House panel suggests time-bound settlement for victims of unregulated deposit schemes

Business Line, January 03, 2019

Asks SEBI to play a pro-active role in regulating Collective Investment Schemes

The Standing Committee on Finance has suggested a time-bound process for settlement of dues to depositors affected by unregulated deposit schemes. The committee also expects market regulator Securities and Exchange Board of India (SEBI) to play a more pro-active role in regulating the Collective Investment Schemes.

The committee tabled its report on ‘Banning of Unregulated Deposit Schemes Bill 2018′ in the Lok Sabha recently. The committee, under the Chairmanship of Veerappa Moily, said the entire process of settlement/repayment of full dues to the depositors should be completed in a stipulated time-frame which should be clearly specified in the Bill.

“The disgorgement of assets of deposit-receiver should also include his benami assets,” it said. The Bill was introduced in July last year.

It recommended that since disgorgement of assets of deposit-receiver, realisation of proceeds and eventual repayment of money to the hapless depositors is the most critical part of the whole process, no exception or rider should remain in the Bill such as the afore-mentioned excluding proviso in clause 12 with regard to SARFAESI Act and the IBC. Accordingly, the words save as otherwise provided in the SARFAESI Act 2002 or the Insolvency and Bankruptcy Code 2016 may be deleted from clause 12 of the Bill, which will comprehensively fortify the interest of the depositors.

The problem of unregulated deposit can be gauged from the submission by the Financial Services Secretary before the Committee, the report said. According to the report, in the past four years, 146 cases of this nature had been investigated by the CBI, 56 by the ED, 32 cases involving 223 companies by the Ministry of Corporate Affairs and SIFO and 978 cases were referred to various investigating enforcement agencies by the State Coordination Committees. SEBI alone has passed 64 orders against unauthorised collective investment schemes in the last three years.

“That is the kind of the menace which unregulated deposit taking companies or the entities pose,” it said.

The worst victims are the poor and the financially not-so-fully-aware-population of the country. Operation of such schemes in many cases is spread across the States. Most State Governments have their respective Protection of Interest of Depositors Act (PID) and these Acts will continue to remain effective even after this Central legislation. The Regulated Deposit Schemes are regulated by respective regulators which include SEBI, RBI, IRDI, NHB, PFRDA, EPFO etc. So, different companies get registered and regulated under the provisions of different Acts and schemes regulated by different regulators. The Bill essentially seeks to ban those who are not registered and those who are not regulated anywhere.

Clear definition
The committee further suggested that the ‘Unregulated Scheme’ which is sought to be banned should be more coherently defined in the Bill with an indicative list by way of a schedule of such schemes, drawn on the basis of experience and ground realities, which can be expanded or modified as and when required. The definition suggested above may be provided along the lines of the definition in the State Act which has been upheld by the Supreme Court.

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