Capital Markets: Challenges and Developments

Unregulated deposit schemes to be banned


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level:  Particulars of the Bill, Ponzi Schemes,

Mains level: The new bill seeks to protect investors from rising instances of scams


  • The Union Cabinet has approved the official amendments to an Act that classifies any deposit scheme not registered with the government as an offence and bans it.
  • The Banning of Unregulated Deposit Schemes Bill 2018 was introduced in Parliament on July 18, 2018 and was referred to the standing committee.

Banning of Unregulated Deposit Schemes Bill, 2018

  1. The Bill contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.
  2. The amendment bill aims 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.
  3. The principle is that the bill would make the activities an offence ex-ante rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags.
  4. It bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated scheme.

Provisions of the Bill

  1. The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
  2. The Bill provides for attachment of properties/assets by the competent authority, and subsequent realization of assets for repayment to depositors.
  3. The Bill provides for “severe punishment and heavy pecuniary fines” to act as a deterrent.
  4. The penalties could involve jail term as well as the sale of the offenders’ assets to pay back the defrauded party within set timelines.

Definition of Deposit Takers

  • Deposit Takers include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation.

Types of Offences

The Bill creates three different types of offences:

  • Running of unregulated deposit schemes,
  • Fraudulent default in regulated deposit schemes, and
  • Wrongful inducement in relation to unregulated deposit schemes.
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