For Disguised Ponzi Plans, New Cos Act may Sound Death Knell
Companies may no longer be able to run money circulating schemes using real estate and travel agencies as surrogates. As per the Companies (Acceptance of Deposits) Rules, 2014, introduced by the ministry of corporate affairs, funds raised by any entity with an assurance to refund with or without interest at the end of the specified period will be treated as a deposit.
Experts say the operators raising funds in the disguise of booking of land or flats, or for obscure reasons such as emu farming will be suffocated with the new provision.
In West Bengal and other eastern states several entities such as Saradha using such surrogates had thrived. The Rose Valley Group, which has interests ranging from real estate to films and fashion, and raises money from public as advance, feels the rules will not affect them. A company spokesperson said that they have not examined the MCA rules. However, they are not a deposit-taking company. He further added that they will not be affected by the new MCA guidelines.
Financial consultant Vinod Kothari, however, said under the new set of rules no non-banking non-financial entity would dare to raise public funds since they would have to follow stringent norms.
To raise public deposits companies need to have a minimum net worth of 100 crore or turnover of 500 crore and present insurance back-up for deposits. They can offer a maximum interest rate of 12.5% a year.
Kothari said, “A definition of ‘deemed deposit’ was added regarding public deposits by the MCA rules, whereby any scheme through which returns are given to investors, whether in cash or kind, will be deemed as deposit. Filling up a huge gap in the earlier regulatory structure this is a very significant provision.”
He added Gold jewellery purchase schemes will also become prohibited as jewellers offer higher value of gold or ornaments than what customers pay in 11 instalments. Though the jewellers appeared unfazed of the new rules. “The customer pays EMI for 11 months to purchase gold at the end of the 12th month and we enter into an agreement with him,” said Rajiv Popley, director of Mumbai based Popley & Sons. “The agreement says that the customer will get a discount or bonus which is equivalent to a monthly installment. This is not at all a financial transaction.”
Customers, who fall short to pay the installment for the required period, can leave the scheme mid-way and buy gold exactly equal to the money they have deposited without any bonus.
Advances for purchase of goods or services where the supply takes place within one year, is an escape from the definition of “deposits”. Hence, from the new set of rules advances against sale of property will remain exempt. However, no entity taking advances can offer any benefit to customers either in cash or kind.
Source: Times of India
Farming, gold jewellery, MCA guidelines, Ministry of Corporate Affairs, money circulating schemes, Mumbai based Popley & Sons, Public funds, Rajiv Popley, Realty News, Rose Valley Group, Saradha, Travel agencies, Vinod Kothari, West Bengal
