Bring 'model central law' to curb ponzi schemes:
Times of India, October 18,
To protect people
from ponzi schemes, a Parliamentary panel has suggested framing
of a model central law with clear cut definitions to curb
illegal money pooling activities done in the garb of direct
Moreover, it said, the model law needs to define the scope of
schemes in "unambiguous and specific terms" as broad definition
of 'money circulation' has scope for large-scale circumventing
by unscrupulous operators.
There have been rising instances of gullible investors getting
cheated by fraudulent investment schemes that mostly offer high
returns within a short period of time.
The Parliamentary Standing Committee on Finance has proposed a
"model central law that would be comprehensive and
all-encompassing including in its ambit collective investment
schemes, chit funds, direct selling schemes and such other
activities which are presently permissible but are defined and
regulated in a dispersed manner".
The law should contain separate section or chapter on
non-permissible schemes as well, clearly spelling out the nature
of such prohibited activities with its penal consequences, the
committee's report submitted to Lok Sabha Speaker Sumitra
When Parliament is not in session, parliamentary panels often
submit their reports to the Lok Sabha Speaker or Rajya Sabha
Chairman. They are then tabled in Parliament in the next
The panel, headed by former Law Minister M Veerappa Moily, said
the model law should have provisions such as "attachment of
property, recovery and distribution of proceeds in a stipulated
time frame, deterrent penalties with imprisonment, time bound
repayments/compensation and provision for class action
Observing that broad definition of 'money circulation' is the
main reason for the failure of Prize Chits and Money Circulation
(Banning) Act, the panel said there should be clear cut
definitions so that prohibited schemes do not operate by
camouflaging as legitimate schemes like direct selling.
"These offences should be treated as offences committed against
the state analogous to the Indian Penal Code and accordingly
made non-bailable and cognisable.
"The proposed law should also invoke the concurrent
administrative jurisdiction of both the central and state
governments in the implementation of the law in the light of
recent enforcement experiences with the money circulation/
collection schemes," the report said.
The report is on 'Efficacy of regulation of collective
investment schemes (CIS), chit funds, etc'.
The arrangement of sharing responsibility over regulation of
these schemes between central agencies and state governments
needs to continue till a considered decision is taken on the
setting up of a separate/principal regulator to be provided for
in the proposed law, the panel said.
Another recommendation is for setting up of economic offence
courts in every state to try such crimes and speedy disposal of
"In order to complement strict enforcement action, economic
offences courts may be set up or designated in every state for
trial of such economic offences, including those under Sebi Act,
RBI Act, State Depositors Protection Act, Prize Chits and Money
Circulation Schemes (Banning) Act, etc," said the panel.
Also, the committee said there are several cases relating to
unauthorised financial schemes pending at different levels for
investigation, prosecution, adjudication and compliance.
A nodal department of the central government, "say Department of
Economic Affairs under Ministry of Finance should compile and
consolidate updates on these cases and facilitate coordinated
action with concerned agencies like SEBI, RBI, Ministry of
Corporate Affairs, Department of Financial Services, Department
of Agriculture & Cooperation and Ministry of Consumer Affairs
through digital backbone," the report noted.
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