Govt proposes bill to curb ponzi schemes, 10-yr jail for duping depositors

The govt prescribes monetary penalty and jail term which could be extended up to 10 years for duping gullible depositors

A bill proposing ban on unregulated deposits and up to 10-year jail term for perpetrators of ponzi schemes was introduced in the Lok Sabha on Wednesday.

The 'Banning of Unregulated Deposit Schemes Bill, 2018, introduced by Minister of State for Finance Pon Radhakrishnan, provides for punishment for fraudulent default in repayment to depositors and attachment of assets of entities engaged in such activities.

"The Bill seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments," said the Statement of Objects and Reasons of the bill.

Non-banking entities are allowed to raise deposits from the public under various laws enacted by the central as well as state governments.

However, the regulatory framework for deposit-taking activities in the country is not seamless as regulators operate in well-defined areas within the financial sector by regulating particular kind of entities or activities.

As there are considerable differences in state laws in protecting interest of depositors, it has become necessary to have a "central legislation to ensure a comprehensive ban on unregulated deposit taking activity and for its effective enforcement", the bill said.

It prescribes monetary penalty and jail term which could be extended up to 10 years for duping gullible depositors. The monetary penalty could be as high as Rs 500 million. 

The government has proposed these stringent provisions in wake of several ponzi schemes where gullible investors, mostly poor people, were defrauded of amounts running into thousands of crores of rupees.

Generally, ponzi schemes are illegal money-pooling activities wherein gullible investors are lured with promises of high returns on investments in a short period.

The bill also proposes setting up of competent authorities by state governments to ensure repayment of deposits in the event of default by a deposit-taking establishment.

Companies or institutions running unregulated schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings.

The bill is aimed at tackling the menace of illicit deposit-taking activities in the country.