303 NBFCs in Orissa, MP functioning without RBI permits: CAG

New Delhi, Jan 4 (UNI) As many as 303 Non Banking Financial Companies (NBFCs) were found to be functioning in Orissa, Meghalaya, Madhya Pradesh and Rajasthan without certificates of registration from RBI, according to a Comptroller and Auditor General report.

Though the NBFCs were functioning in clear violation of RBI's stipulated guidelines, "no action was taken by the RoCs concerned for bringing these to the notice of RBI for prosecution/winding up of these companies under Section 45 MC of RBI Act and imposition of penalties," the report notes.

Under the RBI Act, 1934 an NBFC can carry on the business of a non-banking financial institution only after availing a certificate of registration from RBI and must have a minimum net owned fund (NOF) of Rs 25 lakh.

In addition, under the Companies Act, 1956, no company can invite deposits unless an advertisement including a statement showing its financial position has been issued.

A copy of the advertisement or statement in lieu is to be filed with the Registrar.

Default in refund of deposits of investors is to be treated as cognisable offence under the Act. All NBFCs are to be registered with RBI after which they are to submit regular return and accounts to RBI.

In Orissa, three companies had accepted public deposts without complying with the Act's provisions and that of the RBI's non-banking directives, 1987.

Not surprisingly then that after collecting Rs 6.45 crore from public and showing continuous losses, these companies stopped filing returns with the RoC after 1999-2000. But, CAG said, neither the RoC issued any show cause notice for violating the Act nor prosecution proceedings were launched against the defaulting company.

In one instance, the auditor had specified that the company was accepting deposits from the public in the report attached to the balance sheet filed with the RoC, but again no penal provisions were taken.

The Ministry has in its response in October 2006 stated that the RoCs had been submitting a list of companies registered with them to RBI on a monthly basis and it was for the RBI to check if such companies had registered themselves with the latter.

Nevertheless, the Ministry agreed to work on the development of an appropriate system in consultation with RBI.

However, in view of the seriousness of the matter, CAG has recommended that the Ministry should urgently put in place a system to safeguard the interests of the stake holders.

UNI