Is RBI sleeping over Faircent's P2P ad that promises huge returns?
An overhyped, front page advertisements in a leading economic daily by Faircent.com, which claims it is India's largest peer-to-peer (P2P) lending website, is luring people promising returns that are safer than the risky ’Sensex’ — almost like a Ponzi scheme. Shockingly, the company’s business and its puffery does not seem to attract the attention or supervision of any regulator. Not even the Reserve Bank of India (RBI), whose governor recently lamented that his organisation does not have adequate powers over banks — especially public sector banks. So what about finance companies that are regulated by it? The Faircent.com advertisement would give you a clue. The last line of the advertisement, in its fine print carries a disclaimer saying, the "Reserve Bank of India (RBI) should not be held responsible for these claims or promises".
 
The RBI governor, one may recall, has famously said that the Reserve Bank "cannot be in every nook and corner to prevent fraud”, so we thought we would draw the RBI’s attention to Fairmont.com’s advertisement which seemed to lure people into a highly risky and investment in order to further fund small businesses. The RBI’s response was to curtly direct us to its Master Directions issued on 4 October 2017 and modified on 9 November 2017 and 23 February 2018. The RBI official asked us to refer to Para 12(2) in particular in the Master Directions.
 
This is listed under Fair Practices Code. Para 12(2) that we dug up on the net: "Non-banking financial company (NBFC)-P2P shall be required to obtain explicit affirmation from the lender stating that he/ she has understood the risks associated with the proposed transaction and that there is no guarantee of return and that there exists a likelihood of loss of entire principal in case of default by a borrower. {subscription_div} The platform shall not provide any assurance for the recovery of loans. Further, the platform shall display a caveat that 'Reserve Bank of India does not accept any responsibility for the correctness of any of the statements or representations made or opinions expressed by the NBFC-P2P, and does not provide any assurance for repayment of the loans lent on it’."
 
How is an ordinary person lured by the Faircent.com advertisement supposed to know any of this, when they are clueless about peer-to-peer (P2P) lending? And should the regulator stand by and let it go? There are three issues with the Faircent advertisement. It promises 18% to 25% annual returns, and monthly income. Secondly, there is a disclaimer in the name of Reserve Bank. And lastly, it tries to grab eyeballs with 'Sensex aap ke sapne phir le dooba?"
 
 
Interestingly, Faircent is registered with RBI as Fairassets Technologies India Pvt Ltd (Faircent.com). This means entire responsibility for the content in the advertisement should be that of Faircent. Is it enough for a company to have a vague disclaimer in its fine print, when another financial regulator — the Securities and Exchange Board of India (SEBI) — demands a very explicit disclaimer even from the highly regulated mutual fund industry (past performance is no guarantee of future returns)? In the Faircent.com case, or others in this business, there is nothing to back the claim of returns even as a comparison or past performance.  
 
In fact, the use of Reserve Bank’s name in the disclaimer appears to suggest that the caveat at least has the regulator’s okay. This is like Ponzi operators showing registration certificates from Ministry of Corporate Affairs (MCA) to claim that they have government approval for their schemes. Faircent says it helps in eliminating the high margins, which intermediaries make on our transactions. At Faircent.com, people who have spare money lend it directly to people who want to borrow, the P2P platform says.
 
When asked, an official replied that the Bombay Stock Exchanges (BSE) "will take appropriate legal action" for the disparaging reference its benchmark Sensex and equity investment in general by Faircent.
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    COMMENTS

    Manoj

    2 years ago

    Article makes no sense. If you want to be protected against your own carelessness by a regulator, I hope you learn better.

    SAT charges IRDAI member, PJ Joseph, with “aiding and abetting corruption”
    Correction: SAT order has wrongly stated name of IRDAI's non-life member as PJ Mathew instead of PJ Joseph. Upon checking with IRDAI, we have made necessary rectification in the copy.
     
    In a hard-hitting order today, the Securities and Appellate Tribunal today charged PJ Joseph, Member (Non-life) of Insurance Regulatory & Development Authority of India (IRDAI) on 9 January 2018 "gross abuse of the process of law and dereliction of duty.”
     
    Not only that, the SAT order has gone on to accuse PJ Joseph of aiding and abetting corruption. {subscription_div} The order related to a case filed by a UK-based broker Atkins Special Risks Ltd focused on special risk insurance and re-insurance with core competency in marine and energy insurance. Atkins had gone to court against Jagson International’s promoter, Jagdish Gupta, for demanding kickbacks which is illegal. The facts of the case are as follows:
     
    Between 2002 and 2012 Atkins has provided international reinsurance cover to Jagson International Ltd. on yearly brokerage / commission of 27.5% of the premium that was paid for the cover. From 2010 onwards Jagdish Gupta, Chairman of Jagson started demanding via email written to the Atkins, a cut from commission earned by the appellant which Atkins declined. 
     
    In 2012, Jagson dropped diverted the re-insurance business from Atkins to Marsh India Insurance Brokers Pvt Ltd. Suspecting Marsh has bribed Jagson to get the business, Atkins did a detailed investigation by a globally reputed investigating firm. Reports submitted by that firm confirmed that kickbacks were given to Jagdish Gupta by Marsh for diverting the reinsurance business from the appellant to Marsh.
     
    Atkins filed a complaint on 11 August 2015 before IRDAI. In that complaint specific dates on which Jagdish Gupta, Chairman of Jagson had sent his emails demanding kickbacks were set out. It was also alleged that during the telephonic conversation, Gupta has told Atkins that Marsh had agreed to pay him US$4,00,000 in order to obtain Jagson’s business.
     
    The complaint argued that in view of evidence gathered as also the third party evidence regarding kickbacks, it is apparent that Section 41(1) of the Indian Insurance Act, 1938 and Regulation 37(1) of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2013 have been violated. But IRDAI took no action.
     
    Atkins then filed a writ petition in the Telangana and Andhra Pradesh High Court which was disposed of on 19 September 2017 by directing IRDAI to consider the complaint filed by the appellant in accordance with law.
     
    Thereafter, PJ Joseph, Member (non-life) heard the appellant on 16 November 2017 and passed an order on 9 January 2018, disposing of the complaint by simply stating that the Atkins has not submitted any documentary proof, material information or evidence in support of its contention. 
     
    SAT points out that a “perusal of the complaint filed by the appellant clearly shows that the appellant had relied on documentary evidence in support of the contention that Jagdish Gupta, Chairman of Jagson had sought bribe and was bribed by the officers of Marsh for diverting the reinsurance business from the appellant to Marsh. In such a case, to hold that the appellant has not submitted any documentary proof would be totally false. We fail to understand as to how Member (non-life) could make such false statement in the impugned order."
     
    “In our opinion, the impugned order passed by PJ Joseph (non-life) virtually amounts to aiding and abetting corruption in the insurance business by the regulator, which cannot be tolerated,” said SAT.
     
    SAT set aside the IRDAI order and directed IRDAI to entrust the matter to a competent officer other than PJ Joseph, for passing a fresh order. SAT has also directed the registry is to send a copy of this order to the Finance Minister for information. 
     
    This is the second time a member of a regulatory authority has been pulled up by SAT. On 15 July 2016, SAT observed the shoddy manner in which its directions were dealt by a Whole Time Member and directed SEBI to assign the matter to some one else. SAT also imposed a hefty penalty Rs1 lakh on the Member (without naming him, though it was obvious that it was Rajeev Agarwal) and further directed the registry to forward a copy of this order to the Finance Minister and also to the Chairman of SEBI. 
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    COMMENTS

    Dr. Michael Varghese

    2 years ago

    We are urgently in need of kidney donors for the sum of $450,000 USD,
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    Aditya Govindaraj

    2 years ago

    Madness! Let's wait for the skeletons to stumble out of the closet....SEBI....RBI...

    Rajesh Kumar Agrawal

    2 years ago

    Without going into the merits of this case IRDA & SEBI both are playing just hunky dory for themselves !! SEBI is messiah and it has been overlooking the interest of retail shareholders and simply turning a Nelson eye !!!

    Binu Varkey

    2 years ago

    IRDA is always supporting all sort of activities. It has no control over private players. Private Players are doing lot of illegal activities and IRDA is silent on the same inspite of lot of evidences. It is also supporting Insurance Companies like Cholamandalam, Reliance, Royal Sundaram, ICICI Lombard, Baja Allianz Etc which are not engaging any surveyor for loss assessment above in-house limits. By doing so IRDA is supporting the evasion of tax that a surveyor will pay to the government. What is IRDA doing to contain violation of in-house limits by Private Sector Insurers.

    MUKESH CHOPRA

    2 years ago

    Marsh is paying bribes to the CMD and GM's of Triveni engineering and industries Ltd, a sugar industry giant in UP and other states. in fact Marsh purchase businesses by paying Kick backs to senior management.

    How easily foreign directors can become untraceable after the loot
    The ease with which a "foreigner" of any sort has to be seen to be believed. An alien, person of Indian origin, citizen of another country, person who acquires citizenship of another country or pure and simple, a shadowy entity with a document professing to entitle the person to travel anyone can become a director or shareholder in an Indian corporate structure or even form one.
     
    Certainly, for the very law abiding, there are reams and reams of paperwork and affidavits and notarised and attested documents. Multiple sets for the Ministry of Corporate Affairs (MCA) and Ministry of Finance (FinMin) and their multiple agencies and authorities. Even opening a simple savings bank account or applying for a new phone connection or getting a badge for working as a taxi driver involves much wider and more stringent background checks as well as documentation.
    But for a "foreigner" to become a director of a company or any other commercial enterprise in India, including taking a lot of money away as "loans", a passport along with a slim file of "notarised" documents is more than enough.
     
    Going back not too far in history, I was once on a ship, which was diverted to a seaport in a country not too far away from India, famous also for a large number of Indians already living and working there. As we were lined up for free pratique (permission granted to a ship to have dealings with a port, given after quarantine or on showing a clean bill of health), an announcement was made that people from such-and-such countries would not be permitted to leave the ship, and that if they tried to do so, they would be prosecuted with the full force of the law and the man holding the gun made it very clear, too. That left only the European Master, who in solidarity also opted not to go ashore.
     
    Getting stuck on a ship when the bright lights of the city can be seen is the worst form of torture ever invented. As the co-ordinating officer, becoming friendly with the senior immigration person who would board twice a day to do a head-count, I asked him if he could please bend the rules; I so very much wanted to go ashore. So eventually after a few days he said, OK, you and two more people will come ashore with me in my car, you will go to the city with my men as your escorts, do all the shopping for everybody that you need to do, and then you will return to the ship with me again.
     
    We jumped at the offer, and three of us (Indian, Pakistani and Filipino) picked up the combined shopping lists for pretty much everybody on board, and the old man released our passports and continuous discharge certificates (CDCs) to us so that we could leave them as deposits if asked. In the car, the immigration officer spotted our passports and CDCs in our hands, and said that we need to keep them carefully with ourselves and ensure we do not lose them. Don't you want to keep them as some sort of security, I asked, and he said, wait, let me show you something in my office.
     
    When we reached his office, he took us to a locked room, opened it, and there inside, 10' x 20' at least and wall-to-wall high stacked with steel trunks, were thousands of passports and photocopies and more documents of people, who had left documents as security and jumped. 
     
    Point being made here is that in this day and age as in the past, a fake passport is still an easy document, and does not really prove anything beyond being able to enter or leave a country.
     
    If you analyse the scams that have taken place over the last few decades in India, then a common thread across most of them is that foreign directors are simply assumed to be untraceable if things go wrong, and all efforts are then directed at those who are Indians in India. This has to change and very soon. A few methods suggested, as practiced in other countries, are as follows -
     
    a) Physical entry and exit into and from India at least once every financial or calendar year otherwise debarred.
    b) Second round of re-verifications from the diplomatic mission of the passport holder's country every year.
    c) Background documentation down to school and birth records where the stakes are high.
    d) A list of acceptable, moderate and unacceptable countries basis extradition treaties in force with the countries involved.
    e) Two referees as guarantors in India with assets in line with the exposures therein.
    f) Some amount of liability on the consultants drawing up the documentation for the foreigners.
    g) Tax filing status in home country along with social security and other domestic documentation.
     
    Otherwise, we are simply destined to repeatedly have "foreigners" loot and scam us and then vanish.
     
    (Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades.)
     
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