Saturday, September 13, 2014

Rules finally to make chit-fund cheats pay up

As scamsters continue to find new ways to swindle people, the implementation of the Prize Chits and Money Circulation Schemes (banning) Act 1978 in Sikkim offers some hope
Tina Finlease, Bharosa and more recently Rose Valley in 2013 are some of the big scams which have duped many in the state. It is not clear as to how much Rose Valley collected from Sikkim, but media reports quoting SEBI sources on its activities had suggested that the group could have mobilised as much as Rs 4,000 crore from its operations in West Bengal and the North East including Sikkim. While the nature of financial scams associated with non banking financial companies such as Tina Finlease and Bharosa are not heard of much nowadays, it does not mean that there are no longer similar agencies operating in the state. It’s only that the mode of operation has changed from ‘companies’ giving way to individuals who lure people.
In order to curb chit fund and money circulation schemes, the Sikkim government has now extended the central law and implemented the Prize Chits and Money Circulation Schemes (banning) Act 1978 in the state. The state has also notified the rules with effect from 20 August 2014 to bring the culprits into the framework of the Act.
As per the power conferred under Section 13 of the Central Act, states are authorized to make rules by notification in the Official Gazette and in consultation with the Reserve Bank, make rules for the purpose of carrying out the provisions of this Act.
The rule defines ‘money circulation scheme’ as a scheme which is used for making of quick or easy money by disguising such scheme as a scheme for sale of products or providing or claiming to provide certain goods or services.
Section 3 of the said Act Prize Chits and Money Circulation Schemes (banning) Act 1978 inter alia bans such money circulation schemes and instances have come to light where money circulation schemes are being introduced in disguised forms under the garb of selling goods or services wherein promoters and up-line subscribers make quick and easy money at the cost of down-line subscribers.
The Rules notified in the Gazette notification further says that no individual or Company or firm or business association, in any form, shall run a scheme with a compensation plan in which the subscribers have to enroll one or more subscribers to become entitled to certain benefits, directly or indirectly, as a result of enrolment, action or performance of additional subscribers.
The Nodal Police Authority in a state is responsible for coordinating with the state governments, the Central Government and the agencies under such government and the Reserve Bank of India and also responsible for furnishing information to the Reserve Bank of India in the prescribed format and periodicity.
The rules further state that the Promoters of Money Circulation Schemes shall be personally liable even if such schemes are run by companies registered under the Companies Act, 1956 or other business entities carrying limited liability.
In the case of companies and other business entities where such a power is vested in the Central Government, the Competent Authority shall forward a report with its recommendations to the concerned Ministry in the Central Government for initiating action for winding up of the company.
The investigating officer on being satisfied with prima facie evidence that a money circulation scheme including disguised money circulation scheme is being operated, an officer not below the rank of Superintendent of Police or other officers as notified by the State Government order for sealing of the business premises and offices connected with such schemes, suspend operations of the bank accounts and take such other action as is required for closure of business operations pertaining to such schemes.

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