Q1 What is Banning of Unregulated Deposit Schemes Ordinance, 2019
Answer- The Banning of Unregulated Deposit Schemes Ordinance, 2019 has been promulgated to have a central legislation to tackle the menace of illicit deposits taking activities in the country. 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. However, the regulatory frame work for deposit taking activity in the country is not seamless. Despite such diverse regulatory frame work, schemes and arrangements leading to unauthorised collection of money and deposits fraudulently by inducing public to invest in uncertain schemes promising high returns or other benefits are still operating in the society. This Ordinance, therefore, ensures a comprehensive ban on unregulated deposit taking activity and for its effective enforcement.
Q2. What is its Aim?
Answer- to prevent such unregulated deposit schemes or arrangements at their inception .and at the same time makes soliciting, inviting or accepting deposits pursuant to an unregulated deposited scheme as a punishable offence. The said Ordinance also seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments.The Ordinance is to provide for a comprehensive mechanism to ban Unregulated Deposit Schemes and to protect the interest of the depositors and for matters connected therewith. to tackle the menace of illicit deposits taking activities in the country
Q3. What is the overall concept of the act.
Answer- The act provides that the deposits schemes which are regulated by 9 regulators in the country shall be allowed and all other shall be Unregulated deposit Schemes subject to exclusion from definition of deposits.
Q4. What is an unregulated deposit scheme (URDS)?
A scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business which is not a regulated deposit scheme as specified in the First Schedule.
Q5. What is a regulated deposit scheme?
- Schemes that are listed in Schedule-I. Nmely, schemes that are regulated by SEBI, RBI, IRDA, State Government, Union Territory Government, National Housing Bank, Pension Fund Regulatory and Developmental Authority, EPFO, Multi-State Co-Operative Society, Deposits accepted or permitted under Chapter-V of the Companies Act and any deposits accepted by a company declared as a Nidhi or a Mutual Benefit Society under the Companies Act are regulated deposit schemes.
- Further, Central Government, has a power to notify any other scheme as a regulated deposit scheme.
Q6. What is a deposit?
Section 2(4) defines a deposit to mean an amount of money received by way of an advance or loan or in any other form by a deposit taker with a promise to return whether after a specified period or otherwise either in cash or in kind or in the form of a specified service with or without any benefit in the form of interest, bonus, profit or in any other form.
Q7. What is not a Deposit or what is excluded?
The exclusions are set out in Section 2(4) itself.
- Loans received from banks;
- Loans/ financial assistance from private finance institutions (PFIs) or any registered non-banking financial companies (NBFCs), regional financial institutions and insurance companies;
- Amount received from or guaranteed by appropriate an government;
- Amount received from a statutory authority;
- Amounts received from foreign government, foreign banks, and foreign authorities or person resident outside India as per the provisions of the Foreign Exchange Management Act (FEMA) 1999;
- Capital contributions by partners of a partnership firm or LLP;
- Loans received by an individual from his relatives;
- Loans received by a firm from relatives of partners;
- Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable);
- Amounts received by a registered Asset Reconstruction Company (ARC);
- Amounts received under Section 34 or Section 29B of the Representation of the People Act, 1951;
- Any periodic payment made by the members of self-help groups as per the ceiling prescribed by state/ Union territory government;
- Amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business for following and which has not become refundable
- Payment, advance or part payment for supply/ hire of goods / services;
- Advance received in connection with and adjusted towards consideration of an immoveable property under an agreement or arrangement;
- Security deposit;
- Advance under long-term projects for supply of capital goods;
Q8. Are loans from banks/NBFC/financial institution are excluded?
Loans from scheduled banks or co-operative banks or any other banking company/NBFC etc are excluded.
Q9. What is the position of deposits with partnerships?
(i) Amounts received by way of contribution towards capital by partners of any partnership firm or limited liability partnership is excluded from the definition of ‘deposit’.
(ii) Any amount received by a firm by way of a loan from the relatives of any of its partners is excluded.
(iii) As regards to loans from third parties and other firms. Section 2(4)(l) is a general exclusion which deals with amounts received in the course of or for the purpose of business and bearing a genuine connection to such business including … … This exclusion is significant and should cover loans taken in the course or for the purpose of business. However there is a doubt that this clause can come to the rescue or not is a matter of interpretation.
Q10. What is the position with reference to individuals/ sole proprietorship ?
(i) Amounts received by an individual by way of loan from his relatives are excluded.
(ii) Sole proprietors and individuals are also included in definition of deposit takers.
(iii) Now as regards to the position of loans taken from an individual from friends and associates? Whether Section 2(4)(l) which is the exclusion in the context of business would prevail over Section 2(4)(f) or not is creating confusion .
Q11. What is the position with reference to Companies.
Answer-
(i) The schedule 1 of the ordinance considers deposits accepted or permitted under the provisions of Chapter V of CA 2013 as regulated deposits. Further as per explaination to Sec 2(4) of the ordinance deposit in case of companies means deposit as defined in CA 2013 which is defined in terms of Section 2(31) of the Companies Act, 2013 and the exclusions are in terms of Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014.
(ii) Any deposit accepted by companies which is not allowed in companies Act may come under Unregulated Deposit and therefore such companies will be at risk of facing action from companies act as well as BUDS.
(iii) A deposit accepted or permitted under Chapter V of the Companies Act is listed in Schedule-1 and is therefore considered as a regulated deposit scheme. However, Section 10 requires intimation even in respect of a company accepting deposit Chapter-V of the Companies Act. We will have to wait for rules in this regards.
Q12. What about transactions on credit?
Answer- Amounts received as credit by a buyer from a seller on the sale of any property whether movable or immovable is excluded.
Q13 What are the provisions for Unregulated Deposits ?
Answer- The unregulated deposit schemes are banned and no deposits taker shall directly or indirectly promote, operate, issue advertisement, solicit participation or enrolment in or accept deposits in pursuance of an unregulated deposit scheme.
Q14. Are there penal consequences for soliciting deposits in contravention of Section 3?
Answer- There are fines as well as imprisonments in terms of Section 21 of the Ordinance. For example, accepting unregulated deposits will be punishable with imprisonment between two and seven years, along with a fine ranging from three to 10 lakh rupees. Defaulting in repayment of unregulated deposits will be punishable with imprisonment between three and 10 years, and a fine ranging from five lakh rupees to twice the amount collected from depositors. Repeated offenders under the Bill will be punishable with imprisonment between five to 10 years, along with a fine ranging from 10 lakh to five crore rupees. Further Offences are non Bailable
Q15 – Is any information to be submitted.
Answer- The Bill provides for the central government to designate an authority to create an online central database for information on deposit takers. All deposit takers will be required to inform the database authority about their business. The Competent Authority will be required to share all information on unregulated deposits with the authority. Further While Section 3 operates as a ban for URDS, Section 10 requires intimation by every deposit takers and verification by a competent authority as to whether the deposits are pursuant to an URDS. In other words, deposits as defined not falling within the exclusion if taken by any deposit taker would require an intimation to the authority in the prescribed format. On one hand, Section 3 operates as a ban and the regulated schemes are very limited in the list set out in the First Schedule. On the other hand, Section 10 requires, intimation. There appears to be a conflict between Section 3 and Section 10 given the fact that the list in Schedule-1 is very limited.
Q16 . What are the compliance requirements for person taking deposits?
Answer- Every deposit taker which commences or carries on business after the commencement of the ordinance shall intimate the authority about its business in the form and manner and within the time prescribed. The rules are not yet notified.
Q17 . How this Act will be implemented.
Answer – There is provision that State Govt shall appoint Competent Authority. The Ordinance provides for the appointment of one or more government officers, not below the rank of Secretary to the state or central government, as the Competent Authority. In my view it will be something like RERA.
Q18 . How the Competent Authority will take action
Answer- It has been provided that Where the Competent Authority or officers appointed under sub-section (2), for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of such information and particulars as may be prescribed, that any deposit taker is soliciting deposits in contravention of section 3, he may, by order in writing, provisionally attach the deposits held by the deposit taker and the money or other property acquired either in the name of the deposit taker or in the name of any other person on behalf of the deposit taker from the date of the order, in such manner as may be prescribed. Therefore Rules which are yet to be notified will be important.
Conclusion
In our country the implementing any law by authorities is genrally by looking at every comma and fullstop in the legislation and not going in to intent and object of the law. It is left to the courts to give appropriate reliefs. There are many unanswered questions in the mind of stakeholders, individuals and firms. The Government shall do well to come out with relevant clarification to dispel the fear of implementation in business communities.
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