The Alchemy of Ponzis

A special investigative report Hardnews did in June 2013 on Tehelka's majority owner/promoter and TMC MP KD Singh's ponzi scheme that allegedly duped people of Rs 1,932.91 crore. Alchemist Capital, one of the companies under investigation by SEBI And SFIO, is partly owned by Royal Building and Infrastructure, the same company that bought majority stakes in Anant Media Pvt Ltd (Tehelka), as per the balance sheets available on the Ministry of Corporate Affairs website

Sadiq Naqvi Delhi 

October 13, 2010: Chandan Kumar from Fulti, West Bengal, submits an RTI application addressed to the Ministry of Corporate Affairs (MCA), asking if companies like Rose Valley Ltd, Alchemist Infra Realty Limited, Basil International et al, some of which have been active for more than a decade, are permitted to accept deposits from the public. It also seeks information if the ministry has commenced an investigation into the dealings of such entities.

November 27, 2010: Sanat Kumar Chatterjee, 76, resident of North 24-Parganas, writes to D Subbarao, Governor of the RBI, that he is struggling to withdraw the deposits he had made with Alchemist Infra Realty.

September 6, 2011: Member of Parliament D Raja asks the RBI Governor to look into 13 companies, including Alchemist Infra Realty, collecting deposits.

Since the massive Saradha Group fraud came to light in April, some 15 agents have committed suicide. Most were part of the deposit mobilizing team which would lure poor investors with high rates of return. Nearly four lakh people have so far staked claim to money they had deposited. Sudipta Sen and his associate, Debjani Mukherjee, promoters of the Saradha Group, had fled Kolkata after pressure mounted from the Securities and Exchange Board of India (SEBI) which had finally taken cognizance of the complaints and started investigating the group. They were ultimately arrested in Jammu. 

However, there seems to be more to the scam. Before his arrest, in an 18-page letter to the CBI, Sen claimed he was trapped by powerful politicians with links to the Trinamool Congress. He named two TMC MPs, Srinjoy Bose and Kunal Ghosh, and said they had promised him protection from the state and Central governments for they were close to West Bengal Chief Minister Mamata Banerjee, who at the time was the biggest ally of the UPA II government at the Centre. It is learnt that, days before he was finally arrested on April 29, Sen had sought help from Banerjee and Mukul Roy, former railway minister and her Man Friday.

The Kolkata grapevine has it that the TMC top brass tried to bring one of their own, KD Singh, Rajya Sabha MP and Chairman of the Alchemist Group, to bail out Saradha. How much  these efforts actually worked will only be revealed once the investigations are complete. But this has not stopped the CPI(M), the opposition party in West Bengal, from demanding a probe into the matter. Opposition leader Surjya Kant Mishra alleged in a letter to the chief secretary of West Bengal that Banerjee had travelled with KD Singh and one other businessman on a chartered plane, numbered N218 ‘KD’, in early April. “They were trying to get Singh to help Saradha,” says Mohd Salim, a senior CPI(M) leader. “His companies are being investigated. So he probably might not have bought the idea lest he land up in more trouble.”

However, Goutam Deb, a  minister during the previous Left Front government, is more insistent. “I have been getting information that some of the media entities of the Saradha Group had been receiving generous funds from companies of the Alchemist group. The Saradha Group had some 200 companies and another 100 Limited Liability Partnerships. Alchemist might have even more. It takes time to dig out facts,”he says. Senior TMC members are tight-lipped. “I can’t say much. Investigations might reveal such a link, if there is one,” a senior TMC MP told Hardnews

Singh, the flamboyant man behind the rags-to-riches story of the Alchemist group with interests in real estate, agro-business, food processing, healthcare, aviation et al, presides over an empire worth more than Rs 10,000 crore. Like Sen, he has interests in media as well, the most famous being his takeover of Tehelka. According to the records with the MCA (incomplete balance sheet), he bought Anant Media (Tehelka) through a company named Royal Building and Infrastructure, and paid Rs 35.5 crore for the share allotment. Moreover, Royal Buildings and Infrastructure owns 11 per cent stake in Alchemist Capital, one of the companies being investigated for impropriety. 

Singh entered politics through the back door in 2010, when he managed to get into the Rajya Sabha with support from Shibu Soren’s Jharkhand Mukti Morcha (JMM). There are allegations that he bribed his way into the Upper House. The CBI, which is investigating the matter, recently raided his office in Jamshedpur. The agency claims to have seized documents which point to his role in horse-trading. The investigations started in 2010 when some MLAs were caught in a sting operation christened ‘Cash for Seat’.

Singh was quick to switch sides and joined the Trinamool Congress, which left the JMM seething. “Sen was instrumental in getting him into the Trinamool,” claims Salim.  Other sources say it was Ghosh. “Singh had experience in managing chit fund schemes. These people needed him,” Salim adds. 

The ‘dubious’ dealings of the company did not catch many eyeballs. The Alchemist group — active in the state since the Left Front government — has three companies, Alchemist Infra Realty, Alchemist Capital and Alchemist Holdings under investigation for accepting deposits illegally from the public. The allegations are serious and range from issuing fake property certificates against deposits from poor people to issuing preference shares without the regulator’s approval. “The company has since tried to buy time and thwart investigations,” a source reveals.  

Like other Ponzi schemes, the modus operandi of the company was simple. It circulated brochures showcasing itself as a big conglomerate with interests in several lucrative sectors, including real estate. The public was lured with high returns. The documents state that, at times, the depositors were promised 10 times the amount they had deposited after 15 years. The company then issued fictitious property certificates which promised the same size of plot irrespective of the amount. Worse, the company did not have any land at the promised spot.

According to the records with the MCA, he bought Anant Media (Tehelka) through a company named Royal Building and Infrastructure and paid Rs 35.5 crore for the share allotment. Moreover, Royal Buildings and Infrastructure owns 11 per cent stake in Alchemist Capital, one of the companies being investigated for impropriety

The investigations commenced with the RBI forwarding Raja’s complaint to the ROC, Delhi and Haryana, in January 2012, asking it to investigate the matter—a good 14 months after the first complaints surfaced in October 2010. The letter categorically stated that both Alchemist Infra Realty and Basil International were not registered as Non-Banking Finance Companies and hence the ROC must look into
the matter.

Earlier, in July 2011, the ROC, Delhi and Haryana, received an RTI request seeking information if the deposits with Alchemist Ltd, registered at 23, Nehru Place, New Delhi, were safe. The applicant did not get the information. There were at least five such complaints with the ROC. Also, Hardnews learnt that Raja had forwarded a complaint to SEBI Chairman UK Sinha as well but got no response.    

However, the RBI’s letter finally got things moving. The ROC office served notices to Alchemist Infra Realty. Several rounds of communication took place between the two parties. Specific queries by the ROC were aimed at extracting information about the money raised from the public which stood at Rs 449.41 crore till March 2010 and swelled to Rs 1087.69 crore by March 2011. By March 2012, the figure had skyrocketed to Rs 1,932.91 crore. Moreover, the balance sheet also mentions an advance of a whopping Rs 287.79 crore in March 2010 which swelled to Rs 806.60 crore by March 2011. The amount stands at Rs 1,190.71 crore as of March 31, 2012.

Suspicion was roused after the balance sheet of the company just mentioned land assets amounting to Rs 8.9 crore in 2010 which went up to Rs 43 crore by 2011. The inventories increased to Rs 242.06 crore by March 2012, by when the investigations had begun.  However, all attempts to get information were blocked—the reasons given varied from computer breakdown to the absence of the concerned officer.

Even when information was provided, it was evasive or incomplete. In a reply to the ROC, Madhav Kumar, Director, said the company had not received any complaint. He also specifically mentioned that the company never accepted any public deposits, nor had any agents for any deposit scheme. He also said  that, since the company didn’t fall under SEBI’s Collective Investment Scheme, permission was not required from SEBI. The company said that money was collected as advance payment for developed land that would be provided to investors. Madhav Kumar also stated that the advance had been given for purchasing and developing land. 

In a report sent to the MCA, the ROC makes scathing remarks about the conduct of Alchemist Infra Realty, saying it has been evasive in providing information. The report found it “unimaginable” that the company had collected Rs 203 crore as advance against land and another Rs 884.58 crore as advance against development charges till March 2011. The report speculates about diversion of funds as the company did not provide details of the advance. Also, it failed to provide receipts for Rs 215 crore it mentioned as being in fixed deposits.   

Alchemist Holdings and Alchemist Capital too raised funds to the tune of Rs 444.67 crore and Rs 165 crore, respectively. The MCA and SEBI suspect that the money was raised “illegally” without SEBI’s prior approval. Both companies are registered as NBFC, which cannot accept deposits according to the RBI’s list.

In the case of Alchemist Capital, the list of preference shareholders runs into 1,369 and 1,439 pages whereas for Alchemist Holdings, it runs into 1,240, 1,250 and 1,374 pages. The ROC is probing the violation of Section 67(3) read with Section 73 of the Companies Act which forbids a company from privately placing shares to more than 50 people without SEBI’s prior approval and also disallows advertisements soliciting deposits without the approval of the bourses.  

The two companies also raised funds through preference shares when Brij Mohan Mahajan, Sunil Kanti Kar, and Balvir Singh served as directors. They are also listed as directors in the master records of Alchemist Infra Realty and several other companies of the group. Interestingly, according to the balance sheet, Alchemist Holdings too has given advance to the tune of Rs 337.8 crore in inter-corporate loans to several companies, including Alchemist Airways and KDS Corporation, a company in which Singh and his wife hold the majority stake. Singh himself is not a shareholder in any of the three companies with most shares being held by his close aides.

All this prompted the ROC to note in its report that “it indicates the possibility of a large, well-planned, collusive, financial impropriety, financial irregularities, taping of retail capital market in the garb of various schemes. Advance against development charges, issue of shares etc are without following the statutory requirements of the Companies Act, 1956, SEBI rules and regulations etc which can harm the interests of thousands of small depositors...”

Singh and his companies have faced investigations in the past. Toubro Infotech and Industries, as Alchemist was previously known, had been probed and ordered to repay the depositors, the website www.watchoutinvestors.com says. In late 2011, the intelligence wing of the finance ministry and SEBI started a probe into the dealings of Alchemist Realty on a possible case of artificial rigging of share prices of several companies to make quick profits. The investigations linked the companies to infamous share broker Nirmal Kotecha, who has since been barred from trading on the stock exchange.

All this prompted the ROC to note in its report that “it indicates the possibility of a large, well-planned, collusive, financial impropriety, financial irregularities, taping of retail capital market in the garb of various schemes. Advance against  development charges, issue of shares etc are without following the statutory requirements of the Companies Act, 1956, SEBI rules and regulations etc which can harm the interests of thousands of small depositors...”  

Meanwhile, there are 87 more companies which are being investigated by the Serious Fraud Investigation Office of the MCA. The list excludes the three Alchemist group companies after they moved the High Courts in Delhi and Chandigarh, seeking a stay on the investigation. It was granted by the court without ascribing any reason. Naveed Masood, Secretary, MCA, refused to comment on the investigations as a Parliamentary Committee is looking into the matter. Manmohan Juneja, ROC, Delhi, too refused comment.  

“All these Ponzi schemes are flourishing because of the laxity of the Central government and the regulatory bodies. Moreover, the penetration of banks and other government financial instruments is still very low,” says Salim. He says the Ponzi companies are making a mockery of regulatory provisions by exploiting loopholes with protection from the state government.

“The state government has created a conducive atmosphere for such companies,” says Nilotpal Basu, CPI(M) Central Committee member. “In 2009 the state government had written to SEBI with a list of four companies which included Saradha and Rose Valley. Even then no action was taken,” says Salim. “It seems there was a deal between the TMC and the Congress that they will not touch these chit fund schemes till the TMC supports the Congress at the Centre. Now that they have withdrawn support, they have come after them.”  

This story is from the print issue of Hardnews: JUNE 2013