To check the menace of companies collecting money from the public through ponzi schemes, a government panel has suggested wide-ranging changes in the rules governing such businesses, including a ban on defaulter firms and blocking their websites being operated from abroad.
The inter-ministerial committee, set up to look into the matter, has also suggested setting up of a central agency to oversee multi-level marketing (MLM) schemes and framing of fresh guidelines for them by the Finance Ministry in consultation with market regulator Sebi and other ministries and agencies.
Such schemes are also broadly known as 'ponzi' schemes, wherein money is pooled in by the operators from public for dubious investment purposes with a promise of hefty returns.
The committee, comprising of members from Reserve Bank as also Consumer Affairs, Corporate Affairs, Finance and Law ministries, also suggested that action can be taken against online companies like Speak Asia even if consumers do not
complain against these entities, sources said.
The panel felt the need to check websites from operating from outside India and filters need to be placed at the point of gateway and the Department of Information Technology can be asked to take necessary action in this regard, they added.
The panel has favoured nominating a central agency by the Department of Financial Services with powers to probe such firms and to take legal action against the defaulters.
It has also been suggested that laws in other countries, such as China's anti-pyramid statues and Singapore's Multi Level Marketing and Pyramid Selling (Prohibition) Act can be consulted while formulating the guidelines in India.
However, the panel does not favour a central legislation to regulate MLM companies as the matter relates to the state governments and state police, which have sufficient powers to take action against such firms under existing regulations.
It observed that 14 states have already passed special acts to deal with MLM companies and other states can be asked to follow the suit, sources said.
Incidentally, market regulator Sebi has asked the government to frame a strong central legislation to regulate companies running MLM and Collective Investment Schemes and to stop them from collecting large amount of money from the public without any requisite regulatory approvals and for dubious investment projects.
"People make all sorts of excuses - in some cases they claim they are under the state government, some cases they are saying they are registered with the Ministry of Corporate Affairs, some cases they are saying they are housing companies and in some cases they claim to be NBFCs," Sebi Chairman U K Sinha had said.
"And in most cases, they say that we are not under the Sebi jurisdiction," he added. The Serious Fraud Investigation Office (SFIO) – under the Corporate Affairs ministry -- is working on an early warning system that would help in preventing corporate frauds. It has set up a computer lab to keep a tab on working of MLM companies.
SFIO is already investigating alleged scam at SpeakAsia, which is registered in Singapore. The ministry had ordered the probe into it early last year.
The Corporate Affairs ministry has also asked the Registrars of Companies (RoCs) to be alert about activities of the multi-level marketing companies, particularly where they give advertisements.
The inter-ministerial panel, headed by the Consumer Affairs Secretary, felt that the Financial Services Department should be the nodal point to deal with matters relating to these marketing schemes.
The committee was constituted in July this year by the Consumer Affairs ministry, after it received several complaints regarding alleged large scale frauds by multi level
marketing companies, which included defaults in payments and operators disappearing with the money collected from public.
The committee was mandated to examine the complex issues related to the working of such firms, fill the regulatory gaps and suggest measures to safeguard the interests of the consumers.
The panel also comprised of members from Financial Intelligence Unit (Department of Revenue) and Inspection and Investigation unit (Ministry of Corporate Affairs).