Planning on to detect unusual activities in Ponzi schemes


Dubious investment companies

The Securities and Exchange Board of India (SEBI), Ministry of Corporate Affairs and the Institute of Chartered Accountants of India are planning to develop an early warning system to ensure that investors don’t fall prey to dubious ponzi schemes. Millions of investors have in the past lost tens of thousands of crores of rupees in deposit schemes floated by dubious companies.

Indianmandarins has learnt that planning for the system is on and will be based on certain financial parameters from the balance sheet of suspected entities and enquiries could be initiated against them.  The flow of funds into group companies, other income, abnormal gains/losses, change in accounting mechanism, and related-party transactions (such as sale of shares to group companies or deposits taken from another group company) are some of the parameters that could be looked at in a deposit-taking company’s balance sheet.

Further, a sharp rise in debtors and large-scale write-off of debtors could also draw attention.

The move to establish an early warning system is aimed at zeroing in on companies that have taken deposits from the public whose balance sheet parameters show that they may renege on payment of interest and/or repayment of the principal.

It comes in the backdrop of the Central Bureau of Investigation probing Ponzi schemes involving funds of over ₹1.20 lakh crore. The Company Law Board (CLB) is empowered to take cognisance of any case of non-repayment of deposits on maturity, and direct the company to repay such deposits. Non-compliance with CLB orders may lead to imprisonment up to three years, and a monetary penalty.


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