Beware the gilt-edged bond — It could spell doom

VADODARA, Aug 1: It may be a tiny drop in the ocean that is India's NBFC mess, but investors in Vadodara have had their share of grievanc...

VADODARA, Aug 1: It may be a tiny drop in the ocean that is India’s NBFC mess, but investors in Vadodara have had their share of grievances over the past few months. The financial scams involving non-banking financial companies (NBFCs) — most headquartered in other states — have caused losses worth almost Rs 1 crore to hundreds of small investors in this city. Rapti,Galaxy, Maxwiorth, Ambica… The names are enough to send shivers down the spines of most investors.

The most frightening part is, however, that checks on such transgressions appear unlikely. Police Commissioner J Mahapatra admits frankly that his department is not properly equipped to deal with issues requiring expertise in financial matters. “It is high time;;, he says, “that economic intelligence and offences wing are set up within the police department, with chartered accountants, financial experts and banks providing training to the police staff because financial crime is going to be the crime of the 21st century.”

Mahapatra believes that the speed at which people are being swindled — of figures approaching crores of rupees — will cause them to lose faith in financial institutions. “This will not only lead to panic withdrawal of money but cause disruptions of the economy”, he adds.

What also seems to be hindering police work in these cases is the public reluctance top approach them with details. PI K S Jhala of the J P Road police station says only five complaints were lodged; three regarding Rapti, one in case of Maxworth and one over the housing scam.

Deputy Commissioner of Police (South) Mohan Jha said the scams appear to have been well-planned. The Rapti Group had itself registered as an NBFC in Gujarat but the management carried out non-banking financial activities through Rapti Leasing.

The biggest scam came to light in mid June when Rapti Leasing Finance Limited, part of the Rapti group of companies with corporate offices in Lucknow, wound up activities at its regional office on R C Dutt Road. Police inquiries revealed that Rapti’s branch offices at Kheda, Dahod, Ahmedabad, Bharuch and Surat were closed simultaneously, misappropriating the deposits of thousands of small investors running to the tune of several crores of rupees.

Praveen Devchandbhai, a tailor, says investors used to deposit Rs 10 to 50 (even more, sometimes) per day for a period of three years. On maturity, investors were promised double their principal amount. Praveen himself deposited a total of Rs. 10,950 from June 14, 1996, till June 14, 1999. When he staked his claim for the money, he was asked to deposit his passbook and return on June 15. However, he found the office locked.

Story continues below this ad

Like him, several other investors approached the regional office of Rapti on June 15 to receive the matured amount but realised, when they saw the door locked, that they had been duped. They broke the lock but found nothing; even the account books and other documents had been removed by company officials.

Police tried to trace Rapti’s general manager and branch manager but they had fled, as had the 15 other staff members. Police teams sent to Lucknow failed to come across any information.

Next up was Chennai-based plantation company Maxworth, which lured investors to its schemes with promises of attractive dividend. Investors who deposited Rs 78,625 over five years would get back Rs. 60,000 on maturity and Rs 4,000 per month for the next four years.

This, though, was too good to be true. Makarpura resident Kantilal Nanalal Patel, whose deposits ended in May 1999, found Maxworth’s Alkapuri office locked and deserted when he went to claim his money. He then lodged an FIR with the J.P. Road police station against Maxworth chairman R Subramaniam.

Story continues below this ad

Gorakhpur-based NBFC Galaxy Associates, which had a regional office in Gorwa, recently cheated hundreds of small investors worth Rs. 3.96 lakh. According to police, Galaxy’s regional manager Ram Prasad Pandey and branch manager Manish Pandey set up office in Gorwa and appointed five agents, all from Vadodara. Shortly before the first six-monthly dividend was due to be paid, officials disappeared virtually overnight. Police teams went to the head office in Gorakhpur but failed to trace any of the two managers working here or senior executives of the company there.

The scams have also affected those in the economically disadvantaged sections of society simply seeking a roof above their heads. Hundreds of people living on Ajwa Road were cheated last month by an edible oil trader who floated the Ambica Group Housing Society’, collected lakhs of rupees before disappearing one morning, leaving the investors high and dry.

According to the Panigate police, the trader had put in an advertisement in local newspapers inviting applications for membership of the housing society. Under the scheme, the members had to deposit a sum of Rs. 200 per month for a period of three years and a draw of lot was to be held for 1000 houses at the end of the term. Those whose names appeared in the draw were to be allotted houses, while the rest were to be returned their investments. However, the man fled before the draw could be held.