Lok Sabha Question No. 3880 (UNSTARRED), answered on 2017-03-24
Subject: Ponzi Companies
Ministry: FINANCE
Asked by: JAY PRAKASH NARAYAN YADAV

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

## LOK SABHA

## UNSTARRED QUESTION NO. 3880 TO BE ANSWERED ON FRIDAY, MARCH 24, 2017/CHAITRA 3, 1939 (SAKA) PONZI COMPANIES

## †3880.  SHRI JAI PRAKASH NARAYAN YADAV:

Will the Minister of FINANCE be pleased to state:

- (a) whether the Government is aware of a number of Ponzi companies operating all over the country and dumping common people;
- (b) if  so,  the  details  of  such  Ponzi  companies  identified  by  the  Government/  SEBI during the last three years and the current year, company-wise and State/UTwise;
- (c) whether  the  Government  is  contemplating  any  stringent  action  to  check  such companies operating in the country and if so, the details thereof; and
- (d) the steps taken by the Government in this regard?

## ANSWER THE MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI SANTOSH KUMAR GANGWAR)

(a): 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.

(b): Based  on  the  complaints  received,  the  Ministry  of  Corporate  Affairs  has  ordered investigation  through  Serious  Fraud  Investigation  Office  (SFIO)  into  the  affairs  of  185 such companies during the last three years and the current year.

The Directorate of Enforcement (ED) has taken up investigations in 36 cases against 'Ponzi  Companies'  under  the  provisions  of  the  Prevention  of  Money  Laundering  Act (PMLA), 2002 during  the  last  three  years.  The  year-wise  breakup  of  the  cases  is  as under:

|   No. of PMLA cases under investigation |   No. of PMLA cases under investigation |   No. of PMLA cases under investigation | No. of PMLA cases under investigation   |
|-----------------------------------------|-----------------------------------------|-----------------------------------------|-----------------------------------------|
|                                    2014 |                                    2015 |                                    2016 | Total                                   |
|                                      21 |                                       7 |                                       8 | 36                                      |

The Central Bureau of Investigation has also informed that it has registered 104 Regular Cases (RCs) relating to Chit Fund and Ponzi Schemes in many parts of the country. The year-wise break-up of these cases is as under:

| Financial Year   |   No of RCs |
|------------------|-------------|
| 2014             |          66 |
| 2015             |          15 |
| 2016             |          23 |
| Total            |         104 |

The  Securities  and  Exchange  Board  of  India  (SEBI)  regulates  Collective  Investment schemes (CIS) as defined under section 11AA of the SEBI Act, 1992 and issuance of securities to public. During the last three years and current year upto February 2017, SEBI has passed interim orders against 76 entities and final order against 65 entities for carrying  out  CIS  activities  without  obtaining  certificate  of  registration  as  a  Collective Investment  Management  Company  in  accordance  with  Section  12(1B)  of  SEBI  Act, 1992 read with SEBI (CIS) Regulations, 1999. The year wise break up is as under:

| Financial Year   |   No of interim order |   No of Final order |
|------------------|-----------------------|---------------------|
| 2013-14          |                    13 |                   7 |
| 2014-15          |                    51 |                  14 |
| 2015-16          |                    12 |                  33 |
| 2016-17          |                     0 |                  11 |
| Total            |                    76 |                  65 |

Reserve Bank of India (RBI) has indicated that there are a total of 486 cases pertaining to unauthorized collection of money by entities in various States /Union Territories which were  discussed  in  State  Level  Coordination  Committee  (SLCC)  /  Sub  Committee meetings.

(c) and (d): In order to control the menace of illegal collection of money in the garb of collective  investment/  chit  fund  schemes, Government  has,  inter-alia,  taken  the following steps to prevent illegal deposit schemes:-

- i. Reserve  Bank  of  India  (RBI)  has  constituted  a  mechanism  in  the  form  of  State Level  Coordination  Committees  (SLCCs)  in  all  the  States  /  UTs.  The  primary purpose of this forum is to facilitate information sharing among the Regulators and Enforcement agencies about the mobilization/ acceptance of deposits by unauthorized entities. SLCCs are chaired by the Chief Secretary of the State and its meetings are held quarterly. For regular follow-up on the cases, sub-committees of the  SLCCs  have  also  been  formed  in  20  states/  UTs.  The  sub-committees  hold meetings in between two SLCC meetings as and when necessary.
- ii. Draft Model Rules under the Prize Chits & Money Circulation Schemes (Banning) Act,  1978  have  been  formulated  by  the  Government  and  circulated  to  all  State Governments / UTs for adoption.
- iii. RBI  had  formulated  a  Model  'The  XXX  Protection  of  Interest  of  Depositors'  (In Financial Establishments) Act, XXXX', which was circulated by the Government to all the States and Union Territories. Based on this 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.