In a bid to protect the common man and gullible investors, the Union Cabinet – headed by Prime Minister Narendra Modi – today gave its approval for the introduction of two important bills in Parliament – a) Banning of Unregulated Deposit Schemes Bill, 2018, and (b) Chit Funds (Amendment) Bill, 2018. These two bills are aimed at tackling the menace of illicit deposit taking activities in the country as well as facilitating the orderly growth of the chit funds sector.
It may be noted that Finance Minister Arun Jaitley in his Budget 2016 speech had announced that “a comprehensive Central legislation would be brought in to deal with the menace of illicit deposit taking schemes, as in the recent past, there have been rising instances of people in various parts of the country being defrauded by illicit deposit taking schemes.”
The FM had said that the worst victims of those schemes were either the financially illiterate people or the poor, and such schemes were being run in many states. Subsequently, in his Budget 2017 speech, the FM had said that “the draft bill to curtail the menace of illicit deposit schemes had been placed in the public domain and would be introduced shortly after its finalization.”
Here we are taking a look at the salient features of these two bills.
(a) Banning of Unregulated Deposit Schemes Bill, 2018
# The Bill is aimed at banning deposit takers from operating, promoting, issuing ads or accepting deposits in any deposit scheme which is unregulated.
# The Bill provides for heavy pecuniary fines & severe punishment, which will act as deterrent.
# The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
# The Bill provides for attachment of property and assets by a competent authority, and subsequent realization of assets for repayment to depositors.
# Clear-cut timelines have been provided for attachment of property and restitution to depositors.
# The Bill enables creation of an online central database for collection and sharing of information on deposit taking activities in the country.
(b) Chit Funds (Amendment) Bill, 2018
The Bill is aimed at facilitating orderly growth of the chit funds sector and remove bottlenecks being faced by it. For this, amendments to the Chit Funds Act, 1982 have been proposed, which include:
# Chit business will be required to use the word ‘Fraternity Fund’ to signify its nature as well as to differentiate its working from ‘Prize Chits’ which are banned under a separate legislation.
# The Bill proposes to allow the 2 minimum required subscribers to join through video conferencing duly recorded by the foreman, as physical presence of the subscribers towards the final stages of a Chit may not be forthcoming easily.
# The Bill aims at hiking the ceiling of foreman’s commission from a maximum of 5% to 7%.
# The Bill seeks to allow the foreman a right to lien for the dues from subscribers, so that set-off is allowed by the Chit company for subscribers who have already drawn funds. This will help discourage default by them.
# The Bill aims to amend Sec 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of Rs 100 set in the year 1982.
