There is no dearth for scams in our country. Most of the scams like Sarada, Rose valley, Sahara which had looted the pockets of the common man of the country had happened not only due to the lack of awareness among the public but due to the gaps in existing legislations to proactively prevent such scams also. The chills and nightmares given by the goat farming schemes, solar, total4u, LIS etc are still exasperating in the memory lines of many Keralites. The lucrative and irresistible offers often drag the ignorant investors to fraudulent schemes and ultimately put them into financial distress. At present there are more than nine regulators in India such as SEBI, IRDA, RBI, MCA, etc to regulate acceptance of deposits. Unfortunately, there are many loopholes and grey areas in the existing legislations which are paving way for the unscrupulous persons to eye on others wealth and swag it with ease. The major drawback of the present legislations and its regulators are that they are regulating only specific sectors under their ambit and there is no single piece of legislation which is covering the society as a whole.
Though the Central Government had taken various initiatives to clean up the corporate sector by identifying the shell companies, deactivating the inactive directors and companies, regulated the deposit schemes etc in organized sectors, the door was still open to the unorganized sectors for conversion of black money, money laundering, acceptance of deposits through Ponzi schemes etc. Though the RBI Act is clearly putting a blanket ban on acceptance of deposits by individuals and unorganized entities the machinery of that regulator is not adequate enough to trace out and punish the culprits. The acceptance of deposits under illegal deposits schemes are a known way to hide the black money. As a major chuck of money being accepted under unorganized deposit schemes are unaccounted money the real depth of the scams often not get revealed before the authorities.
The frequent occurrences of shams such ponzi schemes, multi-level marketing schemes, high income guaranteed schemes etc are being offered by fraudsters to naive investors had compelled the Central Government to come up with a new legislation which is covering entire gamut of society within its coverage. The Banning of Unregulated Deposit Schemes Act, 2019 passed by Rajya Sabha on July, 30th 2019 and notified on 31st July, 2019 is aimed to fill the gaps in the existing legislations and prevent the fraudsters from taking advantage over innocent investors. The Act shall address the loopholes under various legislations like SEBI, RBI, Companies Act etc and also streamline the bunch of regulators and administrative branches. The act shall regulate all kind of illegal deposits and take stringent action against the violators. Any promises with an intention to deceive the investors or invitation to join any unregulated schemes shall be treated as a violation. A prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 shall be deemed to be an Unregulated Deposit Scheme under this Act.
The law is intended to ban the unincorporated entities from accepting the deposits and also put restrictions on unorganised deposit schemes. The Act envisages the regulation of the entities which are not covered under the existing legislations by clearly defining the term “deposit taker” for the purpose of the regulation. A proper redressal mechanism has been identified under the Act to bring all the deposit- taking activities under one roof.
A separate authority, with extensive power of civil court, shall be created and empowered under the act to have proper surveillance over the unorganised deposit schemes and deposit takers. A special court would be constituted to try offences, which are cognizable and non-bailable. The courts shall complete the legal procedures of attachment, realisation and distribution of the proceeds to the depositors within 180 days from the date of making an application by the competent authority.
Though the Act is designed to weed out the fraudsters and illegal deposit takers from the system the envisioned result may not be achieved if the same is not implemented by the Government machinery in it real sense. It is worth to note that any law, however strictly it is designed, will not attain the desired result if not properly implemented and without creating awareness among the common man. Using the technology and artificial intelligence to trace out the fraudulent schemes should be thought about to effectively implement the new law. Banks, medias and general public have a great role to play in identifying the schemes before it become a scam. The new law is destined to bring more accountability and transparency to our economic system and thereby help the Government to eradicate the black money.
Bijoy P Pulipra
The author is an Insolvency Professional and Company Secretary based at Trivandrum and can be reached at firstname.lastname@example.org