Bill to check ponzi schemes re-introduced

Fraudulent default in regulated deposit schemes can result in jail term up to 7 years and/or fine up to ₹25 crore.

This and many other provisions are part of a legislation titled the ‘Banning of Unregulated Deposit Schemes Bill 2019’, re-introduced in the Lok Sabha on Friday.

The Bill makes it clear that no deposit taker “shall, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an unregulated deposit scheme.”

It also says that no deposit taker, while accepting deposits pursuant to a regulated deposit scheme, will commit any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against such deposit.

Illegal deposit

No person by whatever name called shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, to induce another person to invest in, or become a member or participant of any unregulated deposit scheme. A prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 will be illegal deposit.

The Bill also says that its provisions will not apply to deposits taken in the ordinary course of business. In other words, the Bill allows genuine businesses and individuals can borrow money from their relatives or friends to tide over a crisis or for personal reasons.

The Bill provides for deterrent punishment for promoting or operating an unregulated deposit-taking scheme. It also prescribes punishment for fraudulent default in repayment to depositors. Imprisonment could be up to 10 years or/and fine up to ₹10 lakh. Some offences such as operating unregulated deposit will be cognizable and non-bailable. There will be designated court to deal with such matters.

The Bill talks about priority of depositors’ claim. It means “any amount due to depositors from a deposit taker shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Government or the local authority.” The Bill, once enacted, will empower the Central government to designate an authority which shall create, maintain and operate an online database for information on deposit takers operating in India.

Many regulatory framework

Non-banking entities are allowed to raise deposits from the public under the provisions of various statutes enacted by the Centre and States. However, the regulatory framework for deposit taking activity in the country is not seamless. The regulators operate in well defined areas within the financial sector by regulating particular kinds of entities or activities.

For instance, non-banking finance companies are under the regulatory and supervisory jurisdiction of the Reserve Bank of India.

Similarly chit funds, money circulation including multi-level marketing schemes and schemes offered by co-operative societies are under the domain of the respective State Governments.

In the same manner, the Collective Investment Schemes come under the purview of the Securities and Exchange Board of India.

Despite such diverse regulatory framework, schemes and arrangements leading to unauthorised collection of money and deposits fraudulently, by inducing public to invest in uncertain schemes promising high returns or other benefits, still operate in the society. The Bill has been brought to put in a place a uniform mechanism to deal with such menace.

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