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Government to act tough against chit fund companies

Government to act tough against chit fund companies

Author: Siba Mohanty Published Date: Dec 3, 2012 11:22 AM Last Updated: Dec 3, 2012 11:22 AM The State Government has proposed strong action against promoters of money circulation firms while entirely banning such schemes in the State as a host of firms have taken the small investors for a ride duping them of hundreds of crores of rupees through chit funds in the last one year. In its draft Money Circulation Scheme (Banning) Rules, 2012, the State has categorically targeted the promoters of such schemes in its bid to contain the spread of the dubious firms and companies which float multi-level marketing to lure in agents as well as investors. The rules, framed under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, clearly state that promoters of money circulation schemes will be personally responsible even if such schemes are run by companies registered under the Companies Act, 1956 or other business entities carrying limited liability. The provisions, framed by the Finance Department, are aimed at neutralising activities of promoters which operate under the guise of companies and dupe investors, most of whom belong to rural pockets of the State. The new rules ban individuals, companies, firms or business associations, from promoting, running or even participating in the money circulation schemes overtly and covertly. It also prohibits floating and operation of compensation plans in which subscribers have to enrol one or more subscribers to become entitled to benefits, directly or indirectly, as a result of enrolment, action or performance of additional subscribers. The rules will also mean that a number of corporates, which run multi-level marketing schemes, are barred from operating such schemes or face action, said sources in the Finance Department. Since most of these money circulation firms operate in a pyramid structure by recruiting a network of agents, the Government has proposed that schemes that induce enrolment of new members by offering benefits and commission to members in the pyramid for sale of goods and services are banned. Schemes with a compensation plan that envisages receipt of deposits or entry fee or periodical subscription and gives incentives to subscribes out of the funds for enrolment will also be banned. The Government will identify a competent authority which is to be mandated with winding up companies or the firms that indulge in the money circulation schemes, overtly or covertly. Similarly, a nodal police authority will be identified to keep in contact with other States, the Centre as well as Central agencies for furnishing information to Reserve Bank of India on status of such schemes and enforcement. The Superintendent of Police will be authorised to seal the business premises, suspend bank accounts and closure of such operations under the proposed rules. This year, the Economic Offences Wing (EOW) of Crime Branch has registered over 18 cases of high-profile white collar crimes. Some of them include illegal money circulation schemes by companies such as Seashore, Ashore and Safex. Close to 50 companies are under scanner of the EOW for operating such schemes.
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