West Bengal Plans Legal Clampdown On Chit Funds

West Bengal finance minister Asim Dasgupta today announced that the state government would soon introduce laws to prevent the emergence of chit funds. The government would shortly introduce an ordinance which would be placed before the state legislature for ratification into an act, he told the press.

The proposed law would prevent firms from offering returns beyond a certain rate of interest.

The limit on interest rates would be calculated on a statutory benchmark like PLR (prime lending rate). In other words, a firm promising investors with more than the pre-determined mark up on PLR will not be allowed to do business. Violation would lead to criminal prosecution.

Talking to Business Standard after the press briefing, Dasgupta said that waiting till the state budget in June 2002 would be too late. So the government would not wait till the Budget session of the Assembly to act but would pass an ordinance now.

In view of the fact that smll savers were being cheated by the chit funds, prompt action was essential, he added. Business Standard had reported on November 30 that the government might introduce laws to prevent growth of chit funds.

Dasgupta said the government was in the process of studying the similar acts now in vogue in Maharashtra and Tamil Nadu before coming out with its draft legislation. "I find there are loopholes in these acts which could be tightened. The West Bengal act will be more stern than these," he added.

Perturbed by the recent loss of huge public money in some chit funds, the government has launched a crackdown exercise in consultation with the Reserve Bank of India (RBI) and Securities & Exchange Board of India (Sebi). The firms claimed to be share traders. So far, the Kolkata Police and West Bengal Police have arrested 35 officials and directors of 15 such firms.

Today, the Koltata police arrested 4 officials and directors of three firms, Greenage Agrotech, Fortuna Agro Plantation and Rainbow Greenfields. The West Bengal police is learnt to have raided four firms as well.

The minister said that a special cell comprising top officials of home and finance departments has been formed to monitor crackdown on the chit funds.

The government has also decided to urge the Center to ask the Registrar of Companies (RoC) circulate the names of the firms aspiring to get RoC registrations to the Reserve Bank of India (RBI) as well as local police before give them clearances.