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Parliament passes bill to curb ponzi schemes, protect poor


Press Trust of India New Delhi
Parliament on Monday passed a bill which seeks to put in place a mechanism to protect gullible investors from being duped by ponzi schemes and ensure that they get back their hard earned money.
The Banning of Unregulated Deposit Schemes Bill, 2019 was passed by a voice vote in Rajya Sabha after members, cutting across party lines, supported the legislation that had received Lok Sabha's nod on July 24.
Replying to a debate on the bill, which will replace an ordinance, Minister of State for Finance Anurag Singh Thakur appealed to all members to "bless" the legislation for protecting the interests of the poor and the innocent whose hard earned money is usurped through ponzi schemes.
Elaborating on the provisions of the Bill, he said any deposit taker who solicits deposit in contravention of Section 3 shall be punishable with imprisonment of not less than one year and up to five years.
Thakur said these provisions will empower all state governments to protect money of the poor.
He said a central database of deposit taker companies will be established for the first time to ascertain the ones who are regulated and non-regulated.
Under Section 7, sub-section 3, the Competent Authority has the power to provisionally attach the deposit held by the deposit taker including the property acquired by the deposit taker in his or her name or in the name of any other person, Thakur said, adding this was only provisional attachment.
Moreover, he said, Under Section 14 (1), the Competent Authority shall move to the designated court in the same state for making provisional attachment as absolute.
Besides, Under Section 15 (6), designated courts shall complete the proceedings within 180 days from the date of receipt of application from the competent authority, he said.
However, responding to a point raised by Amar Singh (Independent member), Thakur said it was "unfortunate" that big names, including of politicians, get associated with such schemes, and innocent people fall prey to them.
Thakur said the provisions clearly define that "no person by whatever name called shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts to induce another person to invest in or become a member or participant of any unregulated deposit schemes".
Singh had claimed that many sports and cinema celebrities were endorsing such schemes in various states by charging a high fee.
The Minister said the government had constituted an inter-ministerial group to identify gaps in the existing regulatory framework in deposit taking activities and to suggest administrative and legislative measures including formulation of a new law to cover all aspects of unregulated deposit schemes.
The bill is part of the government's effort to bring back money looted by some high and mighty people, he 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 978 cases have been identified so far and of this 326 are in West Bengal.
It seeks to help tackle the menace of illicit deposit taking activities 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, according to the government.
The banning of Unregulated Deposit Scheme Bill, 2018 was considered by Lok Sabha in February and after discussion, the same was passed.
However, before the same could be considered and passed in Rajya Sabha, the House was adjourned sine die on the same day.
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 or 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.
An opposition-sponsored statutory resolution disapproving promulgation of the related ordinance was rejected by the House.
Trinamool Congress member Derek O Brien supported the bill, saying this is the first bill brought for passage in the House after being scrutinised by a parliamentary panel.
"None of 14 bills went through parliamentary scrutiny," he said.
Brien said it is a water-tight bill that aims to curb fraudulent practices in ponzi schemes and chit funds.
T Subbarami Reddy (Cong) said the poor should be protected from unregulated deposit schemes and norms should be made more stringent.
Currently, the Non-Banking Finance Companies (NBFCs) are in a bad shape because of 2-3 unscrupulous companies and the government should take steps to address the problems, he said.
Ramnath Thakur (JD-U), Vishambhar Prasad Nishad (SP) and Prashanta Nanda (BJD) also supported the bill.
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.

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First Published: Jul 29 2019 | 8:20 PM IST

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