State govts responsible for regulating Chit funds: Officials

Amid outrage over an alleged fraudulent investment scheme run by Kolkata-based Saradha group, the Centre today said it has no role in governing Chit fund business, which is regulated by state governments.

"Chit funds in India are governed by the Chit Funds Act, 1982. Under this Act, the chit fund businesses can be registered and regulated only by the respective State Governments," said a source in the Ministry of Corporate Affairs (MCA).

Besides fuelling huge protests in West Bengal by investors and agents, an alleged chit fund scam by Saradha group has also snow-balled into a political controversy with various parties blaming each other for not taking enough steps to rein in fraudulent deposit-taking activities.

West Bengal Chief Minister Mamata Banerjee has sought to blame the Centre for the alleged fraud but MCA sources said that Union Government has no role to play in regulating or governing such investment schemes.

They said the regulator of chit funds is the Registrar of Chits appointed by respective state governments under Section 61 of Chit Funds Act.

Powers of adjudication vest in the Registrar and the state government concerned is the Appellate authority. In case of failure of a chit fund business, the responsibility for winding up such a business also vests with the respective State Governments, sources added.

They also said that prize chits and money circulation schemes are illegal and are banned under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

Powers of investigation under this Act are vested with the concerned state police authorities, they added.

Market regulator Sebi, meanwhile, has initiated a probe into the fund-raising activities of Saradha group.