Banning of Unregulated Deposit Schemes Ordinance, 2019 does not ban small and medium enterprises (SMEs) from receiving loans in the course of, or for the purpose of, business, the government has clarified.

The ministry was responding to an ET story tilted ‘Unregulated deposits rule may have collateral damage’ on Monday which said that the law may hurt those seeking emergency loans, quoting sector experts.

Experts quoted in the story had said that ability to raise resources for meeting personal and social commitments or medical and educational emergencies could be hit. They also said that charitable institutions will find it difficult to fund students or those seeking medical assistance.

The government said individuals borrowing or taking loans or money from relatives or friends for marriage or medical emergency or business needs or any other personal reasons have nothing to fear from the law. Such transactions are not unregulated deposit schemes as defined in section 2(17). Further, any amount received by an individual by way of a loan from his relatives has been entirely exempted under section 2(4)(f).

Small businesses, proprietorship, partnerships, LLPs and SMEs that take unsecured loans from unrelated parties and enterprises are also exempt under Section 2(4)(I) of the law.

This exemption covers “advance payment for hire or supply of goods and covers genuine business needs and trade advances among others so that those who depend on small short-term credit or deposits for various needs do not face any problems”. In the case of charitable institutions, they accept donations and not deposits. Section 2(4) of the Act defines ‘deposit’ and does not include donations.

Also, there is no ban on any individual taking a quick loan to tide over a crisis from relatives as prescribed under Section 2(4)(f).

It has also rebuffed the criticism by some experts that there was not adequate consultation, saying the ordinance was based on the bill passed by the Lok Sabha which had been discussed with states and had been examined by the standing committee on finance that had interacted with all stakeholders including the general public. On the issue of no monetary thresholds in the law, the government said this was to prevent illegal operators from running such schemes by taking money from the poor in in small amounts to escape the provisions. The ordinance will also not have retrospective effect, the government said.

The ordinance proposes to create three different types of offences — running of unregulated deposit schemes, fraudulent default in regulated deposit schemes and wrongful inducement in relation to unregulated deposit schemes. It provides for attachment of properties or assets and subsequent realisation of assets for repayment to depositors. Clearcut time frames have been provided for attachment of property and restitution to depositors. It also enables creation of an online central database for collection and sharing of information on deposit-taking activities.

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  1. Dhruv Rastogi says:

    Please can you clarify if Deposit schemes offered by various jewelllers such as ‘Golden Harvest Scheme’ by Tanishq also falls under the purview of the said act, which also go by the name of Kitty/Kitties. Are the now considered illegal?

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September 2021