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Non-banking entities are allowed to raise deposits from the public under various laws enacted by the central as well as state governments. Photo: Mint
Non-banking entities are allowed to raise deposits from the public under various laws enacted by the central as well as state governments. Photo: Mint

Bill to curb ponzi schemes tabled in Lok Sabha

Bill proposes 10-year jail term, 50 crore penalty for people running ponzi schemes

New Delhi: The government on Wednesday introduced in the Lok Sabha the Banning of Unregulated Deposit Schemes Bill, 2018, which seeks to protect small investors from ponzi schemes and prevent unregulated entities from collecting deposits from individuals.

The bill plugs the loopholes in existing laws and gives powers to the government to stop companies from soliciting such funds. Once the bill is passed by the legislature, people running ponzi schemes could face a jail term of up to 10 years and a penalty of up to Rs50 crore.

“It (the bill) seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments," the explainer to the bill said. In a ponzi scheme, companies or individuals typically seek public funds promising high rates of interest.

The bill was envisaged after the arrest of Saradha Group chairman and managing director Sudipta Sen following defaults in repayments, followed by the Rose Valley scam in 2013. Soon after, the government had constituted an inter-ministerial group to look into such deposit-collecting companies that duped investors.

The central legislation will “ensure a comprehensive ban on unregulated deposit-taking activity and for its effective enforcement", the bill said. It proposes to prevent unauthorised companies from promoting, operating or advertising such schemes or collecting deposits. The government will also have powers to act beforehand without having to wait for the fraud to come to light.

The bill also proposes to set up a competent authority at the state government level with powers to attach properties and recover dues to depositors in case entities do manage to raise funds illegally. A timeline for both attachment of property and recovering the amount has been set.

In his 2017-18 budget speech, Union minister Arun Jaitley had said the government will introduce the bill as part of a ‘Clean India’ agenda.

The bill, introduced by minister of state for finance Pon Radhakrishnan, comes when the government is battling massive banking frauds and looking to bring to task defaulters who have defrauded banks of crores of money. The government is looking to push through the passage of the fugitive economic offenders bill in the ongoing monsoon session of Parliament to ensure that these offenders stand trial in India.

PTI contributed to this story

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