Govt cleared Rs 2 crore in aid for ‘firm run by conman’: What is a company limited by guarantee

The Union Ministry of Fisheries, Animal Husbandry & Dairying approved a Rs 2 crore subsidy to Youth Rural Entrepreneur Foundation, allegedly run by ‘conman’ Sanjay Prakash Rai Sherpuria.

Sherpuria was arrested this week for cheating people and collecting money. (File)

4 min readNew DelhiApr 30, 2023 12:33 PM IST First published on: Apr 29, 2023 at 03:50 PM IST

In December last year, the Union Ministry of Fisheries, Animal Husbandry & Dairying approved a Rs 2 crore subsidy through the National Dairy Development Board (NDDB) to Youth Rural Entrepreneur Foundation (YREF), allegedly run by ‘conman’ Sanjay Prakash Rai Sherpuria.

Sherpuria was arrested this week for cheating people and collecting money by flaunting dubious “connections” in the government. The police complaint against him claims that Rai would post photos of himself on social media with Prime Minister Narendra Modi and other Union Ministers, and made material gains using these posts.

As per the records of the Union Ministry of Corporate Affairs, YREF was incorporated on October 30, 2019. While it has an office in Varanasi, it operates from Ghazipur, which is also Rai’s hometown. Rai does not hold any position in YREF, a company limited by guarantee, but in its FIR the UP police claimed it is run by Rai.

What is a company limited by guarantee?

A company limited by guarantee is one in which, if the company goes bankrupt, those running it only have to pay a sum they had guaranteed to pay when it was set up.

The Companies Act, 2013, says, “Company limited by guarantee means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.”

Also in Explained | Stock tips via Telegram: Why has SEBI banned three people from accessing the markets?

Put very simply, such a company has no shareholders, but is owned by a group of people called members or guarantors. When coming together to form the company, these members pledge to pay a certain amount — usually not a large amount — in case it is wound up. Their liability, if the company fails, is limited to this amount.

Usually, this structure is put in place for charitable organisations and non-profits, where any profit earned by the company is re-invested into the business. The members or guarantors can seek donations and funds in the name of the company, but if it fails, they are shielded from the debts it may have accrued.

What was Sherpuria’s company doing?

Sherpuria would promote YREF on social media. He told the police during questioning that the company had received Rs 5 crore (January 21, 2023) and Rs 1 crore (January 23, 2023) in its bank account from the Dalmia Family Trust Office, the family office of industrialist Gaurav Dalmia. Sources close to the trust office told The Indian Express the group has donated over Rs 100 crore to charity organisations over the last 6-7 years. They said while Rai had introduced them to the Youth Rural Entrepreneur Foundation, he had claimed he was not formally associated with it.

Also, according to a December 1, 2022, letter to YREF reviewed by The Indian Express, the Department of Animal Husbandry & Dairying approved the company’s proposal to set up a Rs 5.85-crore Breed Multiplication Farm (BMF) under the Rashtriya Gokul Mission. In this, the department approved payment of Rs 2 crore as financial assistance through subsidy through NDDB.

NDDB sources said after the ministry approved the project, the NDDB contacted YREF for physical verification and asked if the bank had released the first tranche of the loan, but the foundation has not responded till date.

The BMF initiative is aimed at making available to farmers high genetic merit heifers of cattle, and buffalo breeds.

A case against Rai was lodged at Lucknow’s Vibhuti Khand police station on Tuesday (April 25), and he was arrested by the STF on Wednesday over allegations of collecting money worth crores from people and organisations by forging documents that falsely showed a connection to the Prime Minister’s Office. The FIR was lodged based on a complaint by Inspector Sachin Kumar. Rai has been booked under IPC Sections 420 (cheating), 467 (forgery of valuable security, will, etc), 468 (forgery for purpose of cheating), 469 (forgery for purpose of harming reputation) and under the Information Technology Act.