Back-to-back arrests of two Trinamool Congress MPs — actor and Lok Sabha MP from Krishnanagar, Tapas Pal last Friday, and party leader in Lok Sabha Sudip Bandyopadhyay on Tuesday — have put the focus back on ponzi scams that rocked West Bengal in 2013-14. Both MPs were arrested by CBI in Kolkata in the Rose Valley case — allegedly a scheme to cheat small investors with the promise of extraordinary returns. Two other TMC MPs, Kunal Ghosh and Srinjoy Bose, and West Bengal minister Madan Mitra, had earlier been arrested in connection with the better known Saradha scam.
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Rose Valley peddled a holiday membership plan with the promise of time in one of its plush resorts on the expiry of the term. The group dabbled in construction, hotels and films, and built its brand furiously, sponsoring Durga Pujas across Kolkata and, at one point, even the IPL team Kolkata Knightriders. Tapas Paul and other personalities from the entertainment industry, including, most recently, BJP MP Babul Supriyo, have been linked to the scam, as have a range of politicians including the Chief Ministers of Odisha and Tripura, Naveen Patnaik and Manik Sarkar. Though Saradha made bigger headlines, Rose Valley is allegedly the bigger fraud, estimated to be worth Rs 17,000 crore.
So what did Rose Valley offer?
Rose Valley was set up in the 1990s by one Kajal Kundu, who started off as a LIC agent. The company’s graph rose sharply within a very short time. After Kajal and his entire family were killed in a car accident while on the visit to Tripura in 2003, the business passed to his brother Gautam Kundu, a man known for his flamboyant lifestyle and love of expensive cars. There were persistent rumours about foul play in Kajal’s death, but the group scaled greater heights under Gautam.
According to investigations, Rose Valley Hotels and Entertainment Ltd (RVHEL) launched a scheme called Rose Valley Holiday Membership Plan in 2010. Investors could book a holiday package by paying in monthly instalments. Upon maturity or completion of the scheme tenure, they could opt for a holiday, which included hotel accommodation and services, or a return on the investment with annualised interest. Market regulator Sebi, which clamped down in July 2013, found the company offered plans with interest rates ranging from 11.2% to 17.65%. The subscription couldn’t be cancelled, and the investor could not get his money back before the end of the tenure.
And what exactly was the scam?
Sebi estimated that the company had garnered over Rs 10,000 crore without regulatory approvals. After initial investigations into the ‘Rose Valley Holiday Membership Plan’, it found that RVHEL was running a “Collective Investment Scheme” without the necessary approvals and registration with the regulator. Around the same time that Sebi began its investigations, Assam Police registered a case against Rose Valley for collecting Rs 1,006 crore through the holiday membership scheme until February 2012. CBI would later accuse chairman Gautam Kundu and three others of defrauding investors from across the country to the tune of over Rs 17,000 crore.
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S Raman, wholetime member of Sebi, found that the scheme had all “ingredients” of a CIS and that “contribution made in the form of monthly instalments by investors were pooled and utilised for the purpose of the holiday membership plan”. Such contributions were made by the investors with a view to receiving profits or income in the form of returns with annualised interest, the order said.
In July 2013, an investigation of the finances of Rose Valley entities by The Indian Express revealed suspicious expenditure in the profit and loss accounts of group companies: for instance, Rose Valley Real Estate (RVRE) had made payments to the tune of Rs 365 crore in 2010-11 and 2011-12 towards voluntary retirement, but there was no further elaboration. Again, in the 2011-12 financial statement of RVHE, an entry of Rs 484 crore was marked as miscellaneous expenses.
The balance sheet and profit and loss (P&L) statement of RVRE accessed through the Registrar of Companies (RoC) not only pointed to poor performance by the company, but also to leakage of cash. While its revenues for the year ended March 2012 stood at Rs 42.5 crore, its losses for the year amounted to Rs 222 crore.
Losses in the previous year stood at Rs 374 crore. The company wrote off voluntary retirement expenses of Rs 200 crore and Rs 165 crore in FY12 and FY11 respectively. During 2011-12, the company’s cash and bank balances fell from Rs 733 crore to Rs 572 crore.
When contacted, the company had told The Indian Express that there was “no voluntary retirement component”, and “the figure that is being referred to relates to compensation for relinquishment of right of occupancy”. This was in contrast to what RVRE had stated in its filing with the RoC.
RVHE’s P&L statement for the year ended March 2012 showed miscellaneous expenditure of Rs 489 crore, with an almost nine-fold increase in losses from Rs 52 crore in FY11 to Rs 468 crore in FY12. RVHE’s cash and bank balances rose from Rs 741 crore in FY11 to Rs 1,222 crore in FY12, but its current liabilities jumped from Rs 990 crore to Rs 2,906 crore.
The company gave loans and advances amounting to Rs 596 crore during the year, out of which Rs 378 crore were given to its holding company, i.e. RVRE, and another Rs 217 crore to its promoter Gautam Kundu.
The company had told The Indian Express then that the loans to RVRE were non-interest bearing, and that no loan was given to Kundu.
What role did the TMC play in the rise of firms like Rose Valley and Saradha?
Sudip Bandyopadhyay was at one point a director in one of the Rose Valley companies, and is said to have family ties with Gautam Kundu. Tapas Pal and his wife were on Rose Valley’s Board of Directors. In 2010, Pal had written to then Finance Minister Pranab Mukherjee about proliferating ponzi scams in West Bengal, but had not mentioned Rose Valley.
Several TMC leaders have been linked to the Saradha scam. Srinjoy Bose had to resign his Rajya Sabha seat and Kunal Ghosh was in jail for close to 3 years before being released on bail just before Diwali. Ghosh has claimed he was framed, and accused several TMC leaders, including supremo Mamata Banerjee, of involvement in the scam. During the 2014 Lok Sabha election campaign, Prime Minister Narendra Modi alleged that Saradha promoter Sudipta Sen had bought one of Banerjee’s paintings for Rs 1.8 crore, a claim that both the Trinamool and Sen had denied.
Many others down the Trinamool pecking order have been singed by Saradha. Filmstar Mithun Chakraborty, who recently resigned his Rajya Sabha seat, returned Rs 1 crore that he had received from the company after the scam broke. Trinamool MP Arpita Ghosh was questioned in the course of investigations. However, as the TMC points out repeatedly, Saradha’s activities spilt beyond West Bengal and it is alleged to have benefactors across parties; besides, its operations in West Bengal started in the Left Front era.
What is the status of investigations in the two scams?
Both scams are being investigated by the CBI and ED separately. The earlier arrests in connection with Rose Valley, including that of Gautam Kundu, were made by the ED, which also filed a preliminary chargesheet against Kundu. CBI has filed 6 chargesheets in the Saradha case, naming, among others, Ghosh, Mitra, Bose and Sudipta Sen. CBI has also filed one chargesheet in the Rose Valley case, naming Kundu and 2 other directors.