Bring 'model central law' to curb ponzi schemes: Par panel

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'.