Renowned gold merchants cheating people with illegal schemes

Big Corporate Houses like Tanishq, Kirtilal, Mahaveer Jewelers, Mohammad Khan & Co Kalyan Jewelers and a score of others which are into sale of gold ornaments, diamonds and other products have been cheating millions all over the country in the name of various schemes.

But there is one similarity in all these schemes. All these schemes violate Prize Chits & Money Circulation Schemes (Banning) Act, 1978. Though they have been cheating millions in the name of schemes, in spite of the complaints by Corporate Frauds Watch, police are not taking action against these companies on the pretext that there are no victims to lodge a complaint against them.

The Madras High Court in Apple FMCG Marketing vs. Union of India in 2005 stated that the mere fact that no complaints were received does not make an act legal, if it be otherwise illegal.

Section 2 (e) of Prize Chits & Money Circulation Schemes (Banning) Act, 1978 defines what is Prize Chit. It clarifies that the conventional chit fund won't fall under this enactment. 

A close look at their schemes reveals how they are cheating the gullible with the promise of benefit to the customers. In fact, they are only making easy and quick money.

Section 2(e) “prize chit” includes any transaction or arrangement by whatever name called under which a person collects whether as a promoter, foreman, agent or in any other capacity, monies in one lump sum or in installments by way of contributions or subscriptions or by sale of units, certificates or other instruments or in any other manner or as membership fees or admission fees or service or service charges to or in respect of any savings, mutual benefit, thrift, or any other scheme or arrangement by whatever or the income accruing from investment or other use of such monies for all or any of the following purposes, namely:-

(i) giving or awarding periodically or otherwise to a specified number of subscribers as determined by lot, draw or in any other manner, prizes or gifts in cash or in kind, whether or not the recipient of the prize or gift is under a liability to make any further payment in respect of such scheme or arrangement ;

(ii) refunding to the subscribers or such of them as have not won any prize or gift, the whole part of the subscriptions, contributions or other monies collected, with or without any bonus, premium interest or other advantage by whatever name called, on the termination of the scheme or arrangement, or on or after the expiry of the period stipulated therein, but does not include a conventional chit. 

As per the schemes, the members have to pay money in installments for a certain period and by the end of the period, the member would be repaid in kind but not in cash. Anyway, the enactment prohibits in repayment of cash too.

For instance, if a member pays Rs. 1000 per month the company would receive Rs. 12,000 in a year. If they collect the subscriptions from 1000 members, the company would be collecting every month Rs. 10 lakh and in a year and the amount would be a staggering Rs. 1.2 crore.

The company repays only in kind i.e., gold ornaments or other products. In effect, there would be an assured business of Rs. 1.20 crore to the company with profits. Moreover, the money would be with the company through out the scheme period fetching interest on the deposit which is also another profit to the company. This is nothing but easy and quick money. 

And the most dangerous part, there is no guarantee for the deposits if the company vanishes with the deposits.

The companies may claim that their companies have long-standing record of repayment perfectly to the customers. But that does not make an illegal act, a legal one. It is illegal to collect deposits from the public without the permission of the Reserve Bank of India.

In June, 1974, the Reserve Bank of India had constituted a Study Group under the Chairmanship of James S. Raj, the then Chairman of Unit Trust of India for examining in depth the provisions of Chapter III-B of the Reserve Bank of India Act, 1934. In its report submitted to the Reserve Bank in July, 1975, the Group observed that the prize chit/benefit/ savings schemes benefit primarily the promoters and do not serve any social purpose, and that they are prejudicial to the public interest and affects the efficacy of the fiscal and monetary policies of the country.  The Study Group formulated the Prize Chits & Money Circulation Schemes (Banning) Act and it was enacted in 1978.