The Banning of Unregulated Deposit Schemes Bill, 2019 seeks to tackle the menace of illicit deposit-taking, being done by exploiting regulatory gaps.

Bill to ban Ponzi schemes protect depositors passed by Lok Sabha
Money Ponzi Schemes Thursday, July 25, 2019 - 10:11
Written by  IANS

A Bill to protect depositors from Ponzi schemes and put in place a mechanism by which the investors can be compensated was passed by the Lok Sabha on Wednesday by voice vote.

The Banning of Unregulated Deposit Schemes Bill, 2019, which would replace the ordinance on the same, seeks to tackle the menace of illicit deposit-taking, being done by exploiting regulatory gaps and due to lack of strict administrative measures.

The Bill also provides for 1-10 years punishment and Rs 2 lakh to Rs 50 crore fines to deter any such act. 

Moving the Bill in the LoK Sabha for passage, Minister of State for Finance Anurag Thakur said it provided for a comprehensive mechanism to ban unregulated deposit schemes, other than deposits taken in the ordinary course of business, and to protect the depositors' interest.

He said the legislation had adequate provisions for punishment and disgorgement or repayment of deposits in cases where such schemes nonetheless managed to raise deposits illegally.

Replying to questions from Adhir Ranjan Chowdhury (Congress), Supriya Sule (NCP) and Kalyan Banerjee (TMC) on return of depositors' money, Thakur said the money would be be returned after completion of probe by investigating authorities.

The statement of Objects and Reasons of the Bill seeks to put in place a mechanism by which depositors can be repaid without delay by attaching the defaulting establishments' assets.

Its provisions will not apply to deposits taken in the ordinary course of business to ensure that various entities are able to take deposits in their ordinary course of business without any difficulty.

The Bill ensures that no hardship is caused to genuine businesses, or to individuals borrowing money from their relatives or friends for personal reasons or to tide over a crisis.

It contains a clause, which bans deposit-takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme. 

The Bill was reintroduced on July 19. It was earlier passed in the 16th Lok Sabha in February, but could not be considered and passed by the Rajya Sabha, which was adjourned sine die on the same day.

The Bill also proposes to create three different types of offences -- running of unregulated deposit schemes, fraudulent default in regulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes.

The proposed law also provides for attachment of properties or assets and subsequent realisation of assets for repayment to depositors. Clear-cut timelines have been provided for attachment of property and restitution to depositors.

It will enable creation of an online central database for collection and sharing of information on deposit-taking activities. Being a comprehensive central law, it adopts best practices from state laws, while entrusting the primary responsibility of implementing its provisions on state governments.

The Bill also aims to prevent such unregulated deposit schemes or arrangements at their inception.

As per information provided by the Reserve Bank of India (RBI), during the period between July 2014 and May 2018, 978 cases of unauthorised schemes were discussed at the state-level coordination committee meetings in various states/Union Territories, and were forwarded to the respective regulators/law enforcement agencies in the states.

A large number of such instances have been reported from the eastern part of the country.

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