Tax avoidance is not the only reason for some companies to route investment from offshore havens such as Cayman Islands and Mauritius.
As authorities sift through facts coming from investigations into Singapore-based Speak Asia Online Limited (SAOL), a multi-level marketing company, the government is now mulling stricter scrutiny of firms that are not logged in with India’s registrar of companies, yet have an elaborate operations network.
Authorities woke up after critics and investors of SAOL’s consumer survey-based business model smelt in it a “Ponzi scheme” — a model in which new members enrich old ones resulting in a fragile financial pyramid that might suddenly collapse.
An official who did not wish to be identified told HT that Indian authorities can take limited action on such companies in case they engage in questionable business practices as they are not registered in India.
“However, we are looking at steps that can be taken in case these companies default in India,” the official said.
“A concrete plan would be chalked out soon,” the official said.
SAOL, operating out of Mumbai in the country, is being investigated by Mumbai police, Reserve Bank of India and other regulators while the Centre is examining whether a serious fraud probe can be launched into its affairs.The firm commenced operations in India about a year ago.
The official said that it is still unclear as to what action could actually be taken in case the firm is found guilty.
“Though probes are on, very limited action can be taken against the firm as it is not registered in India and this issue needs to be addressed.
The firm has maintained that it was not involved in any illegal activity.
The RBI, while does not regulate deposits by multi-level marketing schemes, is concerned though it has no jurisdiction over multi-level marketing companies.
The mandate of the registrar of companies (RoC) in such investigations is also limited.