Sebi adjudicating officer comes down heavily on legal department

Accuses the department of being lax in the Saradha chit fund case

An adjudicating officer of the Securities and Exchange Board of India (Sebi) has criticised the regulator's own legal department in the Saradha chit fund matter, for not doing proper due-diligence in the case.

"Surprisingly, the Legal Affairs department (LAD), without examining the said issue, had merely stated that the adjudicating officer (AO) be guided by what the Sebi's eastern office zone had stated in the quasi-judicial proceedings," Sebi General Manager and Adjudicating Officer, Rachna Anand, said in an order.

The regulator had, on Friday, imposed Rs 2 crore fine on the company, its chief Sudipta Sen and two directors for not complying with its earlier order to wind up its existing collective investment schemes and to refund the money collected by it under the schemes with returns.

Citing the previous finding of the Sebi Kolkata office, she added, "It is relevant to mention that while proposing any action(s) against the entities, due care should be applied by the departments considering their role into violations and same can be re-examined / modified at a later stage once it is brought to their knowledge. However, unfortunately, it was not so done in this case."

She added further that no records / evidence had been produced by the eastern office zone proving that the persons (who have ceased to be directors of the company) are the current directors or were the directors after passing of the said Sebi order.

The Saradha group scam was a major financial and political scandal caused by the collapse of a Ponzi scheme run by Saradha Group, a consortium of over 200 private companies that was believed to be running collective investment schemes popularly but incorrectly referred to as chit funds. The crisis becomes an issue among the political parties in West Bengal during the 2014 general election, resulting into probes by various investigative and enforcement agencies, including Sebi.

"I am of the view that upon such conclusion and upon being so directed to comply with the directions as mentioned in the aforesaid order, if the company/ its directors fail to wind up its existing CIS, fail to refund the money collected by it under the schemes with returns, and fail to submit a winding up repayment report to Sebi within a period of three months from the date of order, then, it means, its status is still alive as unregistered CIS. Also, the status of Saradha Realty is still shown as active at the MCA website. Therefore, continuing with such status without having registration certificate from Sebi is in contravention of Sebi Act and CIS regulation," the order said.