Chit Funds Amendment Bill, 2018

Cabinet approves Chit Funds (Amendment) Bill, 2018

Posted On: 20 FEB 2018 1:17PM by PIB Delhi

In a major policy initiative to protect the savings of the investors, the Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to introduce the following bills in the Parliament:-

a) Chit Funds (Amendment) Bill, 2018

The Chit Funds (Amendment) Bill, 2018

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has given its approval to introduce the Chit Funds (Amendment) Bill, 2018 in Parliament. In order to facilitate orderly growth of the Chit Funds sector and remove bottlenecks being faced by the Chit Funds industry, thereby enabling greater financial access of people to other financial products, the following amendments to the Chit Funds Act, 1982 have been proposed:

• Use of the words "Fraternity Fund" for chit business under Sections 2(b) and 11(1) of the Chit Funds Act, 1982, to signify its inherent nature, and distinguish its working from "Prize Chits" which are banned under a separate legislation;
• While retaining the requirement of a minimum of two subscribers for the conduct of the draw of the Chit and for the preparation of the minutes of the proceedings, the Chit Funds (Amendment) Bill, 2018 proposes to allow the two minimum required subscribers to join through video conferencing duly recorded by the foreman, as physical presence of the subscribers towards the final stages of a Chit may not be forthcoming easily. The foreman shall have the minutes of the proceedings signed by such subscribers within a period of two days following the proceedings;
• Increasing the ceiling of foreman's commission from a maximum of 5% to 7%, as the rate has remained static since the commencement of the Act while overheads and other costs have increased manifold;
• Allowing the foreman a right to lien for the dues from subscribers, so that set-off is allowed by the Chit company for subscribers who have already drawn funds, so as to discourage default by them; and
• Amending Section 85 (b) of the Chit Funds Act, 1982 to remove the ceiling of one hundred rupees set in 1982 at the time of framing the Chit Funds Act, which has lost its relevance. The State Governments are proposed to be allowed to prescribe the ceiling and to increase it from time to time.

Unregulated Deposits

Cabinet approves New Bill to ban Unregulated Deposit Schemes

Posted On: 20 FEB 2018 1:17PM by PIB Delhi

In a major policy initiative to protect the savings of the investors, the Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval to introduce the following bills in the Parliament:-

(a) Banning of Unregulated Deposit Schemes Bill, 2018 in parliament 

The Banning of Unregulated Deposit Schemes Bill, 2018

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given approval to introduce the banning of Unregulated Deposit Schemes Bill, 2018 in Parliament. The bill is aimed at tackling the menace of illicit deposit taking activities in the country. Companies/ institutions running such schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings.

Details:

The Banning of Unregulated Deposit Schemes Bill, 2018 will provide a comprehensive legislation to deal with the menace of illicit deposit schemes in the country through,

1. complete prohibition of unregulated deposit taking activity;
2. deterrent punishment for promoting or operating an unregulated deposit taking scheme;
3. stringent punishment for fraudulent default in repayment to depositors;
4. designation of a Competent Authority by the State Government to ensure repayment of deposits in the event of default by a deposit taking establishment;
5. powers and functions of the competent authority including the power to attach assets of a defaulting establishment;
6. designation of Courts to oversee repayment of depositors and to try offences under the Act; and
7. listing of Regulated Deposit Schemes in the Bill, with a clause enabling the Central Government to expand or prune the list.

Salient Features:

The salient features of the Bill are as follows:

• 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 principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante, rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags.
• The Bill creates three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.
• The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.
• The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
• The Bill provides for attachment of properties/ assets by the Competent Authority, and subsequent realization of assets for repayment to depositors.
• Clear-cut time   lines   have   been   provided for attachment of property and restitution to depositors.
• The Bill enables creation of an online central database, for collection and sharing of information on deposit taking activities in the country.
• 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.

Background:

The Finance Minister in the Budget Speech 2016-17 had announced that a comprehensive central legislation wouldbe brought in to deal with the menace of illicit deposit taking schemes, as in the recent past, there have been rising instances of people in various parts of the country beingdefrauded by illicit deposit taking schemes. The worst victims of these schemes are the poor and the financially illiterate, and the operations of such schemes are oftenspread over many States. Subsequently, Finance Minister in the Budget Speech 2017-18 had announced that the draft bill to curtail the menace of illicit deposit schemes had been placed in the public domain and would be introduced shortly after its finalization.

New system for reserving name

MCA has vide its notification dated 20th January, 2018 introduced a new system of name reservation for new companies as well as existing companies. It is called RUN (Reserve Unique Name) and it is available on the webspace as against a form which was hitherto the norm with MCA. So form INC-1 has been done away with.

RUN does not ask for too many details - just entity type, CIN, proposed name & comments. One needs to feed data into it and see how it works before commenting on the efficacy of the system.

Hitherto the form INC-1 used to run into a wall called the Central Reservation Centre or CRC. The CRC was known mostly for rejecting names rather than approving them and they had a funny, vague and ambiguous internal guidelines which they followed ridiculously. That is if the proposed name matched an existing entity's name by 50% it was automatically rejected. It is so silly and in absence of no further details as to how that system worked, it was a pain in the wrong place.

RUN does not require any digital signature to be uploaded, so hope it is not subject to misuse. People could just apply for several unique names and sit on it thereby preventing those names from being available for genuine entrepreneurs. I hope this is not the case. As i have said elsewhere unless and until we go through the new system, we will be unable to comment on its efficacy.

Also not aware if the RUN has some fees to be paid, which i am sure it has, then people could end up paying multiple times for different names because there is no resubmission process in the RUN system.

I hope RUN has some kind of appeal system in place otherwise what will happen is again some stupid internal guidelines will be followed much to the heartburn of genuine entrepreneurs.


In fact the CRC was so idiotic that they used to reject change name applications of existing companies without giving it any thought whatsoever.

Apparently the form INC-32(SPICe) has also been amended alongwith the digital MOA and AOA in forms INC-33 and INC-34 respectively. One has to look into these forms to find out what changes they have made.

Where the no. of subscribers to a new company are more than 7 or where the documents are being executed outside India, then the digital MOA & AOA is not to be used. Instead the duly signed MOA & AOA needs to be attached to the form INC-32.

DIN for a Director in an existing company

MCA has vide its notification dated 26th January, 2018 eased the requirement of a DIN (Director Identification Number) for appointment of a Director in an existing company. They have amended the Companies (Appointment & Qualification of Directors) Rules, 2014 to that extent.

Rule 9(1) has been amended as follows:

" (1) Every applicant, who intends to be appointed as director of an existing company shall make an application electronically in Form DIR-3, to the central Government for allotment of a Director Identification Number (DIN) along with such fees as provided under the companies (Registration offices and Fees) Rules, 2014.

Provided that in case of proposed directors not having approved DIN, the particulars of maximum three directors shall be mentioned in Form No.INC-32 (SPICe) and DIN may be allotted to maximum three proposed directors through Form INC-32 (SPICe)";

What this means is that if a person is proposed to be appointed as a Director of an existing company (as against a company to be incorporated), then he need not mandatorily have a DIN, which was a pre-existing condition. In that case, the company has to file form INC-32 (SPICe) and this form INC-32 (SPICe) can take maximum 3 DIN applications. The additional document to be attached to the form INC-32 (SPICe) is the board resolution approving the appointment of these new directors.

Now this form INC-32(SPICe) is an incorporation form, so why confuse it with the DIN forms, it is not clear at all. Why not enable form DIR-3 itself to take upto 3 applications and allow it to be uploaded that way with the board resolution attached. Perhaps they could have formed a DIR-3 (company) form as against a DIR-3 (individual) form. Confusion worse confounded.

Then again we come to Rule 9(3) which is pertaining to form DIR-3. The main sub rule 9(3)(a) has been left as it is i.e.

"The applicant shall download Form DIR-3 from the portal, fill in the required particulars sought ¹[therein, verify and sign the form] and after attaching copies of the following documents, scan and file the entire set of documents electronically-"

The heading of Rule 9 has been changed to 

"Application for allotment of Director rdentificataon Number before appointment in an existing company,,;"

Earlier it was 

"Application for Allotment of Director Identification Number"

Now under this revised heading of Rule 9, there are two forms prescribed i.e. INC-32 (SPICe) and form DIR-3 without clearly specifying when both of these forms are to be used. 

It is not clear now how many forms are to be used. DIR-3 by the Director, INC 32(SPICe) by the company and thereafter another form DIR-12 for appointment of Directors. 

MCA is clearly losing its way, it is a badly drafted amendment with the left hand not knowing what the right hand is doing. 

Spies in Slovenia

Today's interesting news comes from Slovenia, where it is reported that the spies have gone on strike. I wonder how spies take revenge for low pay - do they reveal the secrets which they have accumulated over the years, put it out on public domain. Or perhaps spy on their masters, which I suspect they may be doing it anyways.  

The Island

Victoria Hislop has written a gut wrenching story about a family history that is full of tragedy, from having to deal with the incurable disease of leprosy, being confined to a separate leper's island, the scourge of the disease, its impact on family relationships, families torn asunder, distraught of the husband at having to visit his wife in a leper's island every week, in order to deliver supplies, yet not being able to embrace or touch each other, one family having two people suffering from that disease, one sister not being on good terms with the other one, one sister's engagement broken off, yet also of love, abundant love of the family to deal with the crises, the positive feelings of improving their own lives, friendships that last beyond anything, cures being found, redemption, catharsis. Goodreads 4/5

The Count of Monte Cristo

Finished reading a fascinating book by Alexandre Dumas "The Count of Monte Cristo" a book of love, deception, revenge and murder - tragic characters in the book - an absolute page turner - it is a timeless classic as relevant today as it was when it was written in 1844. It focuses on a man who is wrongfully imprisoned, escapes from jail, acquires a fortune, and then sets about getting revenge against those responsible for his wrongful confinement. Goodreads 5/5