In your interest.
Online Personal Finance Magazine
No beating about the bush.
A strong campaign by Moneylife through its website and its social media properties gets quick justice for a 79-year old man with an ailing wife. IndusInd Bank officials had deceitfully persuaded him break his fixed deposit with the bank and invest in a wrong product
Yesterday, there was another knock on 79-year old Mangelal Sharma’s door. Once again, the visitors were IndusInd Bank officials from his branch. But this time, it was not to mis-sell. The bankers came—at 11.30 in the night—bearing a demand draft of Rs7 lakh covering the amount he was persuaded to withdraw from his fixed deposit and invest in DWS’s mutual fund scheme with a 5-year lock in period.
The bankers also came with a letter wanting Mr Sharma to transfer the mutual fund units to the bank. This time, he was careful to read the letter and after some modifications, signed a release “without prejudice”. However, as he says, with great relief, “I want to close this chapter and move on”. We agree.
The bank’s rare capitulation, despite Banking Ombudsman dismissive attitude, was the result of Moneylife’s aggressive stance on mis-selling of banks, specifically making a campaign of this utterly disgusting case of mis-selling. In a first reaction to our report (Read Mr Sharma’s story here: ), the bank invited Mr Sharma to visit the bank at 10 am on Wednesday. Mr Sharma, wearing his T-shirt saying, “BEWARE IndusInd Bank is a cheat. It has cheated me and may cheat you too” landed up at the Preet Vihar branch in Delhi with Veeresh Malik, activist and Moneylife’s consulting editor in Delhi to lend him support.
But the bank had no intention of giving in so easily. It initially refused to allow Mr Malik to be a part of the meeting, did not want the conversation recorded and would not part with Mr Sharma’s documents or give him a copy of the cheque he had signed.
Readers may recall that bank officials visited Mr Sharma at his residence to persuade him to invest in what they said was a Development of Wealth Scheme (DWS), a branded fixed deposit of the bank, carrying higher returns. He was even persuaded to break an existing fixed deposit to put together Rs7 lakh for the investment. It is only when he received his first statement that he realized that he has been made to buy the DWS Hybrid Fixed Term Fund Series 10 Growth, which is sold by Deutsche Asset Management India Pvt Ltd (DWS) and has a 5-year lock in.
“Why would a 79 year old man, with a wife who needs surgery and who is living on his savings, willfully invest in a risky mutual fund with a 5-year lock-in”, asks Mr Sharma. But shockingly, the Reserve Bank of India’s (RBI) Ombudsman did not ask this basic question, or give him benefit of doubt and dismissed his complaint. Mr Sharma then decided to resort to Gandhigiri. Moneylife, which has been writing about gross mis-selling by banks, decided to campaign for him.
Mr Sharma’s fault was that he trusted the bankers of IndusInd Bank and allowed them to fill in the details of the scheme instead of checking the documents himself. The fact is, most people do trust their bankers implicitly and this has been ruthlessly exploited by modern day banksters to con persons who are not financially savvy. Senior citizens and women have been big targets of such systematic mis-selling. While Mr Sharma’s story has a happy ending, the rampant mis-selling of financial products remains a serious issue and Moneylife Foundation (our not-for-profit entity) will continue to push the RBI to rein in banksters, who exploit the trust of customers and sell them dubious derivative products, insurance or induce them to invest in portfolio management schemes which trade in risky commodity products.
RBI says these are beyond its jurisdiction, SEBI has made some efforts to control them, but these finance companies use local courts to ignore orders. But now big companies, like Saradha group have started defaulting. Is it the beginning of the end of dubious finance companies in West Bengal which have been close to both the Left Front and Trinamool Congress?
Saradha group, one of the biggest finance companies in West Bengal is on the verge of collapse and according to news reports, the state government has issued an order for arresting Sudipta Sen, chairman and managing director (CMD) of the company for default on repayments. The Saradha group is just one of the many deposit-taking companies that sprouted and flourished in West Bengal under the garb of legitimate businesses such as real estate, agro products and tourism.
Over the past few years, West Bengal has seen the emergence of quite a few chain-marketing companies. Among them Rose Valley, Icore Group, MPS Group and Saradha group are the most visible ones. They are all about a decade old and claim to be highly diversified conglomerates today. Amazingly, these groups are all Bengali-owned when there is hardly any example of Bengali entrepreneurship of any kind.
While the Reserve Bank of India (RBI) has maintained that the deposit-taking companies does not fall under its jurisdiction, market regulator Securities and Exchange Board of India (SEBI) tried to rein in such companies in the past under its collective investment schemes (CIS) regulations. However, these companies managed to subvert the SEBI orders and continued to flourish with political patronage. But more about it later.
According to a newspaper report, SEBI's action against deposit-taking companies from West Bengal has so far failed due to intervention by district courts. As many as six district courts passed injunctions last year on SEBI’s cease-and-desist order against MPS Greenery Developers, the newspaper report said, quoting an official from SEBI. The market regulator even approached the Supreme Court against these deposit-taking companies, but this effort too could not produce any result.
Last month, SEBI requested the finance ministry to appoint a separate regulatory body for regulating deposit-taking companies and CIS operators.
Collectively, CISs operators are whispered to have raised over Rs20,000 crore, mostly from lower-middle class people in West Bengal, once ruled by the communists and Tripura, which is still under the red flag. With that money, they have bought media space and acquired legitimacy. Rose Valley has been a big advertiser with the Ananda Bazar Patrika (ABP) group. ABP has gone out of its way to promote them and celebrate their ‘entrepreneurship’.
Saradha group was one step ahead of other similar businesses. Since 2010, it acquired or launched several newspapers and TV channels. Unfortunately, over the past few weeks at least 10 media organisations of Saradha group shut shop due to financial issues.
According to media reports, about 200 commission agents of Saradha group met Trinamool Congress leaders demanding immediate intervention from the state government for recovering money from the group. The agents claimed that Saradha group has started defaulting on repayments since January and it is they who have to face the brunt of depositors.
“The state government assured them (agents) that it will take necessary steps to seize all assets of the Saradha Group by the weekend, the agents said after their meeting with Roy (Mukul Roy—general secretary of Trinamool Congress). Even so, they fear the state may not be able to recover anything from the 100-odd companies that the group ran. The group’s management had already started liquidating assets and there may not be much left on the books of its firms, they said,” the newspaper report said.
A common (surprising) factor among all deposit-taking companies is their phenomenal growth. For example, 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 claimed that the company had 10,000 acres of land all over India, 14 regional offices, 500 branch offices, 5,000 employees, and so on. Rose Valley claimed it was setting up many housing projects, hotels and hospitals. As of March 2012, Rose Valley Hotels and Entertainment had public deposits worth Rs2,900 crore, while MPS owes Rs1,320 crore to its around 16 lakh depositors.
Almost all of these finance companies have collected money by assuring huge returns from businesses like real estate, agriculture to some unheard of. For example, Sumangal Industries offers an annualised return of 15.6% on seven-day deposit by claiming to invest the money in potato bonds or warehouse receipts issued by cold storages!
Another interesting aspect of all deposit-taking companies is the source of money. 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. Sanchaita Investments went bust in 1980s leaving behind a long trail of ruin and suicides by number of agents and depositors in West Bengal.
So far, all deposit-taking companies, chit funds and CIS operators have received patronage from politicians across the party lines. Especially in West Bengal, the ruler got changed but patronage has remained the same. 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 had attributed the outcome to Rose Valley's cosy relations with the Left Front.
The Saradha group is reportedly known to be close to Trinamool Congress leaders and the government.
Is it is the beginning of the end for deposit-taking companies in West Bengal? Or will they again find political patronage? We will know the answers in coming months.
Perhaps, for the first time in recent period so many big political leaders have been issued statutory notices for illegal acts done by them. As per the statutory notice if they do not dismantle their illegal constructions, they all will face prosecution
The BrihanMumbai Municipal Corporation (BMC) has issued statutory notices to several big names in Maharashtra politics, like deputy chief minister Ajit Pawar, Punjab governor Shivraj Patil Chakurkar, ministers Anil Deshmukh and Patangrao Kadam, Bharatiya Janata Party leader Gopinath Munde and state Congress chief Manikrao Thakare for removing illegal constructions in their commercial premises.
The BMC has issued the notices following complaints and a legal notice by social activist Amit Maru. All these big politicians have made changes to their allotted residential and commercial space at Sukhda Shubhada Co-operative Housing Society at the upmarket Worli area in Mumbai.
The notice issued by the BMC says...
“You are therefore hereby called upon:
To remove unauthorized addition & alteration ….. & discontinue the said unauthorized user from shop to office carried out beyond part occupation Certificate/ plan sanctioned u/No EE/5561/GS/A dt.16.10.2004
Within one month from the date of receipt of this notice by you:.
Please note that on failure to comply with the aforesaid requisition, you will be liable for prosecution under the said Act and the aforesaid requisitions you will be carried out at your risk and cost.”
According to Yogesh Pratap Singh, former IPS officer and now a well-known advocate and activist, this society was been built on the land earlier owned by Mumbai police. “Incidentally, this land was taken away from the home department and given to the political leaders of our nation for constructing posh flats and commercial premises,” he said.
The other big names who have been issued such a notice, include Ranjit Deshmukh, former minister, Anna Dange, vice-president of Nationalist Congress Party (NCP), Pratapsinh Mohite Patil, Salil Deshmukh (son of Anil Deshmukh) and Ashok Patil.
“Since such large numbers of senior politicians have indulged in such illegal acts, therefore the conditions of allotment stand vitiated. Hence it would be desirable that the allotment of this land be cancelled and the land be reverted to the police department, which is desperately in need of setting up anti-terror and anti-crime units in the centre of the city and Worli is the ideal location for that. These units are required to tackle 26/11 type terror attacks on an efficient basis,” Mr Singh said.
Earlier, bureaucrat-turned-activist Abha Singh and Mr Maru, have alleged that Mr Munde, who is also deputy leader of BJP in Lok Sabha, was refusing to close his office at the society despite orders from the BMC.
According to advocate Singh, the BJP leader has merged shops originally allotted as convenience shops and connected it to the basement in Shubhda Co-operative Housing Society.
She said, the BMC sent a notice to Mr Munde, however, the BJP leader and others are not complying with the orders. “It is believed that for the reason of refusal to remove office and other illegal acts, the municipal corporation is now considering strict action of filing an FIR in the matter and to start demolition proceedings. We will also be shortly moving the Environment Department for action under the Environment Protection Act, 1986,” Adv Singh had said. (read more Gopinath Munde defies BMC order to close his Worli office )