Government Bans Unregulated Deposits – Free PDF Download


It also seeks to amend three laws:-

  1. The Reserve Bank of India Act, 1934
  2. The Securities and Exchange Board of India Act, 1992
  3. The Multi-State Co-operative Societies Act, 2002.


  • Ponzi schemes are banned under the Prize Chit and Money Circulation (Banning) Act, 1978.
  • Though it is a Central Act but the respective State government are the enforcement agency of this law.
  • In 2016 The Securities and Exchange Board of India (SEBI) told the Supreme Court that banned Ponzi schemes do not fall under its regulatory purview.


  • The bill aims to protect investors from fraudulent investment schemes, such as Ponzi schemes.
  • Thus it provides for a mechanism to ban unregulated deposit schemes.


  • Ponzi schemes are named after Charles Ponzi, an Italian-American who launched an investment scheme in Boston, US, in 1919, promising to double investors’ money—first in 90 days and then in 45 days.
  • Ponzi, however, had no business model to double the money in such a short time. All he did was use money being brought in by the new investors to pay off the old investors.
  •  The scheme ran until the money being brought in by the new investors was more than the money being paid to the old investors.
  • Once this equation reversed, the scheme collapsed.


  • Pearl Chit Fund of ₹49,000 cr. affected 5.5 crore depositors.
  • The Oscar Chit Fund had deposits from 1.2 lakh people.
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Definition of Deposit-

  • The Bill defines a deposit as an amount of money received through an advance, a loan, or in any other form, with a promise to be returned with or without interest. •
  • Further, the Bill defines certain amounts which shall not be included in the definition of deposits such as amounts received in the form of loans from relatives.
  • Currently, 9 regulators oversee and regulate various deposit-taking schemes like- RBI, SEBI, Ministry of Corporate Affairs, State govt.

  • For example, RBI regulates deposits accepted by nonbanking financial companies, SEBI regulates mutual funds, state governments regulate chit funds.
  •  All deposit-taking schemes are required to be registered with the relevant regulator.

Unregulated deposit scheme:-

  • A deposit-taking scheme is defined as unregulated if it is taken for a business purpose and is not registered with the regulators listed in the Bill.
  • The Bill bans unregulated deposit schemes.

Competent Authority:-

  • The Bill provides for the appointment of one or more government officers, not below the rank of Secretary to the state or central government, as the Competent Authority.
  • Police officers receiving information about offences committed under the Bill will report it to the Competent Authority.

Designated Courts:-

  • The Bill provides for the constitution of one or more Designated Courts in specified areas.
  • This Court will be headed by a judge not below the rank of a district and sessions judge, or additional district and sessions judge.
  • The Court will seek to complete the process within 180 days.

 Central database:-

  • The Bill provides for the central government to designate an authority to create an online central database for information on deposit takers.
  • All deposit takers will be required to inform the database authority about their business.

Offences and penalties:-

  • The imprisonment ranges between 2 to 10 years for different offences.
  • Along with a fine ranging from Rs 3 lakh to 5 crore rupees.
  • Rashtriya Janata Dal’s Manoj Kumar Jha, while supporting the bill, said that the bureaucracy should not be given unbridled power that might create a state within a state, that might create problems later.
  • He called for action on such deposits at the beginning itself.


  • The law helps to speed up the process of justice after a scamster is caught.
  • But it is more important is to nip these schemes at early stage itself.
  • For this, the officers of SEBI & RBI need to be more vigilant than they are.
  • They need to be aware of Ponzi schemes while they are getting popular and spreading.




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