Centre May Freeze Funds, Cancel Registration Of Chinese Loan Apps For Fraud

The ministry of corporate affairs is reportedly considering cancellation of registration and freezing accounts of Chinese loan app operators if probe shows that they have committed fraud.

The investigation wing’s zonal teams within the ministry are concluding their initial reports on searches and raids carried out at the locations of Chinese loan app companies, accused of engaging in fraudulent, extortive, and harassing practices towards borrowers, Moneycontrol reported, citing a government official.

“The search and seizure on Chinese loan apps for Companies Act violations stands completed. The raids were conducted on these loan apps in many cities including Mumbai, Delhi NCR and Kolkata. The zonal teams will soon give a preliminary report, then in 2-3 months the final report will be submitted to the ministry of corporate affairs to take action” the official told Moneycontrol.

The official also added that the corporate affairs ministry might consider taking action against Chinese loan apps, such as freezing their funds and striking off their registrations.

Section 447 of the Companies Act deals with punishment for fraud, under which fines of not less than the amount involved in the fraud and as much as three times the amount involved may be imposed.

The directorate of enforcement is also investigating Chinese loan apps for allegedly laundering money. These apps reportedly disappear after prospective borrowers pay the processing fee. The loan app companies are said to have built a network for siphoning money through fake loan offers. Several people have fallen into the trap of these predatory loan apps.

In a bid to tackle errant loan apps, the ministry of electronics and information technology, equipped with the authority to block apps, has requested the Reserve Bank of India to formulate a more rigorous know your customer (KYC) process for loan companies.

In December last year, the government instructed social media and other digital platforms to refrain from displaying advertisements for fraudulent loan apps. Rajeev Chandrasekhar, minister of state for electronics and information technology, emphasised that these apps, being both deceptive and exploitative to internet users, should not be promoted.

In March last year, the enforcement directorate (ED) lodged a chargesheet against fintech unicorn Razorpay, along with six other entities and five individuals, in connection with a money laundering case related to a Chinese loan app. The chargesheet was presented in a special Prevention of Money Laundering Act (PMLA) court in Bengaluru, and the court acknowledged it.

Owing to the rising menace of illegal digital lending apps, the RBI released the digital lending guidelines in August 2022. 

Back then, finance minister Nirmala Sitharaman also held a meeting on the issue of illegal loan apps and directed the RBI to prepare a white list of legal digital lending apps.

After this, the government informed Parliament that the RBI had provided a catalogue of regulated lending apps to the MeitY. 

MeitY, in turn, would disseminate this list to app stores and related platforms, instructing them to exclusively host the apps mentioned in the list.

The government also imposed a ban on more than 232 online betting and loan apps, including Prosus-backed LazyPay, Kissht, and Ola’s Avail Finance, citing alleged Chinese affiliations. However, the restrictions on several of these apps were subsequently lifted.