Cabinet Approves Banning Of Unregulated Deposit Schemes Bill, 2019

On 10th July, 2019, the Cabinet approved the Banning of Unregulated Deposit Schemes Bill, 2019, replacing the Banning of Unregulated Deposit Schemes Ordinance introduced in February, 2019.


It aims at plugging gaps in existing laws and giving powers to the government to prohibit companies from taking such funds from the public.

Salient Features of Bill:

  • Banning Provision: It bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.
  • Obligation on Deposit Taker: It has provisions to impose an obligation on the deposit taker, pursuant to a regulated deposit scheme, not to commit any fraudulent default in the repayment or return of the deposit.
  • Defines Three Different Types of Offences:
  • Running of Unregulated Deposit Schemes
  • Wrongful inducement in relation to Unregulated Deposit Schemes
  • Fraudulent default in Regulated Deposit Schemes
  • Creation of Competent Authority: It provides for appointment senior government officials or a competent authority that can attach assets or properties and subsequently realize the assets towards repaying depositors.
  • Punishment and Repayments: It prescribes severe punishment and heavy fines for offenders. It also provides adequate provisions for repayment of deposits in cases where such schemes manage to raise deposits illegally.
  • Creation of Online Database: It calls for creation of online database for collection and sharing of information on deposit-taking activities in the country.

Need for Such a Scheme:

  • Absence of Regulatory Framework: The menace of increasing Ponzi schemes across the country has exposed the inadequacy of the existing legal and regulatory framework in ensuring that entities that run and manage such schemes are held accountable.
  • Rising Number of Fraud Cases: In the past four years, 146 cases of illegal deposits had been investigated by the Central Bureau of Investigation, 56 by the Enforcement Directorate, 32 cases involving 223 companies by the Ministry of Corporate Affairs and the Serious Fraud Investigation Office and 978 cases were referred to various investigating enforcement agencies by the State Coordination Committees.
  • Indeed, one of the factors that led to the introduction of the Banning of Unregulated Deposits Scheme was the controversies in relation to Ponzi schemes such as Rose Valley and Saradha scam in West Bengal.

What is a Ponzi Scheme?

  • A typical Ponzi scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or the entity operating such a scheme.
  • The basic idea of the scheme is to gain continuous flow of money by attracting new clients. The scheme falls when this flow of money is stopped. So, the company lured people to invest by promising them to multiply their money in a short span of time.
  • It is named after Charles Ponzi who became notorious for using the technique in the early 1920s. He duped thousands of people into investing in a postage stamp speculation scheme.


  • Curbing the Illicit Deposits Activities: It will help tackle the menace of illicit deposit taking activities in the country, which at present are exploiting regulatory gaps and lack of strict administrative measures to dupe poor and vulnerable people of their hard earned money.
  • Boosting Investor’s Confidence: With such banning and regulatory framework, it will further help boosting the confidence of investors in dealing with deposit schemes across the country.

Source : Civil Services Chronicle Online, 10th July, 2019