It also recommended amending the rules to provide for ‘appropriate penalty’ to deter newspapers as well as celebrities from endorsing fraudulent deposit schemes.
A parliamentary panel has pulled up State governments for “a lax and nonchalant attitude” in implementing the crucial “banning of unregulated deposit schemes” legislation, while also recommending amending the rules to provide for “appropriate penalty” to deter newspapers as well as celebrities from endorsing fraudulent deposit schemes.
The Committee, headed by Member of Parliament Partap Singh Bajwa, in its report on ‘The Banning of Unregulated Deposit Schemes Rules, 2020’, tabled in Parliament on Wednesday, noted that the tardy pace of implementation of rules by States and Union Territories was disheartening.
“The Committee, therefore, recommends that the Ministry [of finance] should strengthen its enforcement mechanisms so as to ensure that the objectives of the rules, which have a wide bearing on public interest, are achieved in letter and in spirit,” it said.
It further recommended the setting up of a committee/group of experts, headed by a senior bureaucrat or some renowned expert/economist, having sound knowledge and background in financial matters, to monitor the implementation of these rules and report or make recommendations about the problems faced in implementation.
Stating that it was crucial that only such schemes were advertised which were prima facie genuine and passed the test of due diligence, the Committee recommended that the Act/Rules be amended to provide appropriate penalty, civil if not criminal, to deter the newspapers and other publications from providing any form of endorsement to fraudulent deposit schemes.
In case of celebrity endorsements, the Committee stated that they played a crucial role in increasing awareness and visibility of a particular product/service, hence influencing customer choices in deciding on that particular product/service.
While welcoming the provision in law for such celebrities to ensure that the claims made in their endorsements were not misleading, the Committee said since the “celebrities with deep pockets charge huge sums of money, often in lakhs and crores, in lieu of their endorsements, the fine under this Section needs to be imposed heavily so as to serve as a credible deterrence.”
It further added that the terms of endorsement contract and the nature and extent of the fraud in scheme may also be taken as relevant considerations while deciding on the exact amount of the fine to be imposed. “The Committee recommends that the celebrity concerned may also be asked to come forth and publish a clarification/apology for endorsing any fraudulent scheme which has duped people.”
It has also recommended the Act or the Rules be amended to incorporate provision providing for expertise, experience and domain knowledge in dealing with financial frauds/crimes, in order to be eligible for appointment as competent authority.
“…the Ministry should lay down clear guidelines on what constitutes a deceptive scheme and there should be no ambiguity on it. This would enable people to discern whether a scheme is illicit or genuine,” it said.