Collective Investment Scheme (“CIS”)- An investment scheme wherein
several individuals come together to pool their money for investing in a
particular asset(s) and for sharing the returns arising from that investment as
per the agreement reached between them prior to pooling in the money.
Many companies especially in
semi-urban and rural areas are accepting deposits in their firm’s name and also
promising two to three times returns in two to four years without taking any
legal permissions. These ponzi schemes are running on the false promise of
doling out high returns to the gullible investors. Ponzi scheme may be treated
as either a chit fund or a collective investment scheme. But then a further complication
arises who will regulate a ponzi scheme???? Collective investment scheme as a
subject for monitoring came under the SEBI ambit after amendment to the SEBI Act,
however there are several exemptions for schemes such as chit funds, nidhi
funds, co-operatives, NBFCS. They are exempted with a very on the idea was that
those would be reporting at small level and there would be local level
authorities who would be taking care of them. As at present, we don’t have a single
regulator and the innocent victims don’t
know where to go after been cheated by ponzi schemes.
Entrepreneurs from rural regions wants
to operate a legally recognized CIS for their locality get confuse in the web
of these complex regulations which amends frequently. Earlier for registration
of a Multi-State Credit Co-operative Society, you need to get approval from
Central Government i.e. Ministry of Agriculture, Delhi, however after the
Shardha scam in West Bengal, instead of making the regulations water tight to
prevent further scams and frauds, Ministry of Agriculture issued a
notification, where a multi-state society needs to get no objection certificate
(“NOC”) from State Registrar,
Co-operative for registration of a Multi-State Credit Co-operative Society and
when these gullible societies reach to State Registrar, Co-operative, they
simply refuse to give NOC on the ground that they are state employees and are
not bound by any central ministry notification till the time it is been
directed to them by their State Ministry.
And, the major motive behind this is
to curb the registration of new multi-state credit co-operative society…. Will
this solve the problem of ponzi schemes or will it increase them further???
Today, even nationalized banks had not
been able to penetrate and make a stand to the rural market whereas people
operating CIS via mechanism of multi-state credit cooperative societies in
these regions had already established their network through their agents who
come from the same locality.
Is there any way out to operate a
legally recognize CIS???
In light of a lot of news relating to
sham entities garnering funds through fraudulent investment schemes with
promise of huge returns mainly in the name of property development and
agriculture, SEBI’s regulations has been revised and strengthened.
The SEBI (CIS) Regulations
specifically state that no entity can carry on or sponsor or launch a CIS
without obtaining a certificate of registration from SEBI. The other
regulations are as follows:
i.
The CIS should be set
up and registered as a public company registered under the provisions of the
Companies Act, 1956/2013, and the memorandum of association should specify the
management of the CIS as one of its objectives.
ii.
The company at the
time of registration as CIMC should have a minimum net worth of INR 5 crore
(provided that at the time of making the application, the applicant should have
a minimum net worth of INR 3 crore, which should be increased to INR 5 crore
within three years from the date of grant of registration).
iii.
iii. The offer
document should disclose adequate information to enable investors to take
informed decisions. The offer
document should also indicate the maximum and minimum amount expected to be
raised. No scheme should be kept open for subscription for more than 90 days.
iv.
Each scheme has to
obtain a rating from a recognized CRA, and the projects to be undertaken should
be appraised by an appraising agency.
v.
The CIMC should
obtain adequate insurance policy for the protection of the scheme’s property.
vi.
Advertisements for
every single scheme should conform to the SEBI’s advertisement code.
vii.
The CIMC should issue
unit certificates to all applicants whose applications have been accepted as
soon as possible, but not later than six weeks from the date of closure of the
subscription list; if the units are issued through a depository, a receipt in
lieu of the unit certificate will be issued as per the provisions of the SEBI
(Depositories and Participants) Regulations, 1996, and the byelaws of the depository.
viii.
The units of every
scheme should be listed immediately after the date of allotment of the units,
and not later than six weeks from the date of closure of the scheme on each of
the stock exchanges as mentioned in the offer document.
ix.
A scheme should be
wound up on the expiry of duration specified in the scheme or on the
accomplishment of the purpose of the scheme. The scheme can also be wound up if
the unit holders of a scheme holding three-fourth of the nominal value of the
unit capital pass a resolution to that effect; if in the opinion of the CIMC,
the purpose of the scheme cannot be accomplished, then through the approval of
at least three-fourths of the nominal value of the unit capital of the scheme,
the scheme can be wound up. However, for winding up the schemes, approval has
to be obtained from SEBI. Further, if in SEBI’s opinion the continuation of the
scheme would be prejudicial to the interest of the unit holders, then the
scheme can be wound up. When a scheme is to be wound up, the trustee should
give notice disclosing the circumstances leading to such a decision in a daily
newspaper having nationwide circulation and in a newspaper published in the
language of the region where the Collective Investment Management Company is registered.
x.
The trustee should
dispose of the assets of the scheme concerned in the best interests of the
unitholders of that scheme. If the scheme is wound up because of any event that
in opinion of the trustee requires the scheme to be wound up, then the proceeds
realized should be utilized towards the discharge of such liabilities as are
due and payable under the scheme, and after making appropriate provisions for
meeting the expenses connected with such winding up, the balance should be paid
to the unitholders in proportion to their unit holding.
xi.
After completion of
winding up, the trustees have to forward to SEBI and the unitholders the report
on the steps taken for the realization of assets of the scheme, the expenses
for winding up, and the net assets available for distribution to the
unitholders, together with a certificate from the auditors of the scheme
certifying that all the assets of the scheme have been realized, and the
details of the distribution of the proceeds.
xii.
The unclaimed money,
if any, at the time of winding up should be kept separately in a bank account
by the trustee for a period of three years for meeting investors’ claims, and
thereafter, should be transferred to an investor protection fund, as may be
specified by SEBI.
xiii.
On behalf of the
scheme, before the expiry of one month from the close of each quarter (i.e.,
March 31, June 30, September 30, and December 31), the CIMC should publish its
unaudited financial results in one daily newspaper having nationwide
circulation and in a regional newspaper of the region where the head office of
the CIMC is situated.
If you are interested in further details and inclined to
know the procedure of CIS registration, click on the link below or contact us:
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