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Parliament passes Bill banning Ponzi schemes

Introduction
•Parliament passed the Banning of Unregulated Deposit Schemes Bill
•The Bill seeks to protect depositors from Ponzi schemes and put in place a mechanism by which the investors can be compensated.
•The Bill has many features to protect the interest of the depsoitors. 
 
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.  
•Unregulated deposit scheme: A deposit-taking scheme is defined as unregulated if it is not registered with the regulators listed in the Bill. 
 
Deposit taker
•The Bill defines deposit takers as an individual, a group of individuals, or a company who asks for (solicits), or receives deposits. 
•Banks and entities incorporated under any other law are not included as deposit takers.
 
Competent Authority
•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. 
 
Powers of Police officers
•The 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.  
 
Powers of Competent authority
•The Competent Authority will have powers similar to those vested in a civil court. It can
     (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, and
     (iii) order the production of records and evidence. 
 
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. 
•After provisional attachment of the deposit taker’s assets, the Competent Authority will approach the Designated Court to: (i) make the provisional attachment absolute, and (ii) ask for permission to sell the assets.
•The Competent Authority will have to approach the Court within 30 days (extendable to 60 days). 
•It will also open a bank account to realise and disburse money to depositors under the instructions of the Designated Court.
 
Powers of the Designated Court
•The Court shall have the power to
     (i) make the provisional attachment absolute,
     (ii) vary or cancel the provisional attachment,
     (iii) finalise the list of depositors and their respective dues, and
     (iv) direct the Competent Authority to sell the property and equitably distribute the money realised among the depositors.
•The Court will seek to complete the process within 180 days of being approached by the Competent Authority.
 
Central database
•The Bill provides for the central government to designate an authority to create an online central database for information on deposit takers. 
•All deposit takers will be required to inform the database authority about their business. 
•The Competent Authority will be required to share all information on unregulated deposits with the authority.
 
Offences 
•The Bill defines three types of offences.  These offences are:
     (i) running (advertising, promoting, operating or accepting money for) unregulated deposit schemes,
     (ii) fraudulently defaulting on regulated deposit schemes, and
     (iii) wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts. 
 
Penalties
•Accepting unregulated deposits will be punishable with imprisonment between two and seven years, along with a fine ranging from three to 10 lakh rupees. 
•Defaulting in repayment of unregulated deposits will be punishable with imprisonment between three and 10 years, and a fine ranging from five lakh rupees to twice the amount collected from depositors. 
•Repeated offenders under the Bill will be punishable with imprisonment between five to 10 years, along with a fine ranging from Rs 10 lakh to five crore rupees.
 
Reference:
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