Calcutta, Dec. 16: The central government is working on pre-emptive measures to bust chit funds that include the use of technology, intelligence sharing among agencies and raising the awareness of gullible investors.
Minister of state for corporate affairs Sachin Pilot said the RBI and Sebi were involved in the exercise.
The proliferation of chit funds in Bengal and the Northeast has necessitated urgent measures to protect the interest of small investors, the minister said.
He was speaking at a session organised by the MCC Chamber of Commerce and Industry here today.
"There are many schemes that people are misusing ' in Bengal and the Northeast. It's not about Bengal alone. We need an investor awareness programme. In small towns, the lack of knowledge is an issue. We want to use technology and create a pre-emptive system. We should come down heavily on this," Pilot said.
"We will be happy to support any effort of any state, including Bengal. There are enough cases where multi-level marketing structures are being misused. They are using the loopholes in the law to do that. Hopefully we will be able to arrive at a structure that will not allow this to happen."
The proposed Companies Bill, 2011, expected to be placed in Parliament tomorrow, will also include enabling provisions to give more power to the Serious Fraud Investigation Office (SFIO).
However, this will require the co-ordination and support of the respective state governments and agencies.
"There have been a series of financial frauds in the country. Whenever there is a detection of a wrong doing, a majority of reactions follow. The agencies such as the SFIO and police then do the firefighting. But by then the damage is done to small investors. The money trail vanishes," Pilot said.
"I am trying to create a system where we know the pressure points before the fraud happens. The idea is to protect small investors. We are using financial models and intelligence units to understand. It is time to start regulating the private placements."
Members of the Opposition in Bengal have recently blamed the booming chit fund business in the state for the drop in small savings rate.
A chit fund owner was arrested from South 24 Parganas last week.
Pilot said the new companies bill would have a provision, which will make it easier for entities to wind up business.
"It is often seen that it is easy to open a company but difficult to wind it up. A tribunal that will be set up will have powers to liquidate. We are also trying to improve India's ranking to make it an attractive investment destination," he said.
Whole-time directors will be held responsible for any wrongdoing by the company. The bill will also make it mandatory for certain categories of firms to spend 2 per cent of their net profit on corporate social responsibilities.