Bhubaneswar: The State Assembly has passed a stringent new Bill imposing curbs on "illegal activities" by non-banking financial companies (NBFCs) and unincorporated bodies (UIBs) to protect the interests of depositors.

The Odisha Protection of Interest of Depositors (in Financial Establishments) Bill, 2011, moved by State Finance Minister Prafulla Ghadai was passed with a few amendments last night.

"The new legislation will help curb illegal activities of unscrupulous NBFCs and UIBs," Ghadai said.

The Bill will protect the interest of depositors in terms of the return on their deposits, along with other benefits.

"The existing RBI Act does not have provisions to protect the interest of common depositors," he added.

As a number of NBFCs and UIBs are luring people with high returns and then vanish overnight, leaving the common depositor frustrated, the government had no alternative but to bring in a stringent legislation to curb the menace, the minister said.

It has been observed that some NBFCs and UIBs collect and receive deposits with the sole intention of defrauding people in different parts of the state, mostly in remote areas, he said.

The new legislation has provisions making it mandatory for all such institutions to register themselves with the government.
In addition, the district administration and the local police would keep a tab on the activities of such institutions, Ghadai said.

According to the provisions of the new law, any unregistered institutions will have to furnish information about their operations to district authorities within seven days or face a penalty of Rs 50,000.

Earlier, it was proposed in the Bill to fix the penalty amount at Rs 5,000.

The new law also has provisions for 10 years' imprisonment and a penalty of Rs 1 lakh of the person in charge of the operation of individual NBFCs and UIBs in case of a default in making payment to depositors.

The Bill also has provisions for setting up special courts for early finalisation of NBFC and UIB fraud cases, Ghadai said, adding that such cases would automatically come to the special court.