India lower house passes anti-Ponzi scheme bill

India’s Lok Sabha, the lower house of parliament, passed a bill to protect investors from Ponzi schemes on Wednesday. It will become law once it is passed by the upper house of parliament (Rajya Sabha) and receives presidential assent.

The Banning of Unregulated Deposit Schemes Bill aims to establish a statutory mechanism to ban Ponzi schemes, punish wrongdoers and compensate victims. Recommendations of the Parliamentary Standing Committee on Finance were incorporated to give the bill its final shape.

Federal finance minister Piyush Goyal said that the government has “worked quickly to put an end to unauthorized deposit schemes,” adding that his ministry has “ensured that no loopholes are left by using great legal acumen while drafting the bill.”

The bill contains a substantive banning clause under Section 3 that bans deposit takers (all possible entities receiving or soliciting deposits) from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme. The principle is that the legislation, once enacted, would ban unregulated deposit-taking activities altogether by making it an offense ex-ante. Apart from the prohibition on the running of unregulated deposit schemes, the bill also seeks to penalize fraudulent defaulting in regulated deposit schemes (Section 4), and wrongful inducement to invest in unregulated deposit schemes, through Section 5.

Section 12 provides for disgorgement or the repayment of deposits in cases where Ponzi schemes have managed to evade the law and appropriate deposits. Section 13 deals with the attachment of properties and assets of the deposit takers, and the consequent realization of assets for repayment to depositors. Sections 14 to 17 lay down procedural norms for the attachment of property and restitution to depositors.

Prison terms of up to 3 years, under Section 21, can be awarded to those who violate the ban on promoting, operating or accepting deposits in unregulated deposit schemes. Fraudulent defaulting in regulated deposit schemes can be punished with a prison sentence of up to 7 years per Section 22. Those who wrongfully induce people to invest in unregulated deposit schemes can be punished with imprisonment of up to 5 years, according to Section 23.

Source: Jurist