Context: Cabinet approves the Banning of Unregulated Deposit Schemes Bill, 2019.

Significance and impact:

• The Bill will immediately tackle the menace of illicit deposit-taking activities in the countrylaunched 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. The Bill bans unregulated deposit taking activities altogether, by making them an offence ex-ante rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags.

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.