Lok Sabha Question No. 2169 (UNSTARRED), answered on 2017-07-28
Subject: Ponzi Companies
Ministry: FINANCE
Asked by: SHIVKUMAR CHANABASAPPA UDASI

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

## LOK SABHA

## UNSTARRED QUESTION NO. 2169 TO BE ANSWERED ON FRIDAY, JULY 28, 2017/SHRAVANA 6, 1939 (SAKA) PONZI COMPANIES

## 2169. SHRI SHIVKUMAR UDASI:

Will the Minister of FINANCE be pleased to state:

- (a) the details of ponzi schemes floated by firms in different States in the country;
- (b) whether  many  of  these  firms  have  cheated  the  small  investors  and  if  so,  the details thereof;
- (c) the measures being taken by the Government to curtail these ponzi schemes and save millions of people from becoming prey to these schemes; and
- (d) whether  the  Government  proposes  to  amend  the  Chit  Fund  Act  to  protect  the small investors and if so, the details thereof?

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

(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, 1956 or 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 incidents of unauthorized acceptance of  deposits  by  unscrupulous  entities.  SLCCs  were  reconstituted  in  May,  2014  with renewed  focus  on  unauthorized  collection  of  money  by  unscrupulous  entities.  The Reserve Bank of India (RBI) has indicated that there are total 486 cases as on March, 2017  pertaining to unauthorized collection of money by entities in various States /Union Territories discussed in such SLCC / Sub Committee meetings.

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. The year-wise break-up of these cases are as under:

| Financial Year         |   No of cases |
|------------------------|---------------|
| 2014                   |            66 |
| 2015                   |            11 |
| 2016                   |            12 |
| 2017 (upto 30.06.2017) |            26 |
| Total                  |           115 |

(c)  and  (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.

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