Kundu was arrested after several hours of questioning at ED's Kolkata office
Kolkata: Enforcement Directorate (ED), the federal agency which probes foreign exchange violations, on Wednesday arrested Rose Valley group chairman Gautam Kundu after several hours of questioning for allegedly failing to cooperate with its investigation into Ponzi scheme operators in eastern India.
On the strength of its network of agents, the group—said to be the biggest deposit-taking enterprise in eastern India—managed to stay afloat even as others ran aground. So far, it has been collecting fresh deposits or asking depositors to renew matured ones, but Wednesday’s development could make its operations more difficult.
A legal adviser to the group said the arrest was unconstitutional. The Rose Valley group had challenged in the Calcutta high court the ED’s jurisdiction to investigate its operations because so far the agency hadn’t been able to show any foreign exchange violations, according to this person. Kundu’s arrest would only disrupt the repayment of deposits, this person added, asking not to be named.
A key ED official said the agency decided to take Kundu into custody because he wasn’t cooperating with the investigation.
The group has been resisting attachment of its properties by filing cases in several high courts. Though its legal challenge has been dismissed by at least nine high courts, one remains pending at the Calcutta high court, according to the official cited above. This person, too, refused to be identified.
Last November, the ED had seized around ₹ 300 crore from the Rose Valley group’s bank accounts, the agency’s biggest ever cash haul. It is, however, small change when compared with the amount that the Rose Valley group is estimated to have collected—at least ₹ 10,281 crore, according to a statement made in the Rajya Sabha by junior finance minister Jayant Sinha.
Mint had reported last December that the group was raising around ₹ 100 crore a month in fresh deposits, thanks largely to its 700,000 agents. After the ED froze its bank accounts, the group was operating entirely on cash.
The Rose Valley group said it collected money under a so-called time-share scheme. The group claims it owns and operates properties across India, and that it is committed to redeeming deposits in the form of accommodation at its hotels.
Mint couldn’t independently verify the ownership or existence of all the properties it claims to operate.
Though selling time-share isn’t illegal, ED officials say they have enough evidence to prove the scheme was an eyewash, and that it collected money promising repayment in cash and attractive returns. So, Rose Valley’s operations were in no way different from any other enterprise that ran Ponzi schemes, according to ED officials.
The Central Bureau of Investigation (CBI) has also been investigating the Rose Valley group. Earlier this month, it conducted raids at 27 locations in West Bengal, seven in Tripura and one each in Odisha, Assam, Delhi, Uttar Pradesh, Maharashtra, Bihar, Jharkhand, Chhattisgarh and Tamil Nadu. Rose Valley collected most of its deposits, though, in the eastern states.
Less than a year ago, Kundu had claimed it wasn’t easy to kill the Rose Valley group, which hadn’t collapsed even as other deposit-taking firms shut shop after the Saradha Group went bust in March-April 2013.
Last April, Kundu had organized a convention of some 150,000 agents in Kolkata, in a show of strength. Kundu, who famously drove a Rolls Royce Phantom, had diversified into several unrelated businesses. Apart from running hotels, the Rose Valley group produced films, published newspapers, ran TV channels, and had lately entered the jewellery business.
For over a decade, the Securities and Exchange Board of India has been trying to nail the group, which first tried to raise money through collective investment schemes. When these were outlawed by the securities market regulator, it started to sell time-share and debentures.