Market regulator Sebi has decided to share with the Ministry of Corporate Affairs the names of over 500 companies, which have garnered money from investors in violation of its Collective Investment Scheme (CIS) rules.

Sebi would also give the names of the directors of such entities to the MCA, so that necessary actions can be taken to prevent these companies and persons from being associated with any new company, a senior official said.

The Collective Investment Schemes, where an entity pools in money from investors for certain pre-specified purposes and later distributes the profits or income, come under the ambit of the Securities and Exchange Board of India (Sebi).

There are estimated to be more than 500 entities in the country that have undertaken CIS activities without complying with the Sebi regulations and the regulator has initiated necessary action against many of them in the past.

Many of these entities and their operators and directors tend to restart similar business under a new name and numerous investors are taken for a ride before they come under the Sebi scanner, the official noted.

Sebi has now decided to request the MCA to circulate the names of defaulter CIS entities and their directors among all the ROCs (Registrars of Companies) in the country to prevent them from being associated with any new company, he added.

Sebi is also of the view that a complete overhaul of the current CIS regulations was needed, as loopholes in the existing rules allow for the gullible investors being taken for a ride, the official said.

The capital market regulator will take up the issue of these regulatory gaps at the meeting of Financial Stability and Development Council (FSDC), which is chaired by Finance Minister and includes top financial sector regulators such as RBI Governor and Sebi Chairman.

While hundreds of the companies have engaged in the CIS activities in the country, just one such entity is registered with Sebi to undertake such kind of business.

Generally, the operators of such schemes offer impressive returns in their initial days to lure unsuspecting investors and then suddenly disappear after some time, leaving their investors in a lurch.

Some of the most common CISs are related to investments for real estate properties, plantation and agriculture industry, art funds, time-sharing schemes and multi-level marketing (MLM) schemes, among others.

As per Sebi data, more than one lakh investor complaints are currently pending with it in connection with such schemes, and the matter is sub-judice since long in most of the cases.