Lok Sabha Question No. 1375 (UNSTARRED), answered on 2018-02-09
Subject: Ponzi Schemes
Ministry: FINANCE
Asked by: C.S. PUTTARAJU

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 1375 TO BE ANSWERED ON FRIDAY, FEBRUARY 09, 2018/ MAGHA 20, 1939 (SAKA) PONZI SCHEMES

## 1375. SHRI C.S. PUTTA RAJU:

Will the Minister of FINANCE be pleased to state:

- (a) the details of Ponzi schemes floated by firms, State/UT-wise;
- (b) whether many of these firms have cheated the small investors;
- (c) if so, the details of these schemes particularly in Karnataka; and
- (d) whether the Government proposes to amend the Chit Fund Act to protect the small investors, if so, the details thereof ?

## ANSWER THE MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI SHIV PRATAP SHUKLA)

(a) to (b): The Government has received various complaints regarding cheating of small investors,  particularly  by  the  companies  involved  in  Ponzi  /  Chit  Fund  /  Multi  Level Marketing  activities  in  different  states  in  the  country.  There  are  no  provisions  in  the Companies Act, 2013 relating to Ponzi Companies, However, in complaints of serious nature involving companies which have defaulted after raising money from the public, the  Ministry  of  Corporate  Affairs  (MoCA)  order  investigation  into  the  affairs  of  such companies under section 210 and 212 of the Companies Act, 2013.

Further,  State  Level  Coordination  Committee  (SLCC)  is  the  joint  forum  formed  in  all States to facilitate information sharing  among  the  Regulators  and  Enforcement Agencies  of  the  State  with  the  objective  to  control  the  incidents  of  unauthorized acceptance  of  deposits  by  unscrupulous  entities.  SLCCs  were  reconstituted  in  May, 2014  with  renewed  focus  on  this  objective.  As  per  information  received  from  the Reserve Bank of India (RBI), 606 cases relating to fraudulent schemes were discussed in State / Union Territory (UT) SLCC Meetings as on March 2017.

The Central Bureau of Investigation (CBI) has also informed that it has registered and investigated cases against various Ponzi Companies for fraud and scams on the basis of  complaints  /  directions  of  the  Court.  Details  of  the  cases  investigated  and  charge sheeted by CBI in the Court or under investigation during the last three years i.e. 2015, 2016, 2017 & 2018 (upto 31.01.2018), is as under:

| Year                          |   No of cases |
|-------------------------------|---------------|
| 2015                          |            11 |
| 2016                          |            12 |
| 2017 & 2018 (upto 31.01.2018) |           110 |
| Total                         |           133 |

(c): As per the report furnished by RBI, 29 cases relating to fraudulent schemes were discussed in Karnataka State SLCC meetings, as on March, 2017.

(d): The interests of participants in Chit Funds are protected under the Chit Funds Act 1982,  under  which  Chit  Funds  have  to  be  registered  with  and  regulated  by  the respective State Registrars of Chits. On the other hand, Prize-chits/ money circulation schemes/  ponzi  schemes  are  banned  under  the  Prize  Chits  and  Money  Circulation Schemes (Banning) Act, 1978, under which investigations are to be carried out by the State Police authorities. In order to protect the interest of small investors and depositors against illicit  schemes,  24  States  and  3  Union  Territories  (UTs)  have  enacted  special laws called the Protection of Interest of Depositors' (In Financial Establishments) Acts, where by States/ UTs are empowered to take action.

Further, in this regard, the Ministry of Corporate Affairs has taken following measures:

- i. 'Fraud'  as  a  substantive  offence  has  been  defined  in  Section  447  of  the Companies Act, 2013.
- ii. Stricter  norms  of  Corporate  Governance  and  their  implementation  have  been built in the Companies Act, 2013.

***