The JVG Scam: Role of Regulatory Agencies

Submitted to: Prof. Naveen Shrivastava

Submitted by: Raghav Kumar Roll No. 125

Section B

Regulatory bodies involved

The regulatory agencies involved in the scam were as follows: 1. The Securities and Exchange Board of India (SEBI) 2. Reserve Bank of India (RBI) 3. CBI The role of these agencies was to ensure that the company follow the guidelines set by them. This was to safeguard the interests of the investors.

Issues on the part of SEBI

SEBI was unable to track the following discrepancies on time: 1. Fake certificates issued to investors. 2. JVG Securities accepted public deposits through JVG Leasing Ltd., and illegally credited it to the account of JVG Finance Ltd. 3. JVG Securities facilitated collection of further deposits by JVG Finance Ltd., a company which had already accepted public deposits beyond the permissible limit in spite of the warning from RBI not to accept any further deposits

Issues on the part of RBI

RBI was unable to track the following on time: 1. The company had accepted deposits worth Rs 88.82 crore which was 756.68% of its net owned fund. This was much higher than the permissible limit of 25%. Similarly, JVG Leasing had received deposits worth Rs 19.28 crore which was 147.58% of its net owned fund. 2. JVG Group did not contain any information regarding premature withdrawals, rate of interest to the investors on the receipts issued to them, which was necessary as per RBI provisions. 3. The company had not maintained liquid assets as required by section 45IB of the RBI Act, 1934. As far as following the policies, RBI did not strictly follow them, and had eased things for Sharma by agreeing that he could return the extra money. This, of course was not followed by Sharma.

According to the case, both the SEBI and RBI did not work in accordance with their functions. The actions taken by both the agencies such as the show cause notice by the RBI, and SEBI asking JVG to repay their investors were ineffective, and gave the company a chance to go underground.