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The Banning of Unregulated Deposit Schemes Bill, 2018

  • 07/02/2019

The Bill provides for a mechanism to ban unregulated deposit schemes and protect the interests of depositors.  It also seeks to amend three laws, including the Reserve Bank of India Act, 1934 and the Securities and Exchange Board of India Act, 1992.

The amendments will further strengthen the Bill in its objective to effectively tackle the menace of illicit deposit-taking activities, and prevent such schemes from duping poor and gullible people of their hard-earned savings.

Deposit: The Bill defines a deposit as an amount of money received through an advance, a loan, or in any other form, with a promise to be returned with or without interest.  Such deposit may be returned either in cash or as a service, and the time of return may or may not be specified.  Currently, nine regulators oversee and regulate various deposit-taking schemes.  These include: (i) the Reserve Bank of India (RBI), (ii) the Securities and Exchange Board of India (SEBI), (iii) the Ministry of Corporate Affairs, and (iv) state and union territory governments.  For example, RBI regulates deposits accepted by non-banking financial companies, SEBI regulates mutual funds, state and union territory governments regulate chit funds, among others.  All deposit-taking schemes are required to be registered with the relevant regulator.

The Bill provides for the appointment of one or more government officers, not below the rank of Secretary to the state or central government, as the Competent Authority.  Police officers receiving information about offences committed under the Bill will report it to the Competent Authority.  Further, police officers (not below the rank of an officer-in-charge of a police station) may enter, search and seize any property believed to be connected with an offence under the Bill, with or without a warrant.  

The Competent Authority may:

(i) provisionally attach the property of the deposit taker, as well as all deposits received

(ii) summon and examine any person it considers necessary for the purpose of obtaining evidence

(iii) order the production of records and evidence.  The Competent Authority will have powers similar to those vested in a civil court.

Designated Courts: The Bill provides for the constitution of one or more Designated Courts in specified areas.  This Court will be headed by a judge not below the rank of a district and sessions judge, or additional district and sessions judge.