MUMBAI, February 20: The Reserve Bank of India has directed all state governments and union territories to enact a legislation on the lines of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 to protect the interests of small depositors.The Tamil Nadu government, on January 30, 1997, passed a bill to protect the deposits made by the public in financial establishments which came into force with immediate effect.Under the bill, if the government is satisfied that a financial establishment is not likely to return deposits, it may pass an ad-interim order attaching the money or other property of the financial establishment alleged to have been procured out of the public deposits, in order to protect the interests of the depositors. If such money or property is not available for attachment or not sufficient for repayment of the deposits, "such other property of the said financial establishment or the promoter, manager or member of the financial establishment as thegovernment may think fit and transfer the control over the said money or property to the competent authority," says the bill.
According to the bill passed by the state government, every person responsible for the management of the affairs of the defaulting financial establishment are liable to imprisonment of up to 10 years with a fine which may extend up to Rs one lakh. The bill confers upon the state the powers to constitute a special court in the cadre of a district and sessions judge, with the concurrence of the chief justice of the high court. The bill said the government must, by notification, appoint an advocate of not less than ten years standing as a special public prosecutor for the purpose of conducting cases in the special court. The Tamil Nadu government has brought into force the Act due to the mushrooming of financial establishments not covered by the Reserve Bank Act, 1934. These companies, according to the government, have come up with the sole object of "grabbing money received asdeposits from the public, mostly middle class and poor on the promise of unprecedented high rates of interest and without any obligation to refund the deposits to the investors on maturity."
The RBI move will go a long way to protect interests of small depositors who have been faced with an increasing number of defaults by non-banking finance companies after the collapse of CRB Capital Markets.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
