In bad company
Company FDs look attractive with the higher returns but they are fraught with loopholes.
Given a choice anyone would opt for a company fixed deposit that promises to pay 15 per cent returns over one that offers to pay 12 per cent. Of course, one forgets to take into account the risks associated with such an investment. So, in 2011, when Hyderabad based senior citizen Sivaraman Iyer parked Rs. 2 lakh in company FDs offered by Plethico Pharmaceuticals and Unitech, he was doing nothing wrong but choosing from options that promised better outcomes.
This tendency to sway towards outcomes that seem better is well documented in the prospect theory. Prospect theory is a behavioural economic theory that describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known. The theory was created in 1979 and developed in 1992 by Daniel Kahneman and Amos Tversky as a psychologically more accurate description of decision making, comparing to the expected utility theory.
Playing on behaviour
Company deposits have been there for long and have thrived on the above bank fixed deposit interest that they promise to give to those who subscribe to them. They are able to swing the most risk averse investor towards them because prospect theory states that people make decisions based on the potential value of losses and gains rather than the final outcome. If you ever get time, search for company deposits on the consumer court website (http://www.consumercourt.in/) and it will throw up scrolls of companies that have defaulted or delayed payments to non-suspecting investors in their various schemes.
In his twilight years, Iyer learned it the hard way at the time of maturity of his deposits, which did not happen. “Repeated appeals to pay the proceeds have gone unheard and I have not received the interest or the capital. As a retired senior citizen, it is a blow to my finances and my faith in such deposits.” The only saving grace was that he received an acknowledgement letter from Plethico Pharma, but Unitech has failed to respond.
He is not alone, Thane-based Rahul Goradia was lucky with his deposits in Unitech, for he got back the money after repeated followups. “I had lodged a complaint with the NSE, emailed Sebi, marking a copy to Unitech. I kept on calling Unitech customer care on a daily basis using harsh tone and language and lodged complaints with consumer forums,” he reminisces.
After months of following the routine, Goradia got back his money, but he is not too happy with the experience and feels it’s a lesson he has learnt the hard way.
Not an easy recourse
If you are one of those who has been a victim of a company FD fraud, it’s likely that you have tried calling on the company and visiting their offices to get back your money with little respite. While this is the logical first step, make sure you have also made a written complaint that has been posted to the company with a receipt acknowledging your complaint. Electronic trail mails help to build the case that you have been chasing your money frequently. Most often defaulters tend to ignore all such communication, in which case you are left with little choice but to go to the consumer court to file a complaint under Section 12 of the Consumer Protection Act, 1986.
You should also contact the National Consumer Helpline on 1800114000 and post your complaint. “You can fight the case by including relevant papers and remember that you can claim compensation for mental agony,” advises S. Saroja, legal coordinator, Citizen Consumer and Civic Action Group. The Ministry of Corporate Affairs has an elaborate investor complaint form that can be filled online and submitted. There are several consumer protection groups with websites to trawl where you can fill a complaint form.
So, is it as simple as filling in a form to recover your money? Not exactly, the experiences of most people who have locked horns with companies that have defaulted in deposit payments have harrowing tales to narrate. Many people over the years have started to form groups to take on the might of the corporates with collective action. Unlike the West, where class action suits are common, Indian laws sadly are not so favourable towards harried investors.
Extensive research in behavioural economics shows that people experience twice as much pain when they face a loss in comparison to the pleasure they feel with a gain. To avoid the pain of losing money the way Iyer did, the best way out is to avoid putting money in company FDs. A less risky way is to look for companies where the FDs are rated, but remember that too does not guarantee safety.