In the wake of the alleged chit fund fraud by the Saradha Group, the Government on Thursday ordered a probe by the Serious Frauds Investigation Office (SFIO) into suspected misuse of public money by various chit fund companies.
The Ministry for Corporate Affairs (MCA), without specifically naming the Saradha group, said that it has “taken note of misuse by certain chit fund companies who have raised huge sums of money from the public at large”. The Ministry said the probe has been ordered in view of the larger public interest involved in the issue, although the State Governments are the appropriate authorities for regulation of chit fund companies and schemes under the Chit Fund Act, 1982. “It has been decided by the Ministry of Corporate Affairs to set up a Special Task Force in the SFIO to investigate the affairs of such companies. Accordingly, all investigations into such companies are being entrusted to SFIO with immediate effect,” it said. The decision was taken after Minister for Corporate Affairs Sachin Pilot held a meeting of top Ministry officials earlier in the day.
Besides the Saradha Group scam, the meeting also deliberated on steps required to check suspected fraudulent activities of other chit fund companies, sources said.
According to a statement issued by the MCA after the meeting: “The decision was taken in view of larger public interest involved in these cases, and concerns regarding misuse/laundering by such companies of ill-gotten wealth and the possibility that the promoters of these companies may strip these companies.”
The MCA said that the Task Force will also coordinate with other law enforcement agencies and regulators wherever required, in its investigations.
Capital market regulator Sebi has already passed an order against one group entity, Saradha Realty India, asking it to wind up all collective investment schemes and refund the money collected from investors.
Besides, the Sebi is also probing at least ten other Saradha entities for raising funds without the regulator’s approval. The Income Tax Department would also soon start its investigations into the activities of this group.
A chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 1982. According to Section 2(b) of the Chit Fund Act, 1982, “Chit means a transaction whether called chit, chit fund, chitty, committee, kuri or by any other name by or under which a person enters into an agreement with a specified number of people that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount.”