Article explains What is banned under Banning of Unregulated Deposit Schemes Ordinance, 2019, What is an Unregulated Deposit Schemes,  To whom is Banning of Unregulated Deposit Schemes Ordinance, 2019 applicable and Which are the deposits not banned in Banning of Unregulated Deposit Schemes Ordinance, 2019?

Presently, non-banking entities are allowed to raise deposits from the public under the provisions of various statutes enacted by the Central Government and State Governments. To have a central legislation to tackle the menace of illicit deposits taking activities in the country, Banning of Unregulated Deposit Schemes Ordinance, 2019 (BUDS) has been promulgated.

Preamble to BUDS states: An ordinance to provide for a comprehensive mechanism to ban the unregulated deposit schemes and to protect the interest of depositors and for matters connected therewith or incidental thereto.

1. What is banned under Banning of Unregulated Deposit Schemes Ordinance, 2019?

As per Section 3, the following shall be banned on and from the date of Ordinance:

(a) the Unregulated Deposit Schemes; and

(b) no deposit taker shall, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrollment in or accept deposits in pursuance of an Unregulated Deposit Scheme.

2. What is an Unregulated Deposit Schemes?

Unregulated Deposit Scheme” means a Scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme, as specified under column (3) of the First Schedule.

3. To whom is Banning of Unregulated Deposit Schemes Ordinance, 2019 applicable?

BUDS is applicable to all deposit takers including individuals, proprietorship firms, partnership firms, LLP, Company, AOP/BOI, trust, co-operative society but is not applicable to:

(a) Corporation incorporated under an Act of Parliament or a State Legislature;

(b) A banking company a corresponding new bank, the State Bank of India, a subsidiary bank, regional rural bank, a co-operative bank, or a multi-State co-operative bank as defined in the Banking Regulation Act, 1949

4. Which are the deposits not banned in Banning of Unregulated Deposit Schemes Ordinance, 2019?

(a) Deposits taken for other than business purpose, i.e., deposits/ loans taken for any personal use (word “by way of business” is not defined under the Ordinance).

(b) any person (including individual/ HUF/ partnership firm/ LLP/ company, etc.) which does not accepts and solicit deposits in pursuance of a scheme or an  arrangement.

In our humble opinion, any deposits or loans taken from relatives / friends or any other persons for personal reasons are not covered under this law. The words “by way of business” is not defined in the law but reading the law alongwith the Preamble, it is amply clear that BUDS cover only deposits taken by persons who are in the ‘Business” of taking deposits i.e. who solicit deposits from public in large by way of advertisement or otherwise. BUDS is introduced to counter the fraudulent schemes like Speak Asia, Sahara etc., which succeeded in running Ponzi schemes and spun the innocent people’s money. The present transactions where business houses or individuals lend or borrow monies for their business or personal purposes are not covered under Banning of Unregulated Deposit Schemes Ordinance, 2019.

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