QUESTION NO 202 ANSWERED ON 06.08.2013 Action taken against chit fund companies 202 SHRI PRAKASH KESHAV JAVADKAR Q: Will the Minister of FINANCE be pleased to state :- a) whether Government has taken note of rising number of chit fund companies in India; b) if so, the details of the complaint registered against chit funds till 2012 and action taken thereon; c) the reasons for failure in putting a check on chit fund companies; and d) how Government is planning to act against such kind of companies? ANSWER THE MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI NAMO NARAIN MEENA) (a) and (b): Chit Funds are classified as miscellaneous Non-Banking Financial Institutions, under the Reserve Bank of India Act, 1934 and are now governed by Chit Funds Act, 1982 which is administered by the respective State Governments. These companies are registered by the Registrar of Chits and are within the regulatory purview of the State Governments. However, in case, any complaint is received by Reserve Bank of India against any Chit Fund Company, the same is forwarded to the State Government concerned for appropriate action. The Central Act (Chit Funds Act, 1982) has been notified / adopted by most of the States in India except the State of Jammu and Kashmir as the Act does not extend to the State of Jammu and Kashmir. As per the provisions of Section 4 of the Chit Funds Act, 1982, the chit fund companies have to obtain sanction of the State Government to commence and conduct the business and to get it registered in the State in accordance with the provisions of the Act. (c) and (d): The root cause of mushrooming chit fund companies could be found in the failure of the formal financial institutions catering to the felt needs of the people for savings and thrift schemes by expanding their geographical coverage to all part in India and a general lack of awareness amongst masses of the distinction between and legal and permissible financial products and illegal and unsafe schemes. The Government has also promulgated an ordinance to amend Securities and Exchange Board of India (SEBI) Act, 1992 for providing more powers to the capital markets regulator for enforcement against illegal Collective Investment Schemes and to curb insider trading. Owing to new and innovative methods of raising funds from investors, such as art funds, time-share funds, emu / goat farming schemes, there has been regulatory gap / overlap regarding types of instruments / fund raising. At the same time, SEBI receives complaints against unapproved fund raising activities of certain companies that claim that they do not come under the purview of SEBI Collective Investment Scheme Regulations. With the amendments in force now, SEBI would have powers to regulate any pooling of funds under an investment contract involving a corpus of Rs.100 Crore or more, attach assets in case of non-compliance and Chairman, SEBI would have powers to authorize the carrying out of search and seizure operations, as part of efforts to crack down on ponzi schemes. ***
Posted on: Wed, 07 Aug 2013 10:33:34 +0000
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