Money & Banking

Bill to ban unregulated deposit schemes approved

Our Bureau New Delhi | Updated on July 10, 2019 Published on July 10, 2019

Small businesses taking deposits from friends and relatives spared

Small businesses taking deposits from friends and relatives for purely business purposes will not come under the preview of Banning of Unregulated Deposit Scheme Bill, the government reiterated on Wednesday. However, deposit scheme operated by jewellers will be illegal.

The Cabinet, in its meeting on Wednesday, approved re-introduction of the Bill. The Bill, though passed by Lok Sabha during first term of the Narendra Modi-led government, however, could not be taken further and finally lapsed with the end of 16th Lok Sabha. An Ordinance was promulgated in February which will cease to operate from first week of August. Now, in order to ensure continuity, the government decided to approve the Bill.

Information and Broadcasting Minister Prakash Javadekar told reporters that the new Bill will have all the provision of Ordinance. There will be more clear provision on small businesses taking loan from friends and relatives for genuine business purposes, he said as many members in the previous Lok Sabha pressed the need for that.

Obligation on deposit taker

The Bill has provisions to impose an obligation on the deposit taker, pursuant to a regulated deposit scheme, not to commit any fraudulent default in the repayment or return of the deposit; to provide for deterrent punishment for promoting or operating an unregulated deposit taking scheme and to provide for punishment for fraudulent default in repayment to depositors. Imprisonment could be up to seven years and/or penalty amount could go up to ₹25 crore or three times of illegal profit, which so ever is higher.

It also prescribes designation of a Competent Authority by the State government to ensure repayment of deposits in the event of default by a deposit taking establishment. The Bill, once enacted, empowers the Central government to designate an authority which will create, maintain and operate an online database for information on deposit takers operating in India. It also confers powers and functions upon the Competent Authority, including the power to attach assets of a defaulting establishment.

In the past four years, 146 cases of illegal deposits had been investigated by the Central Bureau of Investigation, 56 by the Enforcement Directorate, 32 cases involving 223 companies by the Ministry of Corporate Affairs and the Serious Fraud Investigation Office and 978 cases were referred to various investigating enforcement agencies by the State Coordination Committees.

SEBI alone has passed 64 orders against unauthorised collective investment schemes in the last three years. Though there is no official estimate of money involved in all these cases, rough estimates put the figure at over ₹4 lakh crore.

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Published on July 10, 2019
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