india

Updated: Jul 11, 2019 08:52 IST

In a bid to curb ponzi schemes which dupe millions of their hard-earned earnings, the Union cabinet on Wednesday approved the Banning of Unregulated Deposit Schemes Bill, 2019.

The proposed legislation will replace the Banning of Unregulated Deposit Schemes Ordinance, 2019 promulgated on February 21.

The law is aimed at tackling the menace of illicit deposit taking activities in the country that exploit regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings, Information and Broadcasting minister Prakash Javadekar said.

The Banning of Unregulated Deposit Scheme Bill, 2018 was considered by the Lok Sabha in its sitting held on February 13, and after discussion, the same was passed. However, before the same could be considered and passed in the Rajya Sabha, the Upper House was adjourned sine die on the same day.

Javadekar said that one of the suggestions during the deliberations on the law was that money collected from relatives or friends should not be considered an unregulated deposit.

He said that appropriate changes were made to ensure that such legitimate businesses were exempt while those who cheat millions are not allowed to operate.

According to the information provided by Finance Ministry last year to a Parliamentary panel that deliberated on the proposed legislation: In the past four years, 146 cases of this nature had been investigated by the Central Bureau of Investigation (CBI); 56 by Enforcement Directorate (ED); 32 cases involving 223 companies by the Ministry of Corporate Affairs and Serious Fraud Investigation Office (SIFO) 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 three years, the ministry had told the panel last year.

“Passing this bill was necessary to make sure that the ban on unregulated deposits sees the light of day, in the form of a legislation, since the ordinance was bound to lapse. As with everything else, the key to this initiative will also lie in effective enforcement,” said Shruti Rajan, partner, Cyril Amarchand Mangaldas.

The previous version of the proposed legislation, Banning of Unregulated Deposit Schemes Bill, 2018, was introduced in the Lok Sabha in July last year. It was subsequently referred to the parliamentary committee for vetting.

Legitimate deposits, according to the bill, are regulated by watchdogs such as the Securities & Exchange Board of India (Sebi), the Reserve Bank of India (RBI), the Insurance Regulatory Development Authority of India (IRDA), the National Housing Bank, the Pension Fund Regulatory Development Authority, the Employee Provident Fund Organisation, the Ministry of Corporate Affairs and schemes of state governments.

The committee said this definition was ambiguous and prone to harassment and misuse.

“There are also financing arrangements and channels of financing, involving entities in the informal sector including start-ups and small entrepreneurs, which may by ‘default’ fall under the ambit of ‘unregulated scheme’ due to absence in the Bill of a coherent, clear-cut definition of ‘unregulated’,” the committee said in its report.