The document summarizes the Saradha Group financial scandal, a major Ponzi scheme in Eastern India that collapsed in 2013, defrauding over 1.7 million investors of $4-6 billion. It describes how the Saradha Group used the money to invest in media companies and sponsor local events to build trust. When the scheme collapsed, it implicated many local politicians from the ruling TMC party who had connections to the group. The fraud operated by encouraging large commissions for agents to recruit new investors, creating a pyramid scheme, while misleading people into thinking investments were secure by invoking religious namesake.

1. N. R. Institute of Business Management (NRIBM-PGDM)
Assignment
On
“SARADHA GROUP (SG) FINANCIAL SCANDAL”
Management Financial System
Submitted to,
Dr. Avni patel
Submitted by
Jeena Patel P 1840
Term VI (Finance)
Batch -2018-20

2. Introduction
The Indian chit fund industry generates an estimated 3.39 per cent of household savings (or Rs
5.88 crore), compared to 4.92 per cent invested in shares and debentures. Over 95 per cent of
chit fund companies are small and medium enterprises (SMEs) and they are important sources
of finance for SMEs operating in other sectors. Large companies have managed to attract
investors. The $1.3 billion (Rs 6,110 crore) Chennai-based Shriram Group, for example, which
runs the largest chit fund business in the country, manages a corpus of Rs 3,200 crore annually.
DEFINITION
According to Section 2(b) of the Chit Fund Act, 1982, "Chit means a transaction whether called
chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an
agreement with a specified number of persons that every one of them shall subscribe a certain
sum of money (or a certain quantity of grain instead) by way of periodical instalments over a
definite period and that each such subscriber shall, in his turn, as determined by lot or by
auction or by tender or in such other manner as may be specified in the chit agreement, be
entitled to the prize amount"
Chit Fund Working Model
In India, if the value of the chit run by a chit fund operator exceeds Rs. 10 and is not registered,
it is considered to be an illegal chit fund. Every institutionalized and registered chit fund is safe
and sound and offer greatest support o its customers. Before understanding the working model
of chit fund, let us know few terminologies which are specifically used in the working of such
Schemes
1. Chit Agreement - a legal contract with al detail of rules and regulations signed by
foreman and investors
2. Chit Group – group of investors who are the part of registered chit fund group
3. Chit amount – the amount paid by the investors on specific period
4. Foreman – person/company who maintains records, responsible for collection of money
and heads the auctions
5. Foreman’s Commission - 5% of the gross chit fund amount paid to the foreman
6. Prize money – Summation of al periodic collections minus maximum biding amount
(maximum biding amount is inclusive of foreman’s commission)

3. For a particular chit fund scheme there is a chit group which has fixed number of investors.
These investors have to contribute a fixed amount of money, presume Rs. 5,00 for at specific
intervals for a period of time. The interval of paying the money is usually a month for the
investors. The total duration of the scheme is equivalent to the number of members of the chit
group. Suppose the group is of 10 members, then they have to pay for 10 months. The money
thus collected from the members every month goes into a common fund. The money is then
given to one member who is usually selected through a lucky draw. Auction is another process
to give away the money to one member based on the bid. Foreman is responsible for the
collection of the instalments and heading this auction. Every member is allowed to bid every
month in the auction for the chit fund money collected that very month. The member offering
The lowest bid is awarded the bid. The bid is on the maximum percentage of discount the
bidder is ready to offer on the collected money. The discount can go up to maximum of 40%.
In other words, the bidder who is ready to take the lowest sum of money wins the bid. The
person wining the bid is called the ‘prized member’ who receives the ‘prize money’. The
winning bidder receives the amount after deduction of the percentage of discount s/he has
offered and also the percentage of commission to be paid to the foreman. The amount accrued
by way of discount excluding foreman’s commission is then distributed among other members
of the chit fund group as dividend. The prized member is not allowed to bid any more in the
remaining months of the scheme.
ACTS
Chit funds in India are governed by various state or central laws. Organized chit fund schemes
are required to register with the Registrar or Firms, Societies and Chits.
 Union Government - Chit Funds Act 1982 (Section 2(b))
 Kerala - Kerala Chitties Act 1975
 Tamil Nadu - Tamil Nadu Chit Funds Act, 1961
 Karnataka: The Chit Funds (Karnataka) Rules, 1983
 Andhra Pradesh - The Andhra Pradesh Chit Funds Act, 1971
 New Delhi- The Chit Funds Act,1982 and Delhi Chit Funds Rules, 2007
 Maharashtra - Maharashtra Chit Fund Act 1975

4. Chit Fund Scams in India
Recent years have seen a high rise in the number of fraudulent chit fund operations. They are
making their way into the poor & middle class people by luring them with offers of high interest
rates and returns. People are falling prey to such companies and their schemes despite of the
number of detected fake companies and schemes. For some victims, such risks are extended to
physical threats or risks, los of their jewelry and homes, depression, and even suicide beyond
their loss of personal savings or funds. Such frauds also have a considerable impact on
economies and markets by dejecting consumer trust and confidence in legitimate businesses.
Such companies are witty and quick to alter their modus operandi to reduce the risks of law
enforcement detection and investigation and to respond
Consumer and business awareness of their current methods. People need to be more aware and
think before investing in such dubious companies. The biggest chit fund scam ever heard in
India is the Saradha Group Chit Fund Scam. This recent scam is considered to create a world
record by slapping nearly 60 cases against Mr. Sudipta Sen, chairman of Saradha Group. Over
10 million people have been duped by the investment schemes of Saradha Group which was a
consortium of over 200 private companies. One more Rs. 10 Cr chit fund scam case has been
busted by Patiala Police. The company claimed to double the money of its investors in one-
and-a-half year. In this way they were able to lure and trap more than 10 thousand people to
invest their money. The company showed the depositors that their money was invested on the
ongoing projects of real estate sector, forestry and paper mills. Another company which
encouraged only women to invest in the schemes and join the chit fund group was The
Redamma Dasara Chit Fund Company promising them high returns. It is alleged that
housewives and small-time workers had put their hard-earned money in the company and the
deposits had exceeded Rs.3 crore.

5. SARADHA GROUP (SG) FINANCIAL SCANDAL
Key People
1. Sudipto Sen
2. Debjani Mukhopadhdhay
Originally a financial concern but invested heavily in brand building.
1. Bengali film industry
2. Local television channels
3. Newspapers
 In 2011, Saradha Group buys Global Automobiles, a heavily indebted motorcycle
company.
 CSR Activities – Donated motorcycles to Kolkata Police
 The group also invested in football clubs like Mohan Bagan and sponsored Durga
Puja.
The Saradha Group financial scandal was a major financial scam and alleged 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 in Eastern India.
The group collected around ₹20 to 30 billion (US$4–6 billion) from over 1.7 million depositors
before it collapsed in April 2013. In the aftermath of the scandal, the State Government of West
Bengal where the Saradha Group and most of its investors were based instituted an inquiry
commission to investigate the collapse. The State government also set up a fund of ₹5
billion (US$70 million) to ensure that low-income investors were not bankrupted.
The central government through the Income Tax Department and Enforcement
Directorate launched a multi-agency probe to investigate the Saradha scam and similar Ponzi
schemes. In May 2014, the Supreme Court of India, inter-state ramifications, possible
international money laundering, serious regulatory failures and alleged political nexus,
transferred all investigations into the Saradha scam and other Ponzi schemes to the Central
Bureau of Investigation (CBI), India's federal investigative agency. Many prominent
personalities were arrested for their involvement in the scam including two Members of

6. Parliament (MP) - Kunal Ghosh and Srinjoy Bose, former West Bengal Director General of
Police Rajat Majumdar, a top football club official Debabrata Sarkar, Sports and Transport
minister in the Trinamool Congress government Madan Mitra.
The TMC Connection
Over a dozen TMC MLAs and MPs, including ministers, have been questioned by CBI in
connection with the scam. Many of these leaders were directly involved in the group's
operations.
Actor and TMC leader Satabdi Roy was Saradha's brand ambassador. Then TMC MP Kunal
Ghosh was appointed CEO of the media group in which Saradha had invested Rs 988 crore.
Another party leader Srinjoy Bose was also involved in the group's media operations.
Madan Mitra, the then West Bengal Transport Minister, headed the group’s employees’
union.
Apart from TMC, the group allegedly also had connections with Congress leader Matang
Sinh and Assam BJP leader Himanta Biswa Sarma, who was then in the Congress.
What Exactly Is The Fraud?
Saradha group operated through a network of more than 100 companies and several thousand
agents arranged in a pyramidal structure who were encouraged by commissions that ranged
from 25-40%.
The design operated with the name -- Saradha, the name of Ramakrishna Paramhamsa’s wife
and spiritual partner evokes deep respect among millions in Bengal.
Armed with a name that lent an immediate respectability among the masses, Sen began to sell
secured debentures and preferential bonds but did not conform to the guidelines of the market
regulator SEBI or seek its permission to float the schemes.
After 2010, Saradha group companies began offering collective incentive schemes and
investors never knew about where their money was invested. They were simply promised high
returns on their money after a fixed period.

7. By 2012, SEBI instructed the group to stop all schemes till the authorities obtained their nod.
However, Sudipta Sen continued the business till the collapse in 2013.
How Many People Were Cheated?
About 1.7 million to 1.8 million depositors -- mostly poor and lower middle class people -- lost
their money. They were lured by the promise of high returns that an army of thousands of
agents in a pyramidal structure sold in the market.
The deposits were raised primarily from West Bengal, Assam, Jharkhand, Odisha and
Chhattisgarh.
The Kingpin of The Scam
Sudipta Sen, who was in his mid-fifties at the time of his arrest in 2013, was the kingpin of the
scam. Also arrested with him was Debjani Mukherjee, the executive director of the company,
who was in her mid thirties in 2013.
While Sen was supposed to have been involved in real estate deals earlier. Mukherjee was a
student of an English medium school in Kolkata.
Soft-spoken Sen is believed to have changed his name from Shankaraditya. It is also rumoured
that he underwent plastic surgery in the 1990s to engineer a total makeover and identity.
Incidentally, only Sen and Mukherjee are still behind the bars. Others are out on bail.
High Profile Arrests
The Saradha scam generated great controversy since several leaders of ruling Trinamool
Congress were allegedly involved with the scam. Those arrested include Madan Mitra, sports
and transport minister in Mamata Banerjee cabinet, who was nabbed on December 12, 2014.
He was released on bail on September 9, 2016.
Incidentally, he was the first incumbent minister to be arrested in the state.
The other prominent Trinamool faces to be arrested were Rajya Sabha MP Kunal Ghosh, who
also headed the media ventures of Saradha group and another Rajya Sabha MP Srinjoy Bose.

8. Party vice-president and former police officer Rajat Majumdar was also arrested.
Debabrata Sarkar, an official of East Bengal football club, was also arrested.
Police Commissioner’s Role
Rajeev Kumar, Kolkata Police commissioner now, is a 1989 batch Indian Police Service (IPS)
officer who was the commissioner of Bidhannagar City Police when he was aksed to head a
special task force to investigate the Saradha scam.
As soon as the Saradha scam came to light in April 2013, Mamata Banerjee set up the SIT
Kumar.
It was as the SIT chief that Kumar has come under the CBI’s scanner. CBI, alleged that the SIT
had seized various items from Saradha’s Midland Park office in Salt Lake, including a red diary
and a pen drive containing details of pay-offs to influential people.
Moreover, CBI had also alleged that it did not get all the cellphones and a laptop that Sudipta
Sen had with him when he was arrested from J&K in April 2013.
Former Saradha executive director Debjani Mukherjee too, allegedly told the CBI that these
documents were seized but the CBI said the same were never made available to them.
How the Saradha ScamUnravelled
Problems started in the company in 2012, when SEBI asked the group to stop accepting money
from investors and obtain the regulator's permission to run its schemes.
By January 2013, the company was engulfed in a crisis when for the first time Saradha Group’s
cash inflows were found to be lower than its outflows. The scheme collapsed by April,
prompting agents and investors to file police complaints.
SIT and CBIProbe
The West Bengal government initially set up a Special Investigation Team (SIT), headed by
the then Kolkata Police Commissioner, Rajeev Kumar, to probe the case. The case was
transferred to the CBI in 2014 at the behest of Supreme Court.

9. CBI considers Kumar as a potential accused in the case and has accused him of not handing
over crucial documents to the agency.
Kumar first grabbed headlines in February 2019, when the CBI was stopped by the Kolkata
police, from questioning him.
Bengal Chief Minister Mamata Banerjee rushed to the spot and staged a three-day sit-in protest
against CBI's move.
Reaction
 On 7 December 2012, RBI governor stated that the West Bengal government should
initiate suo motu action against companies which were indulging in financial
malpractices.
 Sudipto Sen, wrote a confessional letter to CBI in April 2013 and fled. He was later
arrested.
 PIL was filed on 22nd April 2013 in Guwahati High Court and Calcutta High Court
 CBI investigation started
Legal Implication and Current Status
 22 April 2013 West Bengal government announced that a four-member judicial inquiry
commission headed by Shyamal Kumar Sen, retired Chief justice of Allahabad High
Court would probe the scam
 On 24 April 2013, Mamata Banerjee announced a controversial Rs 500-crore relief fund
for the low income depositors of the Saradha Group
 In light of the scam, SEBI requested sweeping powers to investigate and prosecute any
fraudulent collective investment schemes.
 On 7 May 2013, Calcutta High Court appointed a three member administrator group to
run Tara News and Tara Muzic

10.  On 23 May 2013, Chief Minister, Mamata Bannerjee indicated the willingness of West
Bengal Government to take over Saradha owned TV channels Tara News and Tara
Muzic, which had earlier been sent under administration by Calcutta High Court
Chit Vigilance Cell
To detect unauthorized chits and other irregularities committed by the Chit Fund Companies,
a Chit Vigilance Cell has been formed which is headed by the Additional Registrar of Chits.
The Personal Assistant (Chits) to Inspector General of Registration and Chit Inspectors of
Chennai – North, South and Central are members of the eCell.