Banning of Unregulated Deposit Schemes Bill, 2018 | 07 Feb 2019

The union cabinet has approved amendments to the Banning of Unregulated Deposit Schemes Bill, 2018.

• The Banning of Unregulated Deposit Schemes Bill, 2018 provides for a mechanism to ban unregulated deposit schemes and protect the interests of depositors.

Background

• The Finance Minister in the Budget Speech 2016-17 had announced that comprehensive Central legislation would be brought in to deal with the menace of illicit deposit-taking schemes.
• Recently the country has seen rising instances of people being defrauded by illicit deposit-taking schemes. For Example Rose Valley Scam and Sharada chit fund scam in West Bengal.
• The worst victims of these schemes are the poor and financially illiterate, and the operations of such schemes are often spread over many States.

Provisions in the Bill

• Unregulated Deposit Scheme
  • In the bill, Regulated deposits are defined as all deposit-taking schemes which are overseen and regulated by specified regulators like, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Ministry of Corporate Affairs and state and union territory governments.
  • A deposit-taking scheme is defined as ‘unregulated’ if it is not registered with the regulators listed in the Bill.
• The bill completely bans the promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme.
• The Bill defines “Deposit Taker” and “Deposit” comprehensively:
  • Deposit Takers include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation
  • Deposit is defined in such as an amount of money received through an advance, a loan, or in any other form, with a promise to be returned with or without interest. Such deposit may be returned either in cash or as a service, and the time of return may or may not be specified.
• Three different types of offenses:
  • running of Unregulated Deposit Schemes,
  • fraudulent default in Regulated Deposit Schemes,
  • and wrongful inducement in relation to Unregulated Deposit Schemes.
• Severe punishment and heavy fines to act as a deterrent.
• Provision for repayment of deposits in cases where such schemes manage to raise deposits illegally.
• Attachment of properties/assets by the Competent Authority, and selling off assets for repayment to the depositor.
• Clear-cut timelines have been provided for attachment of property and reimbursement to depositors.
• Creation of an online central database, for collection and sharing of information on deposit-taking activities in the country.
• Designation of Courts to oversee repayment of depositors and to try offenses under the bill.