Cabinet nod to amend Chit Funds Act

Cabinet nod to amend Chit Funds Act

In a move to protect the savings of the investors, the Union Cabinet on Tuesday gave its approval to introduce banning of unregulated deposit schemes bill and chit funds (Amendment) bill in the second leg of Budget session beginning from March 5.

The bill contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme. The bill seeks to make unregulated deposit taking activities an offence.

The bill creates three different types of offences -- running of unregulated deposit schemes, fraudulent default in regulated deposit schemes and wrongful inducement in relation to unregulated deposit schemes. It also provides for attachment of assets or properties by the competent authority and subsequent realisation of assets for repayment to depositors.

The bill defines "deposit taker" and "deposit" comprehensively. Deposit takers include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation. "Deposit" is defined in such a manner that deposit takers are restricted from camouflaging public deposits as receipts, and at the same time not to curb or hinder acceptance of money by an establishment in the ordinary course of its business.

"Being a comprehensive union law, the bill adopts best practices from state laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the state governments," an official statement said after the Cabinet meeting chaired by Prime Minister Narendra Modi.

The chit fund amendment bill is expected to bring in an orderly growth of the chit fund sector.