Parliament Passes Bill To Curb Ponzi Schemes in India

The Parliament on Monday unanimously passed The Banning of Unregulated Deposit Schemes Bill, 2019, which seeks to put in place a mechanism by which depositors will get back their money.

The Rajya Sabha passed with voice vote the bill which would save gullible investors from ponzi schemes. The Lok Sabha had passed the bill on July 24, 2019. The Banning of Unregulated Deposit Schemes Bill, 2019, replaced the ordinance on the same.

Replying to a debate on the Bill, Minister of State for Finance Anurag Singh Thakur said the Bill would protect the hard earned money of the poor people.

The government had constituted an inter-ministerial group to address gaps in existing legislation, Thakur said. The recommendations include a new central law to tackle unregulated deposit schemes.

The Bill is part of the government’s effort to bring back money looted by some high and mighty people, Thakur said during a debate on the maiden Bill piloted by him.

The Bill states that the first claim on the recovered money will be of depositors and the proposed legislation also has some exclusion including money collected by real estate firms and from friends and relatives.

The Bill will give power to both central and state governments to frame rules, he said, adding that 978 cases have been identified so far and of this 326 are in West Bengal. The bill seeks to help tackle the menace of ponzi schemes in the country, which at present are exploiting regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard earned money.

The bill seeks to provide a comprehensive mechanism to ban the unregulated deposit schemes, other than deposits taken in the ordinary course of business, and to protect the interest of depositors.

The legislation has adequate provisions for punishment and disgorgement/repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

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 assets of the defaulting establishments.

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

The bill seeks to ensure 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.

The legislation contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.

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 said.

The law 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.

It also provides for severe punishment ranging from 1 year to 10 years and pecuniary fines ranging from Rs 2 lakh to Rs 50 crore to act as deterrent. The bill has also proposed adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

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.

Participating in the debate on the bill, P Wilson (DMK), Narendra Jadav (nominated), V Vijay Reddy (YSRCP), Ramkumar Verma (BJP), K C Ramamurthy (INC), Ahmed Hassan (TMC), A Navaneethkrishnan (AIADMK), Narian Das Gupta (AAP), Ajay Pratap Singh (BJP) and KVP Ramachandra (INC) supported the bill.