Chit fund regulation: SC issues notices to Centre, RBI and Sebi

The Supreme Court on Tuesday issued notices to the central government, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi), the Enforcement Directorate and other authorities.

A public interest petition offer said Ponzi schemes were “shaking the very foundation of the rural and the semi-urban economy in India” and robbing the innocent of their savings. The court asked the authorities to reply to the notices within four weeks.

Chief Justice P Sathasivam said the matter was serious, as it affected people across the country.

PONZI CRACKDOWN

• The Supreme Court has asked the authorities to reply to the notices within four weeks
• Prashant Bhushan, counsel for the petitioner, said though there were laws to control chit funds, these weren’t implemented effectively
• The petition seeks improvement in banking facilities in rural areas

Prashant Bhushan, counsel for the petitioner, Humanity Salt Lake, said Sebi had taken strong action against M/s Rose Valley Real Estate & Construction Company and directed that the company shouldn’t collect any money from investors or launch any scheme. It had also asked the company not to dispose of any property, Bhushan said, adding the regulator had also ordered MPS Greenery Developers Ltd to wind up its scheme. The counsel also cited the Saradha Realty India Ltd irregularities and said the Sahara group companies had refunded some money to investors only after an order from the apex court.

Bhushan said though there were laws to control chit funds and other schemes, these weren’t implemented effectively. The petition sought improvement in banking facilities in rural areas. It also sought the constitution of a special expert committee comprising officials from Sebi, RBI, the finance ministry, the Enforcement Directorate and the Serious Fraud Investigation Office to help devise a plan to end all unauthorised and illegal deposit and collective investment schemes, launch prosecution against all violators and recover the funds to return those to depositors/investors.

The petition also sought a thorough investigation by the Central Bureau of Investigation into large-scale financial frauds, including the Saradha scandal, in eastern states, as well as a directive to set up an independent expert body for receiving complaints on financial frauds. This entity, it said, should be able to recover money and have the requisite powers of investigation and prosecution.