private co's inviting public funds..

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shital (Querist)
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14 March 2011 Dear All,

there are several Private and Public Limited Companies which are inviting public to invest into various schemes under which either they get double the amount of thier invst within 5 years and triple within 9 years. also, there are Companies which lure investors by asking penny amount of investment say 5000 or 6000 which makes them eligible for purchase of Gold Jewelery worth Rs.50000/-. i can name some companies like:

Royal Twinkle Star Club Limited
Abhinav Gold International Marketing Private Limited.

my question is, can Companies not registered with RBI or as NBFC, can carry on such type of business? if yes, what is the autenticity of their business?

can a public or private limited companies invite people through these schemes?

lakhs of people are overwhelmingly investing into such scheme of this Companies, if they lose their money where should they go for Complaints ? who besides ROC, MCA regulates their business?

waiting for your answers...

regards,
Shital

Ravikant

Ravikant (Expert)
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14 March 2011 they are thieves,pvt ltd companies are restricted from accepting public deposits,
registering as nbfc is compulsory to carry on such business, but truth is such thing do flourish under the nose of the regulators,
once duped money is gone,what can rbi, mca do to such entitys? penalties, terms, fines... but about the moneys of investor. its better to keep away from such fools,such schemes r always privately circularised
thanks, best question asked,
hope more views..

CS Jignesh Mistry

CS Jignesh Mistry (Expert)
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14 March 2011 hi that is true that such companies need to be regulated strictly and not only by ROC but other forums can take sue moto action against them or we under Public interest litigation can file case against them.

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shital

shital (Querist)
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15 March 2011 thanx Ravikant and Jignesh! i hope and expect some more clarifications...

i understand that there are lakhs of people invested into small schemes run by these companies...definately it might have gone to some regualtors too...why not any action has been taken till date?

it cannot happen that ROC has got no knowledge of this matter...i still feel that this Companies are taking shelter under some loopholes of Company Law and running these business...and i am keen to know what provision of law permits them ...

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 August 2024 The situation you're describing involves companies that offer investment schemes with high returns, often promising to double or triple the invested amount within a certain period or provide high-value goods in exchange for a relatively small investment. These schemes can be problematic, especially if they are not regulated properly or if they use deceptive practices. Here’s a detailed breakdown of the legal and regulatory framework surrounding such schemes:

### **Legal Framework for Investment Schemes**

1. **Regulation by RBI/NBFC**:
- Companies that invite public funds and offer returns are usually required to register with the **Reserve Bank of India (RBI)** as Non-Banking Financial Companies (NBFCs). However, not all companies operating such schemes are registered with the RBI, which raises concerns about their legitimacy.

2. **Regulation under Companies Act**:
- The **Companies Act, 2013** regulates private and public companies, but it does not specifically address the nature of high-return schemes or guarantee returns on investments. Companies must follow the provisions related to raising funds, issuing shares, and maintaining transparency, but these may not be sufficient to prevent fraudulent schemes.

3. **Securities and Exchange Board of India (SEBI)**:
- If the schemes involve securities or investments in a manner similar to collective investment schemes or mutual funds, they may fall under the jurisdiction of **SEBI**. SEBI regulates public offers and collective investment schemes to protect investors. Companies offering such schemes must obtain necessary approvals and adhere to SEBI regulations.

4. **Regulation under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978**:
- This Act specifically addresses schemes that involve the circulation of money and promise high returns or prizes. Companies operating schemes that resemble money circulation schemes may fall under the purview of this Act.

5. **Consumer Protection Act**:
- If investors believe they have been defrauded, they can file complaints under the **Consumer Protection Act** for unfair trade practices. The Consumer Disputes Redressal Commission can handle complaints related to such matters.

### **Complaints and Redressal**

1. **Regulators**:
- **RBI:** Regulates NBFCs and can take action if a company operating such schemes is registered as an NBFC.
- **SEBI:** Regulates securities and collective investment schemes. Complaints regarding unauthorized schemes can be reported to SEBI.
- **MCA (Ministry of Corporate Affairs):** Regulates companies and can be approached for complaints related to violations of the Companies Act.
- **Consumer Protection Forum:** For complaints of fraud or unfair trade practices, individuals can approach consumer forums.

2. **Complaints Process**:
- Investors can file complaints with the **Consumer Forum** or **State Commission** under the Consumer Protection Act.
- **RBI** and **SEBI** also have mechanisms for investor complaints on their respective websites.
- **Police:** If there are allegations of fraud or criminal activities, a complaint can be filed with the local police.

### **Why No Action?**

- **Regulatory Gaps:** Some companies exploit gaps or loopholes in regulatory frameworks to operate. They may not fit neatly into any one regulatory framework, which can delay action.
- **Complexity and Volume:** The sheer number of such companies and schemes can overwhelm regulatory bodies, causing delays in taking action.
- **Legal Loopholes:** Companies may use legal loopholes or operate in a manner that makes it difficult for regulators to take immediate action.

### **What Can Be Done?**

- **Awareness:** Increase public awareness about the risks of such schemes and encourage individuals to invest in regulated and transparent financial products.
- **Regulatory Reform:** Advocating for stricter regulations and better enforcement mechanisms can help prevent such schemes from proliferating.
- **Legal Recourse:** Affected individuals should seek legal advice and explore all available avenues for redressal.

In summary, companies not registered with the RBI or as NBFCs, but engaging in high-return schemes, might be operating in a legal grey area or exploiting loopholes. Investors should be cautious and report any suspicious schemes to appropriate regulators and consumer forums.