Cabinet clears tough law to deter ‘ponzis’

New Delhi: In order to check ponzi schemes, the government on Tuesday proposed a stringent law to punish those who raise funds through unregulated deposits. The Union Cabinet, which met during the day, gave its approval to the introduction of the Banning of Unregulated Deposit Schemes and Chit Funds (Amendments) Bill 2018 in Parliament.

“The bill is aimed at tackling the menace of illicit deposit taking activities in the country. Companies/institutions running such schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings,” an official statement said.

The worst victims of such schemes are the poor and the financially illiterate, and the operations of such schemes are often spread over many states. The comprehensive bill, it said, provides for complete prohibition of unregulated deposit-taking activity and prescribes deterrent punishment.

Under the bill, competent authorities would be set up by state governments to “ensure repayment of deposits in the event of default by a deposit-taking establishment”.

Official sources said the bill will ban unregulated deposit taking activities altogether, by making them an offence ex-ante, rather than the current legislative-regulatory framework which only comes into effect ex-post with a considerable time lag.

The bill proposes to create three types of offences — running of unregulated deposit schemes, fraudulent default in regulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes.

It provides for severe punishment and heavy pecuniary fines to act as a deterrent.

Finance minister Arun Jaitley had in his Budget Speech 2016-17 announced a comprehensive Central legislation would be brought in to deal with the menace of illicit deposit-taking schemes as in the recent past there have been increasing instances of people in various parts of the country being defrauded by illicit deposit-taking schemes.