President of India has promulgated the BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019 w.e.f. February 21, 2019. This law has been brought to safeguard the hard-earned money of ignorant depositors from scrupulous deposit takers.
This ordinance is applicable to every person in respect of following three offences: –
1. Running an unregulated deposit scheme.
2. Making a fraudulent default in repayment of deposits received under a regulated deposit scheme.
3. Wrongfully inducing another person to invest in unregulated deposit schemes.
Deposits kept out of ordinance: –
Unregulated Deposit Scheme: –
A deposit scheme which is not registered with any of the following nine regulations is an unregulated scheme: –
As can be understood from the scope that wrongful inducement by any person and not just the deposit taker implies that celebrities and brand ambassador of such schemes would also be covered under the law.
In various tweets by Department of Financial Services it has been clarified that Individuals, Firms, Companies and LLP etc. can take loan and deposit for their course of business and are exempt from this Ordinance. Further Chit Funds not sanctioned in accordance with Chit Fund Act, 1982 shall be deemed as unregulated deposits and thus collections in kitty parties are also prohibited.
Offences and Punishment: –
|Offences||Imprisonment||Fine (in Rs.)|
|Solicit deposits under Unregulated Deposit Schemes||1 year – 5 years||2 lakhs to 10 lakhs|
|Accept deposits under Unregulated Deposit Schemes||2 years – 7 years||3 lakhs to 10 lakhs|
|Fraud in repayment of deposits accepted under Unregulated Deposit Schemes||3 years – 10 years||5 lakhs to 200% of aggregate funds collected|
|Fraud in repayment of regulated deposits||Up to 7 years||5 lakhs to higher of 25 crore or 3 times the amount of profit made out of such fraud|
|Failure to render service promised against regulated deposits||Up to 7 years||5 lakhs to higher of 25 crores or 3 times the amount of profit made out of such fraud.|
|Wrongful inducements in relation to Unregulated Deposit Schemes||1 year to 5 years||Up to 10 lakhs|
|Repeated offenders||5 years – 10 years||10 lakhs to – 50 crores|
|Failure to file intimation by deposit taker about its business, or to furnish statements, information or particulars to the competent authority||–||Up to 5 lakhs|
However, this Ordinance does not cover personal loans but will affect huge network of unorganized lending prevalent in the country.
The author is a practicing Chartered Accountant and can be contacted at [email protected]. Any comments or queries are welcome.