Setback for chit funds, Cabinet approves amendments to Banning of Unregulated Deposit Schemes Bill, 2018

• The government approved proposals to amend the Banning of Unregulated Deposit Schemes Bill, 2018 that seeks to put in place a mechanism by which such depositors can be compensated.

• The modifications, based on recommendations of the Standing Committee on Finance, will further strengthen the bill in its objective to effectively tackle the menace of illicit deposit-taking activities, and prevent such schemes from duping the poor and gullible people of their hard earned savings, Law Minister Ravi Shankar Prasad said.

• The Banning of Unregulated Deposit Schemes Bill, 2018 was introduced in Parliament on July 18, 2018 and was referred to the Standing Committee on Finance.

Key highlights

• The committee submitted its Seventieth Report on the bill to Parliament on January 3, 2019.

• The bill contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.

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

• The CBI has lodged about 166 cases in the last four years related to chit funds and multi-crore scams, with the maximum in West Bengal and Odisha.

• The bill provides for severe punishment and heavy pecuniary fines to act as deterrent.

• It has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

• The bill provides for attachment of properties or assets and subsequent realisation of assets for repayment to depositors. Clear-cut timelines have been provided for attachment of property and restitution to depositors.

• It also enables creation of an online central database for collection and sharing of information on deposit-taking activities in the country.

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Mains Paper 3: Economy

Prelims level: Banning of Unregulated Deposit Schemes Bill, 2018

Mains level: Regulations for funds and mechanisms

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