West Bengal government is planning to formulate a new law or ordinance to combat the proliferation of chit fund and pyramid schemes in the state.
This follows the recent busting of a so-called share trading firm with a few hundred crores of public money which in reality was a chit fund. The chit funds in recent months have been disguising themselves as share trading outfits.
Sources in Writers' Buildings, the seat of the ruling Left Front government, said the state finance minister has convened a "high level meeting" on Monday to discuss the nature of the proposed legal framework.
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In other words, the meeting would try to decide whether the government should formulate an ordinance or an act to arrest the burgeoning activities of the chit funds. Among the Indian states, the Maharastra government has introduced an ordinance while there is an act in Tamil Nadu to prevent emergence of chit funds.
Sources said the government was "well aware" that absence of a proper legal framework applicable for chit funds provided a leeway for the unscrupulous traders who kept on raising money from investors promising them huge returns.
They said, "Each and every time a chit fund flourishes, the government comes down heavily on it. In the past, there were Sanchayita, Overland and Toubro. But the government cannot resist a fund entering in the state due to lack of proper legal framework."
Officials at the headquarters of the city police, Lal Bazar, and the state police, have pointed out the necessity of having a proper legal framework as well.
The government has woken up to the urgent need of having a legal framework after Citi Securities duped many investors. The firm claimed to be investing money in the share market. The busting of Citi is expected to have a cascading effect on other similar firms who have invested in Citi. The overall impact on the scam is likely to be in the region of Rs 100 crore.
Business Standard exposed the modus operandi of these chit funds in end-May. Although the police realized that luring investors with promise of interest rate of as high as 150 per cent was improper, it could do nothing because of inadequate legal back-up.
On investigation, the police found out that these firms did not fall under the purview of either the Reserve Bank of India or the Calcutta Stock Exchange. Both washed off their hands by issuing press releases.
The police was compelled to wait till last week when an investor complained that a cheque issued by Citi had bounced. Even now, the police knew the accomplices of Citi but could not arrest them due to lack of the required legal framework.