Sebi says can't curb chit funds due to jurisdictional issues

The market regulator, Securities and Exchange Board of India (Sebi), has said that it cannot regulate chit fund companies because of jurisdictional issues.

In a written reply to the parliamentary standing committee on finance, which met on Friday to discuss the issue of chit funds, the regulator said, "Sebi has added that it has been constrained in acting against companies involved in mobilisation of monies in view of the challenge to its jurisdiction over activities such as multilevel marketing schemes, time shares schemes, gold purchase schemes and deposit collection from real estate development."

The note further stated that such schemes are willfully designed to enable companies to take advantage of regulatory gaps and jurisdictional issues. Even in cases where action was initiated, companies engaged Sebi in protracted legal battles over jurisdictional issues, it added. "Sebi's domain has only been limited to those schemes and companies which are required to be registered with Sebi for collecting money through collective investment schemes (CIS) and those related to the securities markets."

Sebi further added that it had flagged this issue earlier and it was decided that there needs to be a coordination mechanism between the states and Central agencies. The department of financial services undertook the task of writing to all chief secretaries July 24, 2012, that the states must implement this decision.

Some committee members called for repealing the Chit Fund Act, 1982. Sources told Mail Today that Congress member Sanjay Nirupam requested the members that the committee should consider a ban on chit fund companies as other investment options are available to people at large. The suggestion was supported by the committee chairman Yashwant Sinha.

Sources added that the Bharatiya Janata Party also asked the finance ministry what role did its intelligence units play in preventing such scams.

Courtesy: Mail Today