Bhagtani's Disguised Chit Fund Scam -- Is MPID Act Applicable?

28th October, 2017, Mumbai: Is there an alternative view of Bhagtani's scam? Is there a radically different way to frame the issues, to reshape the legal battle in order to get a better grip on the slippery Bhagtani? Consider an alternative narrative, which we may name Bhagtani's Disguised Chit Fund Scam. If this alternative interpretation of facts fits the reality, and if it is supported by the Allotment Letters, Cancellation Deeds, transactions, etc, then it will enable you to file stronger FIRs by including the sections of Maharashtra Protection of Interests of Depositors Act, (MPID Act). 

MPID Act is for protecting the public from companies that fraudulently lure investors to deposit their funds with extremely attractive rates of interest, and then willfully neglect to return the funds. Does this sound familiar to you? Does it make you feel that you have been victims of Bhagtani's Disguised Chit Fund Scam? If so, read further and ponder.

(Note: For ease of understanding, I am referring to Dipesh, Mukesh and Lakshman Bhagtani collectively as "Bhagtani".)
White collar criminals like Bhagtani succeed by dazzling and blinding their victims, and confusing the law-enforcement agencies. Complaints of confused victims are unclear and full of self-contradictions. Law-enforcement agencies as well as courts get thrown off the track by confused complaints. So, clarity is the need of the hour. Without clarity, it will not be possible to nail Bhagtani. As the Bible says, "Wisdom is the principal thing; therefore get wisdom: and with all thy getting get understanding."

What is Bhagtani's biggest illusion? That four of his biggest building projects failed, and he is a victim of unfortunate circumstances. 80% of Bhagtani's victims believe this illusion. If you believe it, then Bhagtani wins because you will definitely lose your battle for your money.

Break the illusion. Understand this clearly:

• Bhagtani's building projects were DESIGNED TO FAIL. This failure is more profitable for Bhagtani than success could ever be.

• Bhagtani is NOT A FAILED BUILDER BUT A SUCCESSFUL FRAUD. 

• BUILDING PROJECTS ARE A SMOKESCREEN. The smokescreen is useful for:
  (a) not returning your money
  (b) diverting funds into land
  (c) giving false hopes and causing confusion about the money collected
  (d) evading law-enforcement agencies
  (e) buying time by applying for building permissions and approvals
  (g) getting a shield of respectability
  (h) using land and ongoing projects as collateral for loans
  (i) doing fake transactions for money laundering
  (j) making your funds disappear into multiple companies.

Look beyond the smokescreen. Forget that you all booked flats. Think that Riyo, Sapphire, Serenity and Savannah are only the names of different chit-fund schemes announced by Bhagtani for attracting different types of buyers. In the past 4-5 years or more, Bhagtani collected huge amounts varying between Rs 8 lakhs and 80 lakhs from over 2000 persons with false promises. Returns of 15% to 24% were promised. 5% commissions were given to many estate agents and channel partners, who effectively acted like chit-fund agents. 

The allotment letters are basically chit fund slips or certificates. Your entitlement to flats is uncertain, but the entitlement to capital growth is assured. 
  Clause 11 and 12 of most allotment letters say this:

Mr Investor, the land and project site gave you a false sense of security. It gave you a false sense of ownership of this land. The conceptual appreciation in value of the flats as more and more time passed confused you. It diverted your attention while installments were demanded from you, under the pretext of IOD and CC. 

Bhagtani wove a spell around you with empty talk about building permissions, dumping ground clearance, SRA clearance, land title, allotment letters and cancellation deeds, post-dated cheques, credit-notes and payment dates. You kept asking questions about those things all the time, and you were too confused to ask the right questions.

NRIs living abroad were especially blinded by this smokescreen. NRIs are vulnerable to such fraud schemes, because they come here on short vacations and see the huge amount of construction activity. They see how property rates in India are appreciating every year. They want to be part of the India Growth Story. And with very little time on their hands, they take a quickie tour of a few real estate projects and builders' offices. 

Low per-square-foot rates and high interest rates promised by the Bhagtanis would have blinded NRIs and other growth-seeking purchasers to the risks of giving lakhs of rupees to a bunch of unknown people, with virtually no safeguards. Bhagtani's posh office and smooth-talking staff are experts at relieving dozens of people of their hard-earned money every week.

Elements of a Chit Fund Scam:

1. Money was collected from thousands of people, i.e. "deposits" were collected.  
2. You are considered as investors. Clause 11 of your allotment letter makes it clear that "it is agreed that you are investors". National Consumer Complaints Redressal Forum has also ruled that by virtue of such clauses in your allotment letter, Bhagtani's flat buyers are investors and not consumers.
3. Allotment letter also states that MOFA is not applicable. Therefore, you are not flat-buyers, you are investors. 
4. Capital appreciation was promised by two distinct options. Option 1 was booking a proposed flat really cheap by giving large amounts of money without entering a stamp-duty paid agreement. The allotment letter clearly states that it is transferable. Option 2 was that if the necessary building permissions could not be acquired, then you would get your funds back with 15% (and in some cases 24%) rate of interest by cancelling your booking.
5. Some allotment letters stressed that if the building plan approvals failed to materialize, then the amount paid by you would be treated as a loan (i.e. to be paid back when it was possible or convenient to Bhagtani) with 15% or 24% interest.
6. In short, the promise of capital appreciation was so lavish that investing in a Bhagtani project seemed like a sure shot. Whether the real estate project materialized or failed to materialize, you were assured of very high returns on your investment -- much higher than every other option available in the financial market! 
7. Like all fraud chit-funds, greed was the driving force for cash collections. Some brokers were promised as much as 5% commissions for hard-selling Bhagtani projects, not just 2% as in genuine real estate projects.
8. The allotment letter laid unnecessary emphasis on the concept of timely installments. The fear of forfeiting your booking amount or paying penal interest ensured regular cash-flow into the chit fund.
9. As in all fraudulent chit-funds, the collected funds were diverted and misappropriated by the promoters.

Now, with all this in mind, think about how the provisions of MPID Act deal with Bhagtani's offense. Read the Act: Maharashtra Protection of Interests of Depositors Act, (MPID Act).

To get the right answers, you need to ask the right questions. Go ahead and ask.

ISSUED IN PUBLIC INTEREST BY

Krishnaraj Rao
9821588114
krish.kkphoto@gmail.com