The Union Cabinet Tuesday approved promulgating an ordinance with regard to the Banning of Unregulated Deposit Schemes Bill to protect gullible investors from Ponzi schemes.
The Banning of Unregulated Deposit Schemes Bill, 2018 was introduced in Parliament on July 18, 2018 and was referred to the Standing Committee on Finance. The committee submitted its Seventieth Report on the bill to Parliament on January 3, 2019.
The lower House, or the Lok Sabha, had passed the Bill on the last day of the budget session by a voice-vote, but could not get the approval of the Rajya Sabha.
The Bill creates three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.
Here are the salient features of the Bill
- The Bill contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags;
- The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.
- The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
- The Bill provides for attachment of properties / assets by the Competent Authority, and subsequent realization of assets for repayment to depositors;
- Clear-cut time lines have been provided for attachment of property and restitution to depositors;
- The Bill enables creation of an online central database, for collection and sharing of information on deposit-taking activities in the country;
- The Bill defines “Deposit Taker” and “Deposit” comprehensively;
- “Deposit Takers” include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation;
- “Deposit” is defined in such a manner that deposit-takers are restricted from camouflaging public deposits as receipts, and at the same time, not to curb or hinder acceptance of money by an establishment in the ordinary course of its business; and
- Being a comprehensive Union Law, the Bill adopts best practices from State laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the State Governments.