The Securities and Exchange Board of India has sought powers to regulate chit funds and nidhi companies (mutual benefit societies) till a regulator for these outfits is put in place.
At present, chit funds are regulated by State Governments , and nidhi companies by the Ministry of Corporate Affairs.
With the Saradha chit fund scam in West Bengal leaving thousands of depositors in the lurch, there is now a growing demand to create a strong regulatory mechanism. SEBI, therefore, feels there is a need for a single regulator for both chit funds and nidhi companies. Till such an arrangement is made, “I have requested the Government to strengthen the SEBI Act in the interim through amendments,” SEBI Chairman U. K. Sinha said on the sidelines of a meeting of the Asia-Pacific Committee of IOSCO, a global body of securities regulators.
He said such an arrangement would bring chit funds and nidhi companies under SEBI, enabling the regulator control the mushrooming of such funds that lure people by offering high rates of return only to vanish.
SEBI has already passed an order against Saradha Realty India, directing closure of all its collective schemes and refunding investors’ money within three months. The market regulator has also barred the company’s Managing Director Sudipta Sen from the securities markets till the firm wound up all its Collective Investment Schemes (CIS) and returned the money to investors.
The Government, Sinha said, is looking to strengthen laws to regulate all kinds of CIS. On January 18, the SEBI board had approved a proposal for more powers and sent the same to the Finance Ministry for further action.
It also wants powers to attach assets/properties and search/seizure powers without recourse to the court of law. All these require amendments to three pieces of legislations — the Securities and Exchange Board of India Act, 1992; the Securities Contracts (Regulation) Act, 1956; and the Depositories Act, 1996.