Ministry of Corporate Affairs sent a list of 34,754 companies having enabling clauses in their Memorandum of Association for undertaking NBFC like business, to identify companies which were carrying on business on the lines of NBFC without a license from RBI. RBI has commenced the process to ascertain the facts from all the companies which appear to have unauthorisedly accepted public deposits.

The Serious Fraud Investigation Office (SFIO), during the course of Investigation of the so called chit fund Companies, observed that promoters of such companies were taking advantage of multiple legislations like the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 and the Chit Funds Act, 1982, etc. Subsequently, an Inter-Ministerial Group (IMG) was constituted by the Ministry of Finance (Department of Financial Services) with representatives from Ministry of Finance, Ministry of Corporate Affairs, Reserve Bank of India and Securities and Exchange Board of India, for better inter-agency coordination in such matters.

The Ministry has taken following steps to protect the interests of small investors:

(i) The Ministry organizes investor awareness programmes regularly in association with the three professional institutes-Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India (ICAI) and Institute of Company Secretaries of India (ICSI) in various cities under the aegis of Investor Education and Protection Fund (IEPF). The programmes are held for creating awareness and empowerment amongst investors. Since 2012-13, MCA has also started organizing such programmes in rural areas through CSC e-Governance Services India Ltd., an entity under Department of Electronics and Information Technology. 2897 such programmes were organized during the year 2013-14;

(ii) Enhanced Disclosure norms for better information to investors, regulators and other stakeholders have been provided under the Companies Act, 2013;

(iii) Auditors’ accountability and independence enhanced under the Companies Act, 2013 which inter alia include rotation of auditors, etc.

This information was given by Smt. Nirmala Sitharaman, MoS in the Ministry of Corporate Affairs in written reply to a question in the Rajya Sabha today.

Illegal collective investment schemes prompt inter-agency probes and investor protection measures including disclosure and auditor safeguards. Proliferation of illegal collective investment schemes and unauthorised public deposit-taking by companies engaged in NBFC-like activities led to regulatory fact-finding and inter-agency coordination. The Ministry identified companies with enabling memorandum clauses for referral to the banking regulator, and investigations into chit-fund operators exposed use of multiple legal frameworks to circumvent oversight. As investor protection measures, the Ministry expanded awareness programmes and implemented enhanced disclosure norms and strengthened auditor accountability under corporate law reforms.