Chit fund firms catch SEBI in legal web, slow down probe


Markets watchdog Securities and Exchange Board of India (SEBI) faces a formidable legal task in its scrutiny of the operators of West Bengal's many alleged Ponzi schemes.

The promoters of the questionable deposit schemes — such as Rose Valley Hotels and Entertainment Ltd, Rose Valley Real Estate and Constructions Ltd, MPS Greenery Developers Ltd, Sumangal Industries Ltd, etc. — have hired a battery of high profile lawyers, including Trinamool Congress MP Kalyan Banerjee, to file multiple cases not just in Calcutta High Court but also in 8-10 district civil courts.

MPS Greenery, for instance, filed 11 suits in various lower courts — Garbeta in West Midnapore Barasat in North 24-Parganas, Krishnanagar and Alipore — besides the Calcutta civil court against the SEBI move to restrain it from collecting deposits from investors.

MPS's agents too have dragged the regulator to the civil courts. And in many cases, the company got injunction orders restraining SEBI from acting against it.

The regulator has received little or no help from the West Bengal government — in stark contrast to neighbouring Jharkhand, which clamped down on these companies using its police, based on information from SEBI. The issue was discussed in a recent meeting the SEBI brass had with Finance Minister P Chidambaram in the context of the companies continuing to attract crores in deposits. But it was pointed out to SEBI that it had no option other than to keep fighting the cases.

Sources in the union finance ministry pointed out that under the SEBI Act, the regulator's orders cannot be challenged in civil courts. While writ petitions can be filed in the high courts, the Securities Appellate Tribunal (SAT) was the right forum for companies to challenge SEBI orders. The regulator has nevertheless managed to get nine of the 11 injunction orders vacated.

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