Rajya Sabha passed the Banning of Unregulated Deposit Schemes Bill 2019 02/08/2019 – Posted in: Daily News – Tags:

BANNING OF UNREGULATED DEPOSIT SCHEMES BILL, 2019

 

For: Preliminary & Mains

Topics covered: All about Unregulated Scheme bill 2019

 

News Flash

Rajya Sabha passed The Banning of Unregulated Deposit Schemes Bill, 2019.

  • The Bill provides for a mechanism to ban unregulated deposit schemes and protect the interests of depositors.
  • The bill seeks to amend three laws:
  1. The Reserve Bank of India Act, 1934
  2. The Securities and Exchange Board of India Act, 1992
  3. The Multi-State Co-operative Societies Act, 2002

 

Aim

To protect investors from fraudulent investment schemes, such as Ponzi schemes.

 

Impact

The Bill will help tackle the menace of illicit deposit-taking activities in the country.

 

Definition of Deposit

  • The Bill defines a deposit 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 a deposit may be returned either in cash or as a service. The time of return may or may not be specified.
  • The Bill defines certain amounts which shall not be included in the definition of deposits such as amounts received in the form of loans from relatives and contributions towards capital by partners in any partnership firm.

 

Regulators of deposit-taking scheme

All deposit-taking schemes are required to be registered with the relevant regulator.

Currently, nine regulators oversee and regulate various deposit-taking schemes.

  • The Reserve Bank of India (RBI): regulates deposits accepted by non-banking financial companies
  • The Securities and Exchange Board of India (SEBI):  regulates mutual funds, state, and union territory governments regulate chit funds, among others.
  • State and union territory governments.
  • The Ministry of Corporate Affairs

 

Unregulated deposit scheme

The Bill bans unregulated deposit schemes.

 

Definition of deposit-taking scheme

A deposit-taking scheme is defined as unregulated if it is taken for a business purpose and is not registered with the regulators listed in the Bill.

 

Definition of the Deposit taker

The Bill defines deposit takers as an individual, a group of individuals, or a company who asks for (solicits), or receives deposits.

Banks and entities incorporated under any other law are not included as deposit takers.

 

Competent Authority

The Bill provides for the appointment of one or more government officers, not below the rank of Secretary to the state or central government, as the Competent Authority.

 

Powers of the competent authority

The Competent Authority will have powers similar to those vested in a civil court.

The Competent Authority may:

  • Provisionally attach the property of the deposit taker, as well as all deposits received
  • Summon and examine any person it considers necessary for the purpose of obtaining evidence
  • Order the production of records and evidence.

 

Special courts

  • The Bill provides for the constitution of one or more Designated Courts in specified areas.
  • This Court will be headed by a judge not below the rank of a district and sessions judge, or additional district and sessions judge.

 

Powers of the designated court

The Designated Court will have the power to:

  • Make the provisional attachment absolute
  • Vary or cancel the provisional attachment
  • Finalise the list of depositors and their respective dues
  • Direct the Competent Authority to sell the property and equitably distribute the money realised among the depositors.

 

Online Central database

  • The Bill provides for the central government to designate an authority to create an online central database for information on deposit takers.
  • All deposit takers will be required to inform the database authority about their business.
  • The Competent Authority will be required to share all information on unregulated deposits with the authority.

 

Offences

The Bill defines three types of offences:

  • Running (advertising, promoting, operating or accepting money for) unregulated deposit schemes
  • Fraudulently defaulting on regulated deposit schemes
  • Wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts.

 

Penalities

  • Accepting unregulated deposits will be punishable with imprisonment between two and seven years, along with a fine ranging from three to 10 lakh rupees.
  • Defaulting in repayment of unregulated deposits will be punishable with imprisonment between three and 10 years, and a fine ranging from five lakh rupees to twice the amount collected from depositors.
  • Repeated offenders under the Bill will be punishable with imprisonment between five to 10 years, along with a fine ranging from Rs 10 lakh to five crore rupees.

 

Source: PRS India

 

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