India mulling law to stop ‘Sahara’-like scams

The Central Government of India is considering strong measures to restrain fraudulent activities of scammers like Sahara; who are duping millions of investors of their hard earned savings. The ‘Ponzi Scheme’ scams lure people, particularly from rural and semi-rural areas, into investing their savings by promising fat returns.

 At the instance of Prime Minister Narendra Modi, a comprehensive bill has been drafted aiming to prevent such fraudulent schemes by unscrupulous operators. The Centre plans the passage of this bill during the monsoon session of the Parliament.  India does not have any Regulatory Act or Unified Law restricting activities of Ponzi or Pyramid scammers. Lakhs of people from rural areas and others with low awareness fall prey and have been duped of millions of Rupees till date.

Nishikant Dubey, Member of Parliament’s Standing Committee of Finance has stated the Government’s intention to constrain the exploitative activities of companies like ‘Sahara’ who have duped millions off investors and small savers. ‘Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interest Bill, 2015’ has been drafted on similar basis as Britain’s ‘Financial Services Act’; it proposes to safeguard the investors and their investments from deceitful companies luring unsuspecting people.

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SEBI (financial market regulator), Central Bureau of Investigation (CBI), Reserve Bank of India (RBI, the banking regulator), officials from Home and Finance ministries are  currently actively involved in resolving such issues, using strict measures. It is expected all pending issues will be resolved in the independent courts at the earliest.

Subroto Roy, the founder of ‘Sahara Group’, is alleged of duping several thousand investors. He was held liable and instructed to repay the amount of Rupees 36000 crores per orders of the honorable Supreme Court. He was later arrested and put behind bars in 2014 for failing to comply with the court orders to refund this illegally raised amount.

 A mirror scam to ‘Sahara’ is the ‘Saradha Scheme’ of West Bengal. The rural, underprivileged and lower middle class in particular get hooked by these fraudulent companies at the promise of unrealistic returns. But they earn nothing and lose their investments. There have been many such companies making tall promises, only to cheat the investors out of their money.

SEBI (financial market regulator) holds rights to investigate ‘only’ investment schemes of over 100 crores. This means several similar investment schemes with a lower quantum than 100 crores escape the regulatory laws. These fraudsters play with the common man’s money with impunity as no Regulatory Act exists to control and check their activities. It is a pity that the common man is always nourishing hopes of earning more in a very short time, with least efforts, and easily falls prey to the scammers. The gullible Investor fails to realize the deceit behind such luring schemes.

 Approximately 6 crore people have invested around 67 thousand crores (10 billion dollars) in various similar schemes and lost. In the past 3 years SEBI has delivered its mandate against 276 such companies.

 Common man saves grittily and invests his hard earned money hoping to better secure his future. His investment needs protection. After the Sahara scam the honorable Supreme Court announced ‘Code of Compulsory Compensation’ in favor of the common man. It is an ‘investor grievance redress guideline’, whereby the borrower must repay the investor’s rightful money without his having to deal with endless litigation. Till now the investor seeking justice for his grievance was being hauled from   court to court with no outcome, with the fraudsters taking full advantage..

With this background, the Central Government is all set to take strict steps. Prime Minister Modi has stated that every underprivileged citizen of the country needs to be brought into the mainstream banking system to outsmart these fraudulent companies. The Pradhan Mantri – Jan Dhan Yojana (PMJDY) is a ‘National Mission for Financial Inclusion’ to ensure common man’s access to the banking system and other schemes

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