NEW DELHI: A total of 139 so-called ‘chit fund’ cases have been assigned to Serious Fraud Investigation Office till July 2015, for investigation. Six more have been added since then.
During the past three years, SEBI has passed interim orders against 72 entities, with 16 each in Madhya Pradesh and Maharashtra, followed by nine in Delhi, asking them not to collect further money from investors. In 23 cases, it asked them to return the money to investors.
SEBI also detected an unlawful manner of raising funds through issue of securities under the so-called ‘Private Placement route’. When the parliamentary panel asked SEBI to quantify the amount collected in respect of the 664 cases detected under the Collective Investment Scheme (CIS)—non-registered schemes involving Rs 100 crore—the answer was in the negative. It provided details of the last nine cases detected in last three years about Rs 3,996 crore collected by Rose Valley, MPS Greenery Developers, Sun-Plant Agro Limited, Maitreya Services Osian’s and Saradha Realty.
The committee lamented that in the last 30 years, no expert group or a regulatory body asked the Ministry of Finance to review the existing legal institutional framework for chit funds and ponzi companies.
The panel rued the lack of action by SEBI against ponzi companies since 2010. Only in the past year has SEBI acted against 200 entities. It initiated inquiries, but the interim order took two to three years, and the final order took more than five years. During this interim period, the promoters collected thousands of crores more from small investors.
In the Rose Valley case, SEBI passed its order in January 2011, but the Calcutta High Court granted a status quo order, which continues till date. Even after SEBI approached the Supreme Court, which gave directions in July 2012 to dispose of the matter within two weeks, it is pending in the high court.
MPS Greener (West Bengal), continued to raise money despite SEBI directions, after getting injunctions from district courts, which do not have the necessary jurisdiction.
“SEBI has been issuing press advertisements cautioning people against making investments in the schemes of Rose Valley or MPS Greenery. Instead of following the rule of law, these companies have come out with counter advertisements in the newspapers challenging SEBI’s jurisdiction,” the regulator told the committee, adding that intervention by various courts and the lack of cooperation by the state governments were hurdles. In the Saradha scam, RBI said the agencies concerned did not give the necessary alerts about the scam’s scope. The panel said dubious schemes promising unusually high returns or gifts have risen multi-fold in the last a few years because a large segment of population did not have access to formal financial channels.
“The committee would therefore like the government to promote financial literacy and awareness on a big scale by launching countrywide campaign through different media,” the report said.
Since different financial schemes mostly come under different regulatory bodies, the committee said appropriate legislative provisions, coupled with effective administrative and enforcement measures should be brought in.
The Secretary, Department of Financial Services, deposed before the committee on the confusion and uncertainty over deposit-taking by different entities. On the one hand, ‘deposits’ are covered under the Companies Act which covers only non-bank non-financial companies. Money collected by Banking Companies and Non-Banking Financial Companies are regulated and supervised by RBI. The Committee recommended unification and harmonisation of regulation of all entities getting funds. It recommended the framing of new Protection of Interest of Depositors Act by the states, which would enable them to attach the money and properties of the defaulters. It also advised Central Legislation and recommended that special courts be provided for faster disposal of cases.
The panel suggested that offences should be treated as “offences committed against the State”, thus attracting similar provisions as the IPC and be made made non-bailable and cognisable.
The Big Con
■ Over 25,000 chit fund operators are running a business of Rs 30,000 crore p.a. with a user base of over 50 lakh people
■ ED registered 57 cases under Prevention of Money Laundering Act in which assets worth Rs 1,133.25 crore were provisionally attached.
■ Serious Fraud Investigation Office is probing 139 Chit Fund cases
■ SEBI passed interim orders against 72 entities in last three years
■ In the last three years, it detected that in nine cases, Rs 39,96 crore was collected by companies like Rose Valley, MPS Greenery Developers, Sun-Plant Agro Limited, Maitreya Services, Osian’s, Saradha Realty.
■ Ponzi companies registering themselves as multi-state cooperatives: Samruddha Jeevan Foods,
■ Sai Prasad Foods, Sai Prasad Properties, Sai Prasad Corporation, Utkarsh Plotters & Multi Agro Solutions, PGF Ltd, PACL, Agri Gold Farm Estates and Saradha Chit Fund