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Bring 'model central law' to curb ponzi schemes:
Parliamentary panel
Times of India, October 18, 2015

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 selling.

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 Mahajan said.

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 session.

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 suits/litigation".

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 the cases.

"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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