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Chhattisgarh News
Chhattisgarh makes rules to protect investors from ponzi financial schemes

Raipur: After almost a decade of formulating the draft for the Chhattisgarh Protection of Depositors Interest (in Financial Establishment) Act 2005, the government has now finally framed and notified rules to protect depositors' interests from ponzi money collection schemes.

The state, which has witnessed over 3000 people being cheated of a whopping Rs 124 crore between 2009 and 2013, had passed the bill in 2005 but it received the President's assent only in July 2015 due to various clarifications and references sought by the union government. Following the President's assent, the state government appointed all district magistrates as "competent authority" within their respective districts for the purpose of the said Act.

Special Secretary, Finance, Kamalpreet Singh, said the Act empowers the District Magistrate to enter the premises of the accused, conduct search, seizure, confiscation and to attach property and initiate the procedure to conduct its public auction to recover funds of the defrauded investors. Singh said special courts would be designated by the High Court to decide such auctions in order to generate funds to return money to depositors.

The recent spate in incidents of embezzlement of depositors' money by promoters of ponzi financial schemes had caused lot of concern, with people accusing the government of doing little to protect their financial interest from such fraudsters. As per information given by home minister, Ram Sevak Paikra, on the floor of the House last year, 3717 people had been cheated for an estimated amount of Rs 124 crore between 2009 and 2013. About 174 accused in these cases had been arrested and in 73 cases challans had been put up in the court of law.

Taking note of mushrooming of financial establishments in the state in the recent past, the Act says it is observed that such establishments have been gaining wrongfully by receiving money as deposits from the public, particularly of the middle class and poorer sections of the society.

These financial establishments, it said, did this by making impracticable or commercially not viable promises or by offering highly attractive rates of interest or rewards, with the intention of not fulfilling the obligation of refunding the deposits on maturity or with intention of not rendering proper services assured, to the investors at the time of accepting the deposits.

With the Act getting implemented in the state, all working of hitherto unregulated financial bodies like multi-level marketing companies, proprietorship, partnership firms can be regulated by the state government by appointing a regulators for financial institutions which it feels is indulging in fraudulent activities.

In fact, it was the vacuum of a regulatory body that led to the mushrooming of multi-level marketing companies in the state. Not only gold, but dubious schemes including investments in sheep and land had also been rolled out by some companies. To curb such activities, the Reserve Bank of India Act was amended and department of non-banking services was created (DNBS). The department was entrusted with the responsibility of conducting meetings with state governments and authorities and urging them to bring an act in their respective states.