Chit fund scam killer: This Modi government move will keep poor safe from ponzi schemes

The Union Cabinet chaired by Prime Minister Narendra Modi on February 19 approved the Unregulated Deposit Schemes Ordinance, 2019. The scheme is aimed at protecting gullible investors from Ponzi schemes. The President of India promulgated the ordinance on Thursday. As per provisions of the ordinance, an individual or group of individuals cannot accept any deposit or loan from any person other than relatives. On the other hand, a partnership firm can take deposit or loan only from relatives or partners.

The Ordinance will help put a check on illicit deposit-taking activities like Saradha scam and Rose Valley chit fund scams that duped lakhs of poor of their hard earned savings. The legislation contains a substantive banning clause, which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.

"No deposit taker shall directly or indirectly promote, operate issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an unregulated deposit scheme," the Ordinance says.

The law also 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 Ordinance also provides for severe punishment ranging from 1 year to 10 years and pecuniary fines ranging from Rs 2 lakh to Rs 50 crore to act as a deterrent. It too has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

The law 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 the creation of an online central database for collection and sharing of information on deposit-taking activities in the country.

"The Ordinance will 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, by altogether banning unregulated deposit-taking schemes, and having adequate provisions for punishment and disgorgement / repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally,"  the government has said earlier this week.

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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. The Bill, initially introduced in Parliament on July 18 last year in the Lok Sabha, was referred to the Standing Committee on Finance.