flourishing business and their 'impressive work in Jhargram' (courtesy Mr Mollah), they have carried on pretty well despite these hurdles. So here is a huge company, collecting money without SEBI registration, which the Left Front government is endorsing. The MPS project and plantation in Jhargram did not make any headlines, but the importance of the location cannot be overlooked. It is in the very heart of a Maoist-controlled stretch in West Bengal and adivasis claim it as their inheritance.
Now, the Icore group, whose source of funds is a mystery to onlookers, as is its meteoric rise. It has declared that it will invest Rs5,000 crore in a steel plant and a cement unit in Orissa. Even insiders are clueless about the source of the cash. Its website lists garments and jewellery, cement, e-services and steel as its businesses. Nobody is certain about the real status of these businesses. The key question that remains is where does the money come from?
The same goes for Rose Valley, whose resorts have bookings, but it's nothing phenomenal. And the media business is certainly losing money. Prayas, a newcomer in this area, is becoming increasingly prominent, with equally dubious resources.
Finally, there is the Saradha group, which is not seen to be a collective investment scheme but has seen a meteoric rise over the past decade. In just 12 years it has got into sectors such as cement, chemicals, wires and cables, snacks, wool and carpets. The group also owns The Bengal Post and Sokalbela, two news dailies, and a news channel called Channel 10. What is not so well known is that the owners were once booked for selling used disposable syringes and medicines past the expiry date.
The West Bengal government has tried to attract investments from large and reputed companies, but the only thing that has flourished in the state is a peculiar brand of pyramid schemes and real estate schemes backed by state power. These groups have also rapidly 'diversified' their businesses, even entering media, to acquire legitimacy. It would be interesting to see whether they can also cosy up to Mamata Banerjee if and when she comes to power.