The Centre has proposed a new law that seeks to introduce stringent punishments for those raising funds by way of unregulated deposits.
The new legislation Banning of Unregulated Deposit Schemes Bill, 2018 was approved by the Union Cabinet earlier this week for introduction in Parliament .
An official statement noted that the bill hopes to tackle the “menace” of “illicit deposit taking activities”.
Regulatory Gaps Being Exploited
The official note stated that companies and institutions are able to operate such schemes by taking advantage of a few regulatory loopholes and also due to a lack of “strict administrative measures” leading to “poor and gullible people” being duped of their “hard-earned savings.”
The government’s statement further noted that typically the victims are the poor and also those financially illiterate and that such schemes were being run across multiple states. The new bill will seek to prohibit all such unregulated deposit collection schemes and also introduces “deterrent punishment”, it stated.
Under the new rules, competent authorities would be created by state governments who will ensure that deposits are repaid in case of a default by “a deposit taking establishment”.
New Law Makes The Crime ‘Ex-Ante’
The official statement highlighted that the Bill has been developed on the principle of banning unregulated deposit collection activities by making it an “offence ex-ante”, instead of the current framework that is based on legislation and regulatory oversight, which comes into force ex-post with “considerable” time lags.
Three types of offences have been mentioned in the bill
- Operating “unregulated” deposit schemes,
- fraudulently default in deposit schemes that are regulated, and
- “wrongful” inducement done in regards to deposit schemes that are unregulated.
The bill has introduced strict penalties and hefty monetary fines to act as deterrent.
The statement pointed out that there were also provisions included for the repayment of deposits raised in an illegal manner. Clear-cut timelines have been stipulated for the necessary attachment of property as well as for restitution to depositors.
An online centralized database has been proposed that would collect and share information on deposit taking activities nationwide.
As a “comprehensive Union law”, the statement stated that it has followed best practices from State laws, but has entrusted the “primary responsibility” of the law’s implementation to the state governments.
Law Based On Earlier Budge Proposal
In his Budget Speech 2016-17 Finance Minister Arun Jaitley had announced that a new law would be introduced to handle the problem of illicit deposit taking schemes given the recent increase in people being defrauded across the country by such illegal schemes.
Subsequently, in the Budget Speech 2017-18 the finance minister announced that a draft bill seeking to curb the menace of illicit deposit schemes had been submitted in the public domain and would be introduced in Parliament post finalisation.
