LAW ASSIGNMENT

JVG Scandal Case Study

Comment on the role of regulatory agencies in the JVG scam and analyze how far the financial and regulatory system contributed to the scam

Submitted to, Prof. Naveen Shrivastava

Submitted by, Aditi Agrawal PGDM IST Year Roll no. 10DM008

Q.2) Comment on the role of the regulatory agencies involved in the JVG scam and analyse how far the financial and the regulatory services contributed to these scam. RBI field against JVG the two cases: (a) Non-repayment of deposits (in Delhi High Court) (b) Criminal prosecution (in Metropolitan Magistrates Court) The lack of proper monitoring and functioning on the part of two main bodies i.e Security and Exchange Board Of India(SEBI) and Reserve Bank Of India(RBI) lead to this scam and ultimately investors were the main victim. The various reasons due to which these authorities failed were: JVG had crossed the deposit limits.  JVG Securities collected deposits through JVG Leasing Ltd but they were illegally credited it to JVG Finance Ltd  RBI also suspected that the company had accepted deposits worth Rs. 88.82 crore which was 756.68% of its owned fund and crossing the acceptable limits.  The rate of interest was not specified in the depositor s receipt form by JVG.  JVG failed to make the payment to the Orkay and intervention of IDBI.  The premature withdrawal information was not given on the deposits made which is a necessary provision according to RBI.  The bouncing of checks was a good indicator that there was something wrong with JVG and its financial services and violated the Section 137 of Negotiable Instrument Act  There should have been some investigation into the company s accounts and working of some subsidiaries when Sharma refused to payback the depositor s money.  JVG leasing reached 147.58% of its net owned funds  The failure of JVG to submit their audited balance sheets as early as 1994.  The company was not maintaining the standard and mandatory liquid assets as per RBI guidelines..

Analysis: There were many indicators which told that JVG is not functioning ethically and is misusing the depositor s funds. With these filed cases and issues raised by RBI, 31 bank accounts of JVG group were seized and 5 lakh were frozen. Apart from that, lands, vehicles were taken under police possession that belonged to JVG.The regulatory authorities should have done their duty on time in order to save many depositors from being bankrupt. Conclusion: So we can conclude that due to the lack of proper monitoring of SEBI and RBI, there has been a huge misplacement of funds by JVG. Hence trouble for JVG group started when SEBI asked for refund of deposits and RBI plays major role to analyze and grab hold of all illegal activities going on in JVG. The funds of those depositor s could have been saved by appointing some security agency.