The government has ruled out bringing an ordinance,as proposed by the Parliamentary Standing Committee on
Finance,to curb the growing menace of chit fund frauds and ponzi schemes like the one allegedly run by the Kolkata-based Saradha Group.
Instead,an inter-ministerial group (IMG) on the issue,which met on Thursday,is set to recommend giving more teeth to Sebi and RBI to regulate these schemes.
Sebi will get the power to attach immovable properties,search and seize assets and seek information from any entity in connection with its investigations,a senior official told FE.
The relevant Acts would be amended for this purpose. The final recommendations will be presented to the Cabinet for its approval after discussions are through, the official said.
The objective is to give Sebi more powers for regulation and oversight of money-pooling activities,the official said,adding the definition of collective investment schemes could be changed to allow Sebi to regulate chit funds.
The IMG led by the Department of Financial Services additional secretary and comprising officials from the ministry of corporate affairs,Sebi and RBI may meet again soon to take forward these proposals.
According to the official,the IMG has also worked out a mechanism to strengthen coordination between the various ministries and government agencies.
The IMG was constituted earlier this month to ensure strict enforcement of rules governing firms operating collective investment schemes,non-banking finance companies and multi-level marketing firms and to suggest regulatory changes in this regard. A host of amendments to the Sebi Act,Securities Contracts (Regulation) Act and the Depositories Act are being considered for these changes,another official told FE.
Though collective investment schemes fall under Sebis jurisdiction,investments made in chit funds are currently regulated by the Chit Fund Act,1982,which has to be enforced by the respective state governments. To plug this loophole,Sebi has sought direct powers to attach/sell movable and immovable properties without recourse to court of law,so that effective action can be taken if the concerned entity has either disappeared,or raised money in violation of securities laws,or has fraudulently diverted public money.
On search and seizure powers,Sebi has said it can carry out such operations only after getting the chief metropolitan magistrates nod. However,this requirement renders the power ineffective due to the confidential nature of investigations. Sebi had first proposed an overhaul of securities laws in June 2009.