National

House panel slams FinMin for not regulating ponzi schemes

AM Jigeesh New Delhi | Updated on January 22, 2018

Seething with anger: Investors and agents who were duped in the Saradha chit fund scam at a protest march in Kolkata (file photo).

Dept of Financial Services has failed to check violation of Money Circulation Act, says report

A Parliamentary panel has pulled up the Department of Financial Services in the Ministry of Finance for its inability to rein in the mushrooming ponzi schemes that have duped millions of people in the country.

The Finance Standing Committee of Parliament, headed by veteran Congress leader Veerappa Moily, at its meeting on Thursday, adopted a report titled ‘The Efficacy of Regulation of Collective Investment Schemes, Chit Funds etc’.

The panel started the work on the report in 2013 in the wake of the multi-crore Saradha scam that duped thousands of people in several States. In the case of ponzi schemes, the act of collecting money is an independent offence of money circulation, said the report, seen by BusinessLine.

Seeking an explanation for its inaction, the panel asked the Department to provide future proposals, if any, to curb the menace. The report said there are 25,000 chit fund operators involving more than five million subscribers.

Quoting the Secretary of the Department, the panel said that in most of the recent instances, it was a flagrant violation of the Prize Chits and Money Circulation (Banning) Act. Several multi-level marketing companies are also involved in such violations, the report said.

The Department seems to have been a reticent bystander, as it singularly failed to address the issue of non-enforcement and rampant violation of the Act, which falls squarely under its legislative competence, even though the enforcement remains the primary responsibility of the State government, the report said.

The report added that neither did the Department initiate any legislative measures to plug the loopholes, nor took administrative steps, as the nodal agency, to pursue prompt enforcement action by the State governments. Besides, the Ministry is yet to take any action on a key advisory group’s report that reviewed the legal and regulatory framework for orderly growth of the registered chit funds sector, it pointed out.

“As this subject falls in the Concurrent List of the Constitution, it was the bounden duty of the Department of Financial Services to review and tighten up the Act in the light of ground-level experiences and initiate necessary legislative changes in consultation with State governments, particularly when scam after scam were erupting depriving millions of their life time savings,” the report said.

Published on September 10, 2015

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