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Tough law against illegal deposits

By Sanjay Kumar Singh
March 22, 2019 08:56 IST
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'People who have unaccounted money often park it in unregulated deposit schemes.'
'Curbing illegal deposit-raising activity will also carry forward the government's drive against black money.'
Sanjay Kumar Singh reports.

Illustration: Uttam Ghosh/

In the past, scams like Rose Valley and Saradha deprived thousands of investors of their hard-earned money.

To curb the menace of illegal deposit raising, the government introduced the Banning of Unregulated Deposit Schemes Bill in Parliament in July 2018.

The Bill was subsequently referred to the Standing Committee on Finance.

Recently, it was passed by the Lok Sabha, but could not be passed in the Rajya Sabha.

On the Cabinet's request, the President has promulgated the Bill as an ordinance.


Unregulated entities can't raise deposits:

At present, nine regulators monitor various deposit-taking schemes in India.

The Reserve Bank of India, for instance, regulates non-banking financial companies, the Securities and Exchange Board of India oversees mutual funds, state and Union territory governments regulate chit funds, and so on.

According to this ordinance, all deposit-taking schemes will have to be registered with the relevant regulator.

Any deposit-raising scheme, which is not registered with one of the regulators listed therein, will be deemed as unregulated.

"The crux of this ordinance is that no unregulated entity will be allowed to collect deposits," says Shruti Rajan, partner, Cyril Amarchand Mangaldas.

This new law provides for the appointment of a Competent Authority.

If the police receives information about illegal deposit-raising activity, it will report it to the Competent Authority.

The latter will have the power to provisionally attach the property of the deposit taker, and also the deposits received.

Furthermore, this ordinance provides for the setting up of Designated Courts.

After provisionally attaching the deposit taker's assets, the Competent Authority will go to the Designated Court to make the provisional attachment absolute, and to obtain its permission to sell the assets.

The Competent Authority will also return money to depositors under the instructions of the Designated Court.

All these activities will be carried out in a time-bound manner.

Power to act immediately:

Earlier, the concerned authorities had to initiate enquiries, carry out investigations, and go through an elaborate process.

All this allowed time to illegal deposit collectors to siphon away the money they had raised.

Now, the Competent Authority will be able to act against illegal deposit takers the moment it receives information.

It will be able to ask for reasons, get statements of account, and then proceed to pass attachment orders so that no further funds are raised.

Experts believe this ordinance will be instrumental in curbing black money.

"People who have unaccounted money often park it in unregulated deposit schemes. Curbing illegal deposit-raising activity will also carry forward the government's drive against black money," says Abhishek A Rastogi, partner, Khaitan & Co.

The new law also requires the central government to designate an authority that will create an online central database of entities permitted to collect deposits.

"This will make it easier for depositors to check whether the scheme they intend to invest in is a registered one," says Mumbai-based financial planner Arnav Pandya.

"At present, the process of verifying is difficult as only knowledgeable people know where to look for this information."

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Sanjay Kumar Singh
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