Sachin Pilot asks Reserve Bank of India to act fast

Amid growing cases of innocent people being cheated by multi-level marketing (MLM) firms through various Ponzi schemes, Corporate Affairs Minister Sachin Pilot has asked the Reserve Bank of India to immediately act against companies that are not registered as non-banking financial companies (NBFCs) but are floating financial schemes and committing frauds.

“At present there are 34,754 such companies, out of whom only 12,375 have been permitted by the RBI to function as NBFCs under the RBI Act. It is the remaining 22,000 or so companies which mainly account for instances of cheating and fraud. The Ministry of Corporate Affairs (MCA) has already shared with the RBI the details of all the 34,754 companies and it is imperative that the RBI steps up its enforcement efforts to identify and proceed against companies not permitted to function as NBFC so that a major source of cheating is effectively dealt with,” Mr. Pilot wrote to Union Finance Minister P. Chidambaram, seeking his intervention in the crucial matter.

Pointing out that the MCA has been receiving complaints of cheating by so-called investment companies often using the ‘multi-level marketing’ strategy, Mr. Pilot said most of the MLM companies involved had got themselves registered with objects similar to those of the NBFCs to evade the law and carry out financial frauds. He urged Mr. Chidambaram to issue “specific instructions” to the RBI to pay attention to this aspect in coordination with the police authorities, while taking action against the companies committing frauds and cheating.

“The RBI, as the regulator of NBFCs, should immediately penalise companies that are not registered with them as NBFCs…Unscrupulous companies pose as NBFCs to invest money in MLM schemes with promises of heavy but mathematically improbable returns on investments, particularly when persons originally enrolled in a scheme induce others to join the same scheme. Such schemes bring adverse publicity even for the companies that are engaged in bona fide businesses,” Mr. Pilot told The Hindu.

The Minister said 87 companies were being probed for duping the public through illegal MLM or Ponzi schemes. West Bengal, with 73 firms, topped the list, followed by Delhi (5), Tamil Nadu (5), Rajasthan (2), Karnataka (1) and Uttar Pradesh (1). Mr. Pilot noted that he had written to all Chief Ministers to issue directions to the police authorities to take action against the fraud companies.

“We have taken prompt action against errant companies as and when complaints are received against them.” Notably, Tamil Nadu Chief Minister Jayalalithaa had recently written to Mr. Pilot on the issue.

To stop such frauds, it was imperative that the law enforcement agencies at the Central and State levels, along with Serious Fraud Investigation Office (SFIO) under the MCA, worked closely with each other to ensure early investigation and further follow-up action against unscrupulous companies engaged in such practices.

The MCA had constituted a steering committee to develop a ‘fraud prediction model’ aimed at generating alerts for prevention of fraud and malfeasance. “We will also be revamping the existing Market Research & Analysis Unit in the SFIO to enable it to function as an intelligence unit,” he said.


RBI to scrutinise nearly 3,000 “NBFCs”July 22, 2013