Centre to introduce comprehensive legislation to tackle Ponzi schemes

Shishir Sinha New Delhi | Updated on January 24, 2018

Never again? A file photo of dejected investors of the Saradha Group. The Centre is giving more teeth to existing laws to prevent such scams

Bill likely to be tabled in next Budget session

To curb the menace of ponzi schemes and prevent Saradha-like scams from occurring, the government plans to bring in a comprehensive legislation. At present, such fraudulent activities are dealt with under the SEBI law and State-level laws.

“Work is on to prepare a draft of the new legislation,” a senior Finance Ministry official told BusinessLine. Efforts are on to table the Bill by the next Budget Session of Parliament.

The proposed legislation appears to be an upgraded version of the earlier effort of amending the Prize Chits and Circulation Schemes (Banning) Act 1978. The aim is to create a national initiative to curb various types of ponzi schemes including fraudulent multi-level marketing schemes.

At the same time the government wants to impose bigger jail terms and higher penalties on fraudsters as a deterrent.

Longer list

Under the proposed arrangement, the list is being expanded to include more fraudulent investment activities. It is expected that the new Bill will prescribe imprisonment up to 10 years, besides twice the amount of the funds collected under the fraudulent schemes as penalty. In addition, the proposed legislation is expected to clear the air on multi-level marketing schemes for goods and services used in illegal money circulation.

At present, there is a three-layered arrangement to deal with ponzi schemes.

First, 23 States have enacted a Depositor Protection Act. This Act empowers District Magistrate to act upon complaints against any entity. The officer can enter any premises to inspect, attach property (personal and occupied through illegal gains), arrest the accused besides disgorging illegal wealth.

Disgorgement allows an authority to distribute illegally accumulated money among affected people.

Secondly, there is State-level co-ordination for exchange of information on fraudulent fund-raising. Many States have already started doing this. Under this arrangement, there is a Committee headed by the Chief Secretary of the State concerned with officers from SEBI, RBI, and other regulatory authorities and investigating agencies as members.

And thirdly, an amendment in the SEBI Act makes it mandatory to register money pooling schemes that collect ₹100 crore or more. However, if the money collecting agency is already registered with any regulatory agency, it will not have to register again with SEBI.

Published on July 23, 2015

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