The Indian Parliament has recently voted in favor of the Banning of Unregulated Deposit Schemes Bill, 2019. The goal of this bill is to establish a system that protects vulnerable depositors and assures the reimbursement of their hard-earned money.
Defining Deposits and Unregulated Schemes
The new bill precisely defines a deposit as any sum of money received in the form of an advance, a loan, or through any other means. The returned amount is usually associated with an interest. However, the legislation also specifically excludes certain transactions from falling under the deposit category. For example, loans obtained from relatives or capital contributions made by partners within a firm are not considered deposits.
The Banning of Unregulated Deposit Schemes Bill, 2019 also outlines a clarified definition of unregulated deposit schemes, revealing that such schemes are considered unregulated if they are business-related and are unregistered with financial regulation authorities.
Designated Courts and Central Database
One of the significant steps proposed by the bill is the formation of Designated Courts. These courts will have judges of at least district and sessions level or additional district and sessions level. This specialized judiciary scheme will be set up in specified areas, as defined by the bill.
Further, the bill mandates the central government to allocate an authority for developing an online central database dedicated to storing information on deposit takers. It will be compulsory for all deposit-taking parties to share details about their businesses with this central database.
Appointment of Competent Authority
The bill also prescribes the appointment of a Competent Authority, which will be handled by one or more government officials with a minimum rank of Secretary to the state or central government. This appointed authority will bear powers akin to those conferred on a civil court. The Competent Authority has the permission to temporarily attach properties of suspected unregulated deposit takers, summon and examine witnesses, and call for the production of evidence.
Penalties for Offences Related to Unregulated Deposit Schemes
The bill details penalties and offences associated with unregulated deposit schemes. It lists three types of offences: running unregulated deposit schemes, fraudulent defaulting on regulated deposit schemes, and manipulating depositors into investing in unregulated schemes by knowingly distorting facts.
| Offence | Penalty |
|---|---|
| Running unregulated deposit schemes | Imprisonment between two and seven years and a fine from Rs 3 lakh to Rs 10 lakh |
| Fraudulent defaulting on regulated deposit schemes | Imprisonment between three and 10 years and a fine from Rs 5 lakh to twice the amount collected from depositors |
| Manipulating depositors into unregulated schemes | Imprisonment between five to 10 years and a fine from Rs 10 lakh to Rs 5 crore |
The Impact of the Ban on Unregulated Deposit Schemes
The Banning of Unregulated Deposit Schemes Bill, 2019 promises to put a check on illegal deposit-taking activities, such as Ponzi Schemes or Chit Funds. These activities exploit existing regulatory loopholes and lax administrative measures to trick people into parting with their savings. Therefore, this bill is a potentially impactful step towards safeguarding the interests of depositors across the country.
Source: Business Today