'RBI was in loop on Saradha, others'

Senior MCA official says RBI, state govt have not been proactive so far, allowing firms a leeway to dupe investors

The Ministry of Corporate Affairs (MCA) had written to the Reserve Bank of India (RBI) about the activities of various companies, including that of the Saradha Group, about a month ago. However, the central bank failed to nail them down, said a senior official on the condition of anonymity.

“We have received information under MCA 21 that some of these companies are operating as non-banking financial companies (NBFCs), but are not registered under RBI, which is mandatory. There are provisions under the RBI Act for stringent punishments for such defaulters. But RBI does not seem to have acted adequately,” the official told Business Standard.

Under section 45-IA of the RBI Act, 1934, it is mandatory for NBFCs to obtain a certificate of registration from the central bank and have a minimum net owned funds to be able to commence or carry on business of an NBFC. According to the official, any company failing to do so can be heavily penalised by the RBI.

While all companies have to register themselves with the Registrar of Companies (RoCs) and disclose details about their operations and functioning, under MCA21, the ministry had detected some such companies which were operating as NBFCs and were also suspected to be carrying out fraudulent activities.

Since MCA does not have the mandate to regulate such operations directly, it had written to RBI as well as various chief ministers to probe into the matter and bring such firms under the scanner.

The MCA 21 portal was launched in 2006 and is the main platform for companies to submit documents and filings to RoC.

The official also added that while the Securities and Exchange Board of India (Sebi) has cracked the whip on various companies by taking action against those running as collective investment schemes (CIS) but not registered with it, RBI and state governments have not been proactive so far, allowing firms a leeway to dupe investors.

“These companies operate in various ways and are involved in unauthorised collection of deposits promising high returns. To curb such practices, all sections, departments and ministries of the government have to work in co-ordination. It is not possible for a single ministry to crack on all of them,” said the official.

Rattled by the controversy over collapse of the Saradha group in West Bengal, the government has now initiated a multi-agency probe into many other such firms running across various states. Apart from MCA, which has initiated a detailed probe under the Serious Fraud Investigation Office, various other agencies including the Enforcement Directorate (ED), Income Tax department and RBI are also roped in to investigate the issue and protect the interest of small investors.

The Centre has also directed these agencies to coordinate among themselves to end the overlap of regulatory functions and close the gaps that provide headroom for fly-by-night firms to raise funds illegally by promising exorbitant returns.