Union Cabinet approves Bill to ban unregulated deposit schemes to protect investors

The Union Cabinet headed by the Prime Minister Narendra Modi has given its approval for the introduction of & lsquo Banning of Unregulated Deposit Schemes, 2018' and & lsquo Chit Funds (Amendment) Bill, 2018' in the Parliament. The Banning of Unregulated Deposit Schemes, 2018, aims to tackle 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 people of their hard-earned savings. The Bill will put a complete ban on unregulated deposit activities taking place in the country. The Bill shall cover three offences- the offence of running unregulated deposit schemes, fraudulent default in regulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes. The Bill further provides punishment for individuals involved in promoting or operating unregulated deposit-taking schemes, and a stringent punishment for those that are accused of fraudulent default in repayment to the depositors. The Bill also provides for attachment of properties or assets by the Competent Authority, and subsequent realization of assets for repayment to depositors. In order to ensure time-bound repayment of deposits in the event of default, the Bill provides for the establishment of a state-level authority, that shall keep a check on such acts. The bill proposes to prevent companies which are unauthorized to collect deposits from promoting, operating, issuing advertisements and collecting deposits. It also proposes to make these offences ex-ante. This means that the government won't have to wait till the fraud comes to light but can act beforehand to stop the soliciting of such offences. The Cabinet has also given its approval for amendments to the already existing Chit Funds Act, 1982. The amendment is proposed to facilitate the orderly growth of Chit Funds sector. The amendments include the use of the words & quot Fraternity Fund& quot for chit business under Sections 2(b) and 11(1) of the Chit Funds Act, 1982, to signify its inherent nature, and distinguish its working from & quot Prize Chits& quot which are banned in India under a separate legislation. The amendments include increasing the ceiling of the foreman's commission from a maximum of 5 percent to 7 percent, as the rate has remained the same since the commencement of the Act.The Bill also proposes amending Section 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of one hundred rupees set in 1982 at the time of framing the Chit Funds Act, which has lost its relevance.