Before that, chit funds were not governed by any central law.
However, the Chit Fund Act came up only in 1982. Some have even been running for over 100 years. The proposed law would prohibit Ponzi scheme frauds from occurring by banning all un-regularized deposit-taking schemes," said Rajesh Narain Gupta, managing partner, SNG & Partners.Īccording to the Ministry of Corporate Affairs, Government of India, till 31 October 2014 there were more than 5,000 listed chit fund companies in India. “Existing legislations come into play after a fraud has occurred. The Bill tackles this by allowing authorities to act before a fraud takes place. Companies and institutions running such schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people," said Lakhi.
“We have seen many companies collect deposits from the public and then refuse to repay, claiming bad market or no funds. Although there are other legislations such as Companies Act, they have their own limitations. Once enacted, “This Act will not only prohibit unregulated deposit-taking activities but will also provide deterrent punishment for promoting or operating a UDS," said Sangeeta Lakhi, partner, Rajani Associates. There is also provisions for repayment of deposits, attachment of properties and assets for repayment to depositors. Heavy fines and punishments are also proposed. It proposes three different types of offences here, namely: running of UDS, fraudulent default in a regulated deposit scheme, and wrongful inducement in relation to a UDS. The Bill also contains provisions that prevent deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme (UDS).
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