The Banning of Unregulated Deposit Schemes Bill, 2019 was passed by the Lok Sabha on 13.02.2019 but could not be passed by the Rajya Sabha. Since the Parliament is not in session, the BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019 has been issued by the President of India vide Notification dt. 21.02.2019. According to Article 123 of the Constitution, the President have power to promulgate Ordinances during recess of Parliament.

It is noteworthy to understand the difference between ‘Act’ and ‘Ordinance’. Act is law which is passed by parliament and has also received the assent of president and is in force. An ordinance is also a ‘Law’ but without being subject to the discussion and deliberation in both or one of the houses of the Parliament. The President, subject to conditions as specified in Article 123 of Constitution, may in consultation with the Cabinet, pass a law in the form of Ordinance. Ordinance is temporary law till its expiry or till it is repealed or till it is approved by the legislature.


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. It aims 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.

What is “Unregulated Deposit Scheme”?

This term is defined in the Ordinance u/s 2(17) which provides that 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 regulated deposit schemes as specified in First Schedule of the Ordinance

The regulated schemes are such which are regulated by following regulators, namely

  1. IRDA
  2. State Governments
  3. National Housing Bank
  4. Pension fund regulatory and development authority (PFRDA)
  5. Employees Provident Fund Organisation (EPFO)
  6. Central Registrar Multi-state Co-operative Societies
  7. Ministry of Corporate Affairs (MCA)

This Ordinance only covers the Deposit Schemes which are unregulated and which are accepted by any deposit taker by way of business such as illicit deposit / ponzi schemes / unregulated chit funds that hurt small investors.

Now question arise, whether amount received by an Individual as a loan from his friends or relative is covered under this Ordinance? The answer is NO. This Ordinance is applicable in case of unregulated deposit schemes. Any acceptance of deposit or advance from friends, whether for personal or business purposes, are out of the ambit of this Ordinance. In a series of tweets, the Department of Financial Services has also clarified that this Ordinance exempts Individual, Firm, companies & LLP etc. from taking any loan and deposit for their course of business as well as definition is also clear. So here, it is noteworthy to understand the difference between “Deposits for Business” and “Business of Accepting Deposits” and according to this Ordinance, later one i.e. “Business of Accepting Deposits” which is Unregulated, is Banned.

Offence and punishment under the Ordinance

Offence 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 – 5 years Up to 10 lakhs
Repeated offenders 5 years – 10 years 10 lakhs – 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

Bottomline / Conclusion;

Contrary to initial apprehensions regarding individuals, firms or corporate taking loans from relatives or friends for business or for other personal reasons, will not be affected by this Ordinance. Accordingly, there is no ban on Individuals / Firm / Companies receiving loans for their business purposes.

The Author is a Chartered Accountant and can be reached at [email protected], Reader’s feedback / observations are welcomed and would be appreciated.

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor publisher and its affiliates accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

Author Bio

Qualification: CA in Practice
Company: Harchandani & Associates, Chartered Accountants
Location: AHMEDABAD, Gujarat, India
Member Since: 09 Jun 2017 | Total Posts: 15
Manish Harchandani (founder of Harchandani & Associates) is practicing Chartered Accountant and mainly practice in Direct Tax, International Taxation, Transfer Pricing & FEMA related advisory, litigation & compliance matters. View Full Profile

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  1. SANJAY JOSHI says:

    I strongly disagree with the views posted. It is a clear ban on accepting the deposits as well, there is no need to interpret that business of deposits is only banned. If that be so, it was otherwise also not allowed by virtue of Banking Act and RBI circulars.

  2. krishna murthy b n says:

    can a educational institute accept deposits from public, with higher rates and does this act help investor if he is not paid back

  3. Lalit says:

    Let’s say if I (an individual) take a loan from my friend’s company (>1Lakh) is that covered under the ordinance as prohibited. There is no reason to assume that according to what I think.

  4. keerthana Lakshmanan says:

    Through this ordinance, all the deposits can be monitor in a better way.. and all the unregulatory deposits scheme have a check mark on accepting deposits from the public…many unregulatory deposits are accepting from the public espically in rural areas can be prevented …

  5. anil says:

    There is a firm doing mineral trading Business. Let say it takes deposit with a promise to pay after 2 month in writing thru a chit affixed there a revenue stamp with their seal and signature and pay interest @12% Whether I can lend them or whether they can take deposit from me. Although this deposit is being taken for course of business. Whether they can borrow. Whether this deposit will be treated as UDS.

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June 2021