February 20, 2018
In a major policy initiative to protect the savings of the investors, the Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to introduce the following bills in the Parliament:-
(a) Banning of Unregulated Deposit Schemes Bill, 2018 in parliament &
(b) Chit Funds (Amendment) Bill, 2018
The Banning of Unregulated Deposit Schemes Bill, 2018
The Union Cabinet has given approval to introduce the banning of Unregulated Deposit Schemes Bill, 2018 in Parliament. The bill is aimed at tackling the menace of illicit deposit taking activities in the country.
The Banning of Unregulated Deposit Schemes Bill, 2018 will provide for a comprehensive legislation to deal with the menace of illicit deposit schemes in the country through,
- complete prohibition of unregulated deposit taking activity;
- deterrent punishment for promoting or operating an unregulated deposit taking scheme;
- stringent punishment for fraudulent default in repayment to depositors;
- designation of a Competent Authority by the State Government to ensure repayment of deposits in the event of default by a deposit taking establishment;
- powers and functions of the competent authority including the power to attach assets of a defaulting establishment;
- designation of Courts to oversee repayment of depositors and to try offences under the Act; and
- listing of Regulated Deposit Schemes in the Bill, with a clause enabling the Central Government to expand or prune the list.
The Bill contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante, rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags.
The Chit Funds (Amendment) Bill, 2018
The Union Cabinet has given its approval to introduce the Chit Funds (Amendment) Bill, 2018. In order to facilitate orderly growth of the Chit Funds sector and remove bottlenecks being faced by the Chit Funds industry, thereby enabling greater financial access of people to other financial products, the following amendments to the Chit Funds Act, 1982 have been proposed:
- Use of the words “Fraternity Fund” for chit business under Sections 2(b) and 11(1) of the Chit Funds Act, 1982, to signify its inherent nature, and distinguish its working from “Prize Chits” which are banned under a separate legislation;
- While retaining the requirement of a minimum of two subscribers for the conduct of the draw of the Chit and for the preparation of the minutes of the proceedings, the Chit Funds (Amendment) Bill, 2018 proposes to allow the two 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 foreman shall have the minutes of the proceedings signed by such subscribers within a period of two days following the proceedings;
- Increasing the ceiling of foreman’s commission from a maximum of 5% to 7%, as the rate has remained static since the commencement of the Act while overheads and other costs have increased manifold;
- Allowing 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, so as to discourage default by them; and
- Amending Section 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of one hundred rupees set in 1982 at the time of framing the Chit Funds Act, which has lost its relevance. The State Governments are proposed to be allowed to prescribe the ceiling and to increase it from time to time.