What should a depositor do if the non-banking financial company or chit fund he has put his money in disappears or if RBI clamps down on it?

The bad news is that the Reserve Bank of India does not guarantee your deposit in non-banking financial establishments (NBFEs).

Sushmita Choudhury | Print Edition: May 14, 2009

The bad news is that the Reserve Bank of India does not guarantee your deposit in non-banking financial establishments (NBFEs). Despite the fact that the total public deposit held in such companies was Rs 24,665 crore in 2006-7, there is no deposit insurance scheme in place. Similarly, there is no ombudsman for hearing complaints against such entities.

This explains why NBFEs often play a starring role in financial frauds. Over 5,000 such cases have been registered since 1997, when RBI was forced to assume greater regulatory control on the heels of the CRB scam, which saw lakhs of investors being duped.

First Point Of Contact
Area of residence
CLB bench officer to contact
Punjab, J&K, Haryana, Delhi, Chandigarh, Himachal Pradesh, UP And RajasthanNorthern Region Bench, Shastri Bhavan, A-Wing, 5th Floor, Dr. R.P. Road, Delhi-1
Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Pondicherry And LakshadweepSouthern Region Bench, Shastri Bhavan, A-Wing, No. 26, Haddows Road, Chennai-6
Maharashtra, Gujarat, Madhya Pradesh, Goa, Dadra & Nagar Haveli, Daman And DiuWestern Region Bench, N.T.C. House, 15, N. Morarjee Marg, Ballard Estate, Mumbai-38
West Bengal, Orissa, Bihar, Andaman & Nicobar, North-East India, including AssamEastern Region Bench, 9, Old Post Office Street, 6th Floor, Kolkata 700001

According to RBI, if an NBFE defaults in repaying deposits, the aggrieved person should approach the Company Law Board (CLB). All you have to do is mail an application form and a photocopy of your fixed deposit receipt to the CLB according to its territorial jurisdiction along with a demand draft for Rs 50. The format of the application form is available at www.investorhelpline.in/ih/General/CLB.htm#a1.

Another option is to file a civil suit in a high court or approach a consumer forum. Among the latter, Investor Helpline, a portal sponsored by the Ministry of Corporate Affairs, and the International Consumer Rights Protection Council (ICRPC), a registered non-profit NGO, plays a leading role. In fact, these consumer forums often plug the existing loopholes in the grievance redressal mechanism. Says Arun Saxena, president, ICRPC: "The CLB is a toothless tiger. Have you heard of any action being taken by the board that has helped the depositors get a full refund?"

According to ICRPC, the first step that an aggrieved depositor should take is file an FIR against the owner of the company. Then, through the police and the media, he should try to gather people who were defrauded by the same company. This will increase the chances of a speedy refund. Try to jointly approach the defaulting company with a written application, asking for a refund of your interest amount and the maturity amount. If you are not satisfied with the company’s reply, jointly lodge a complaint with the local police department as well as the CLB. If the value of the total deposit exceeds Rs 2 lakh, it falls under the purview of the Economic Offences Wing of the Crime Branch.

For now, consumer courts are a better route as approaching a high court is a very expensive and timeconsuming mode of redressal. The former not only award compensation but also reimburse legal costs.

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