Prime Minister Manmohan Singh on Saturday stressed the importance of curbing unauthorised chit fund activities that promised huge returns on investments. This follows the Saradha chit fund scam in eastern India.
"The unauthorised collection of deposits in exchange for the promise that an exorbitant rate of return would be given is something that has to be curbed," Singh told reporters on the sidelines of an investiture at Rashtrapati Bhavan. He was responding to media queries on the Saradha chit fund scam, which allegedly defrauded thousands of depositors.
Meanwhile, the finance ministry on Saturday said various government agencies had initiated action against illegal fund-raising by chit fund companies in West Bengal and the eastern region. The Securities and Exchange Board of India (Sebi), the Ministry of Corporate Affairs (MCA), the Reserve Bank of India, the Department of Financial Services, the Enforcement Directorate and the Income Tax Department are looking into such cases.
Sebi has initiated action against several companies that violated its regulations. In 59 cases in the eastern region, Sebi has initiated prosecution cases in matters relating to collective investment schemes. On April 23, it had passed an order in Saradha Realty case, directing the company to wind up its collective investment schemes and refund the money due to investors within three months from the date of the order, failing which prosecution proceedings would be pursued against the company.
Based on information from the Assam Police on the registration of four first information reports against Saradha chief Sudipta Sen, as well as other company officials, for offences under Section 120B, 406, and 420 of the Indian Penal Code, the Enforcement Directorate had, on April 25, registered a case under the Prevention of Money Laundering Act against Saradha Realty India and its officials, including Sen.
The Income Tax Department had initiated an investigation into Saradha group's activities for violation of the Income Tax Act, 1961, the finance ministry said in a statement on Saturday.
The government said promoters of such companies were allegedly siphoning funds and using a sales network comprising local people who were offered hefty commissions, in a manner similar to Ponzi schemes.
The finance ministry said the MCA had ordered an inspection of the books of accounts and other records of 31 companies. In July and November 2012, it had ordered investigations by the Serious Fraud Investigation Office in some cases. In the case of 42 companies, the Registrar of Companies, West Bengal, has issued notices, seeking information and explanation on the collection of funds by companies.
In July 2012, the Department of Financial Services had written to the chief secretaries of state governments to strengthen the coordination mechanism between regulatory institutions such as the economic offences wing of various state police and central agencies such as Sebi, the Registrar of Companies, the revenue department and the Enforcement Directorate.
The Reserve Bank of India was also examining the matter, the finance ministry statement said.