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Banning of Unregulated Deposit Schemes Ordinance, 2019

Topics Covered:

  1. Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
  2. Transparency & accountability and institutional and other measures.

 

Banning of Unregulated Deposit Schemes Ordinance, 2019

 

What to study?

  • For Prelims: Key features and significance of the Bill.
  • For Mains: Need for a legislation on this, recent issues and concerns associated with such schemes.

 

Context: The Union Cabinet has approved promulgating an ordinance with regard to the Banning of Unregulated Deposit Schemes Bill, to protect gullible investors from Ponzi schemes.

 

Background:

The lower House, or the Lok Sabha, had passed the Bill on the last day of the budget session by a voice-vote, but could not get the approval of the Rajya Sabha.

 

Significance and impact:

  • The proposed Ordinance will immediately tackle the menace of illicit deposit-taking activities in the country launched by rapacious operators, which at present are exploiting regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings, an official statement said.
  • It will altogether ban unregulated deposit taking schemes, and the law has adequate provisions for punishment and disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

 

Key provisions of the Bill:

Substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme.

Creation of three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.

Severe punishment and heavy pecuniary fines to act as deterrent.

Provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

Attachment of properties / assets by the Competent Authority, and subsequent realization of assets for repayment to depositors.

Clear-cut time lines have been provided for attachment of property and restitution to depositors.

Creation of an online central database, for collection and sharing of information on deposit-taking activities in the country.

 

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 a manner that deposit-takers are restricted from camouflaging public deposits as receipts, and at the same time, not to curb or hinder acceptance of money by an establishment in the ordinary course of its business.

 

Why do we need a comprehensive law on this?

To deal with the menace of illicit deposit taking schemes, as in the recent past, there have been rising instances of people in various parts of the country being defrauded by illicit deposit taking schemes.

The worst victims of these schemes are the poor and the financially illiterate, and the operations of such schemes are often spread over many States.

 

Mains Question: What are Ponzi schemes? Examine why they are considered as such a big menace? Discuss the provisions of Banning of Unregulated Deposit Schemes Bill, 2018?