Lok Sabha Question No. 403 (STARRED), answered on 2019-07-22
Subject: Chit Fund/Fake Insurance Companies
Ministry: FINANCE
Asked by: Arun Sao

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA STARRED QUESTION NO. *403

TO BE ANSWERED ON THE 22 nd   JULY 2019/ ASHADHA 31, 1941 (SAKA)

## CHIT FUND / FAKE INSURANCE COMPANIES

## *403. SHRI ARUN SAO:

Will the Minister of FINANCE be pleased to state:

- (a) whether a large number  of chit fund companies  and fake insurance companies are operating particularly in rural and remote areas of the country and these companies are collecting huge amounts of money from people by enticing them in the name of investment and vanishing thereafter; (b) if so, the details thereof along with the reaction of the Government thereto; (c) whether  the  Government  has  formulated  any  action  plan  to  identify  such illegal/fake companies and check their activities; (d) if so, the details thereof along with the number of such fake companies which have been identified and penalized across the country during each of the last three years and the current year, State/UT-wise including Chhattisgarh; and (e) the  action  taken  by  the  Government  for  ensuring  compliance  of  guidelines issued  by  the  Insurance  Regulatory  and  Development  Authority  in  this
- regard?

THE FINANCE MINISTER (SMT. NIRMALA SITHARAMAN)

- (a) to (e): A Statement is laid on the Table of the House.

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## ANSWER

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## STATEMENT  FOR  LOK  SABHA  STARRED  QUESTION  NO.  *403  FOR  22 nd JULY 2019 REGARDING 'CHIT FUND / FAKE INSURANCE COMPANIES' BY SHRI ARUN SAO, MEMBER OF PARLIAMENT.

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(a) to (b): Deposit taking schemes are approved under provisions of different Acts and are governed by various regulators such as the Reserve Bank of India (RBI), the Securities  and  Exchange  Board  of  India  (SEBI),  the  Insurance  Regulatory  and Development  Authority  of  India  (IRDAI),  National  Housing  Bank  (NHB),  Pension Fund Regulatory and Development Authority (PFRDA), Employees Provident Fund Organisation, etc. The details of action taken by various regulators and enforcement agencies, as informed by them are given at Annex-I.

(c): The  following measures  have  been  taken by the Government  to curb unauthorized schemes and to prevent common people from losing their hard earned money:

-  The Banning of Unregulated Deposit Schemes Ordinance, 2019 was promulgated by the Hon'ble President on 21.02.2019 and it came into effect on the same day. The Ordinance contains comprehensive provisions to tackle illicit deposit taking activities in the country and to protect the interests of depositors. The Ordinance contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The Ordinance also provides for severe punishment and heavy pecuniary fines to act as deterrent.
-  29  States  /  Union  Territories  have  passed  Protection  of  Interest  of  Depositors (PID)  Acts  for  taking  action  against  entities  collecting  money  from  the  public illegally.
-  SLCCs have been  set  up  in  all  States  and  UTs  with  participation  by  all  State Government  officials,  law  enforcement  agencies,  regulators,  etc.  SLCCs  were reconstituted in April 2014 with the Chief Secretary of the State as the Chair and the  frequency  of  such  meetings  has  been  increased  from  twice  a  year  to  four times a year.
-  RBI  has  cautioned  the  public  regarding  Ponzi  schemes  under  the  head  of Frequently Asked Questions (FAQs) on their website, and through advertisements  on  newspapers/  radio/  television.  Further,  through  RBI's  online portal SACHET  (https://sachet.rbi.org.in), the public is cautioned against fraudulent schemes/ entities.
-  SEBI regulates Collective Investment Schemes (CIS) under Section 11AA of the SEBI  Act,  1992.  With  regard  to  irregularities  in  the  securities  market,  SEBI  is empowered to conduct investigation, take appropriate enforcement actions under the SEBI Act, 1992 and issue Orders.
-  ED has been mandated with the task of enforcing the provisions and investigating the contravention of the Foreign Exchange Management Act, 1999 (FEMA), the Prevention of Money Laundering Act, 2002 (PMLA), and the Fugitive Economic Offenders Act, 2018.
-  MCA conducts  investor  awareness  programs  to  educate  the  general  public  to learn from websites of various Ministries the information published regarding the persons involved in the scheme, etc. before making any investment.

(d): The details of cases of unauthorised collection of deposits are given in reply to Part (a) to (b) above.

(e): In order to take stringent action on such fake/ illegal companies, Section 103 of Insurance Act 1938 was amended by the Government in 2015. The amendment has enhanced the penalty for a person who carries out business of insurance without the certificate of registration as per section 3 of the Act from Rs. 5 lakhs to Rs.25 Crores and imprisonment period from 3 to10 years

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## Annex-I

-  The Sachet portal of RBI, which is the online platform for SLCCs that facilitates the public to lodge complaints of financial frauds, has received 5225 complaints (since  the  launch  of  the  portal  in  August  2016)  related  to  non-repayment  of deposits and money collected for various kinds of Investment Schemes (1461 in 2016-17, 1683 in 2017-18, and 2081 in 2018-19).
-  The Securities and Exchange Board of India   (SEBI) has passed Orders against 75  entities  for  non-compliance  of  SEBI  (Collective  Investment  Schemes) Regulations, 1999 during the last 4 years (34 in 2015-16, 11 in 2016-17, 19 in 2017-18  and  11  in  2018-19).  SEBI  has  also  passed  34  orders  related  to issuance of equity shares/ convertible securities to the public in violation of law during the last 4 years (5 in 2015-16, 3 in 2016-17, 16 in 2017-18, 8 in 2018-19 and 2 in 2019-20 till 31.05.2019).
-  The  Directorate  of  Enforcement  (ED)  has  informed  that  during  the  last  three years, ED has initiated investigation in 27 cases under the Prevention of Money Laundering Act, 2002 related to Chit Fund and Ponzi Schemes.
-  The Ministry of Corporate Affairs (MCA) has ordered investigation into the affairs of  65  companies  allegedly  involved  in  investment  scams  (such  as  Chit  Fund scams/ MLM/ Ponzi Schemes) and has assigned them to the Serious Frauds Investigation  Office  (SFIO)  during  the  last  three  years  (27  in  2016-17,  34  in 2017-18 and 4 in 2018-19).
-  The Central Bureau of Investigation (CBI) has registered 159 cases relating to Chit Fund / Ponzi companies during the last 3 years (23 in 2016, 108 in 2017 and 26 in 2018 and 2 in 2019 (upto 30.06.2019).
-  With  regard  to  fake  insurance  companies,  the  Insurance  Regulatory  and Development Authority of India (IRDAI) has informed that while large number of fake insurance companies have not come their notice, they have come across the following cases in the last three years:

(i) In the year 2016, a company called AKPCL General Insurance Company was selling General insurance policies, although it was not granted registration by IRDAI to  sell  insurance  policies  of  any  kind.  IRDAI  lodged  a  complaint  with  GIDC  Police Station,  Vapi,  Gujarat  on  21 st   July,  2016.  IRDAI  also  issued  a  public  notice  on 04.08.2016 cautioning the public about this company. (ii) In the year 2017, IRDAI issued notices to Global Financial Group Ltd - Kerala and  Janny  Group  -  Kolkata,  West  Bengal.  However,  notices  were  returned undelivered. Since no such entities were found at the address mentioned, the same has been communicated to the state level co-ordination committee

- (iii)  In  the  year  2019,  an  RTI  complaint  has  been  received  from  Lucknow  in respect of two companies, namely G-One General Insurance Company and Marines Technology stating  that  these  two  companies  were  selling  General  (mainly  motor) insurance policies, although they did not have registration from IRDAI to sell such policies  of  any  kind.  IRDAI  issued  public  notices  dated  03.05.2019  cautioning  the public about the above companies.

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