ICAI Probing CAs For Role In Registering Chinese Loan Apps

The Institute of Chartered Accountants of India (ICAI) is looking into several chartered accountants (CAs) to investigate their role in helping Chinese loan apps that are setting up shop in India and operating in a regulatory grey area.

According to an ET report, some CAs have allegedly signed various documents for these apps such as incorporation documents without proper due diligence.

For the uninitiated, any company looking to get into the lending business needs to be licensed as a non-banking financial company (NBFC) by the Reserve Bank of India (RBI). This process is quite stringent even for Indian entities and the process becomes more difficult for foreign companies.

However, some NBFCs created dummy entities in India for Chinese entities to use for digital lending in India. ICAI is investigating the role of CAs in certifying the documents for these Chinese companies.

Debashis Mitra, the president of ICAI was cited as saying that the ICAI will refer those cases to the disciplinary committee where lapses are found. He added that the institute had been receiving references from the government since January.

Chinese loan apps are not the only domain where the role of the CAs has been called into question. Earlier this year, during an investigation into a local unit of Chinese ecommerce major Alibaba, the Ministry of Corporate Affairs (MCA) alleged that a CA had helped register the entity by fabricating documents.

The government has taken cognisance of the matter and is taking action against these dubious loan apps, according to Union Finance Minister Nirmala Sitharaman.

The Registrar of Companies (RoC), along with the Serious Fraud Investigation Office (SFIO) launched a probe earlier this year into several shell companies acting as a front for Chinese lenders. Along with them, the Enforcement Directorate (ED) also launched a probe earlier this year into these Chinese loan apps.

It is prudent to mention here that these Chinese loan apps had been using a loophole in the regulatory guidelines to operate in India. 

Since RBI’s process for licensing an NBFC is really difficult to get through, these Chinese companies signed a Memorandum of Understanding (MoU) with some of the defunct Indian NBFCs to operate as a lending app in India. 

These lending apps have recently come under fire because of their shady lending practices, high rates of interest and extortionate methods of recovery, which included unethical tactics.

Several arrests have already been made in various cases related to these Chinese loan apps. In April, Delhi Police made five arrests in connection with a fake loan app, while in July, the Bureau of Immigration issued a lookout notice against three Chinese nationals for their role in a fake loan app.

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