CHENNAI: Among the everyday crowd waiting outside the Chennai City Police Commissioner’s office to lodge their complaints and file charges, you could well spot at least one who has come to report a case of chit fund fraud. Such has been the frequency of cases where people are getting swindled of their money for trusting these ‘illegal companies’.
The companies earn this trust by introducing schemes and plans similar to the ones run by legitimate ones. Be it a monthly fund, Deepavali fund, or Christmas fund, they have all the seemingly credible ‘tricks’ to lure people into investing.
The investor get the sign of red flag only when it is time for the company to pay them back the assured amount. The company would then, all of a sudden, go silent. Only when the silence remains beyond months, do people realise that they’ve been cheated.
Recently in December, the Central Crime Branch (CCB) arrested a mother-son duo for allegedly swindling nearly `48 lakhs by running an unregistered chit fund company. The duo had taken money from many people as part of one of their schemes, but refused to pay them back when the term period ended. The people, who were cheated, lodged a complaint at the Chennai Police Commissioner’s office.
According to a senior police officer of the Central Crime Branch, there can be two reasons for a company or person running the fund not to pay back the investors; when the collected money is spent for personal means, or when people who are part of the fund do not pay their due properly and the person who runs the fund has no cash.
“The victims say that they were part of a fund that was run by a person properly for 5-6 years but now there’s a problem. During investigation, we find that the company or a person against whom the case is filed has run into a genuine problem and cannot pay the money immediately. But there are some who start the fund intending to cheat. The public should be cautious and be aware of the risks involved,” the officer added.
‘Know the company’
The first step in starting a chit fund company is the registration. Running an unregistered chit fund company is an offence under the Chit Fund Act of 1982, said the officer. He added that people should check the whether the company is registered or not before investing. This can be ascertained through the Registrar of Companies (ROC).
People who are arrested for chit fund frauds will be held under sections 4(i) and 76 (i) of the Chit Fund Act of 1982, along with sections 406, 420 and 506 (i) of the Indian Penal Code. They can be sentenced to two years in prison or fined `5,000, or be given both the imprisonment along with the fine.
Speaking about creating awareness among the public about such scams, another CCB police officer handling such cases said the public should be wary of unregistered individuals and companies. Both the CCB officers iterated the fact that public should understand that whenever huge returns are guaranteed, there are also huge risks involved. Other than these chit funds, public can invest in fixed deposits and recurring deposits among others that are available at banks and post offices, the officers added.
What is a chit fund?
A chit fund is a type of rotating savings arrangement in which people agree to contribute a certain amount of money for a set period. The amount is deposited under an agreement, and after a specified period, is returned to the subscribers with interest