Illustration by Uday Deb

NEW DELHI: The government on Wednesday moved a bill to crack down on unregulated deposits by barring unregistered entities and individuals from accepting funds and proposed a jail term of up to 10 years for soliciting and accepting such deposits.

The move to register may impact several individuals and groups, including what are known as 'committees' in the capital or even kitties, in case a complaint is filed. Typically, members of these informal groups deposit funds and can borrow at high rates and share the annual profits as return. As reported first by TOI on February 22, the move will also impact real estate companies, which often promise interest-bearing schemes as well as jewellers, which run schemes where the returns come in the form of a free 12th instalment.

While these are not explicitly provided in the bill introduced in Lok Sabha on Wednesday, the legislation has proposed that some of the funds collected by companies during normal course of business will be deemed to be deposits if they are not repaid within a fortnight from the date they are due for refund.

The proposed law comes in the wake of several instances of ponzi schemes coming to light, including some high-profile ones such as Sarada and Rose Valley. Several of them thrive due to lack of regulatory clarity which the legislation seeks to plug.

The bill has provided that all unregulated entities will need to register with the designated authority once the law is in force. Failure to do so and soliciting deposits can result in a jail term of up to five years, while those accepting deposits can spend up to seven years in prison. Repeat offenders can be sent behind bars for up to 10 years. Penalty of up to Rs 50 crore has also been proposed.

Further, the government has proposed that the offences be made cognizable and non-bailable. Also, an officer-in-charge of a police station or his superior will be assigned powers to search and seize without a warrant. “The bill seeks to put in place a mechanism by which depositors can be repaid without delay by attaching the assets of the defaulting establishments,” said the statement of objects and reasons of the bill.

Further, the government has proposed that depositors in these schemes be given priority in refunds with a database of deposit takers also proposed to be created.

