Objective:

Banning of Unregulated Deposit Scheme Ordinance, 2019 is promulgated with the objective of providing mechanism to ban unregulated deposit schemes and protect the interest of depositors.

Applicability:

Banning of Unregulated Deposit Scheme Ordinance, 2019 applicable to Whole of India except the state of Jammu and Kashmir.

What includes deposits?

  • Amount of money received by way of an advance, loan or in any other form,
  • By any deposit taker, with a promise to return after a period,
  • Either in cash, kind or in form of specified service,
  • With or Without any interest, bonus, profit or any other benefits.

What is not included in deposits?

  • Loan from scheduled/co-operative bank or banking company;
  • Loan or financial assistance received from Public Financial Institution/ NBFC;
  • Amount received from appropriate government or any statutory authority;
  • Amount received from any sources whose repayment is guaranteed by appropriate government;
  • Amount received from foreign government, foreign bank, multilateral financial institutions, foreign government owned development financial institutions, foreign export credit collaborators, foreign body corporate, foreign citizen, foreign authorities, person resident outside India;
  • Capital contribution by partners of partnership firm or LLP;
  • Loan received by an individual/ firm from his relatives/ relatives of partners;
  • Credit by a buyer from a seller on sale of property;
  • Amount received by Asset reconstruction company;
  • Deposits accepted by political party;
  • Deposits under Section 34 of Representation of People Act, 1951;
  • Payment made by members of self – help group;
  • Amount as may be prescribed by state government;
  • Amount received in course of or for the purpose of business and includes

a. payment/ advance/ part payment for supply of goods or services and is repaid in case of failure of supply;

b. advance received as consideration for immovable property;

c. security or dealership deposited for performance of contract;

d. advance under long term projects for supply of capital goods.

Exception: Amount received under sub points (a to d) become refundable, it shall be treated as deposits, if the refund is not made within 15 days.

What is meant by Unregulated Deposit Scheme?

A scheme or arrangement under which deposits are accepted/ solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme.

What is meant by Regulated Deposit Scheme?

SEBI:

RBI:

  • Scheme under which deposits are accepted by NBFC.
  • Scheme under which funds are accepted by individuals or entities engaged as Banking Correspondents and Facilitators by Banks.
  • Scheme under which funds are received by a system provider operating as an authorized payment system.
  • Scheme regulated under RBI Act.

MCA:

  • Deposits under Companies Act, 2013.
  • Scheme under which deposits are accepted by Nidhi Company or Mutual Benefit Society.

Others:

  • Contract of Insurance pursuant to a certificate of registration under Insurance Act.
  • Scheme of acceptance of deposits registered under National Housing Bank Act.
  • Scheme under Pension Fund Regulatory and Development Authority Act.
  • Scheme under Employees’ Provident Fund and Miscellaneous Provisions Act, including Pension Scheme or Insurance Scheme.
  • Scheme accepting deposits from voting members by a Multistate Co-operative Society.
  • Deposits accepted under scheme registered with regulatory body in India.
  • Scheme offered by Co-operative Society.
  • Scheme conducted as Chit Business with prior approval of State Government.
  • Scheme regulated by any enactment relating to money lending and is in force for time being in State.
  • Prize chit or money circulation scheme under Section 11 of Prize Chits and Money Circulation Scheme (Banning) Act.

Banning of Unregulated Deposit Schemes – Section 3 to 6:

  • No deposit taker shall, promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits, either directly or indirectly. (Section 3)

Penalty for solicit of deposits:   Imprisonment for 1 to 5 years

Fine of Rs. 2 Lacs to Rs. 10 Lacs

Penalty for accepting deposits: Imprisonment for 2 to 7 years

Fine of Rs. 3 Lacs to Rs. 10 Lacs

Penalty for fraudulent default  Imprisonment for 3 to 10 years

in repayment of deposits: Fine of Rs. 5 Lacs to twice the amount

  • No deposit taker shall commit any fraudulent default in repayment or rendering any promised service against such deposit, while accepting deposits pursuant to Regulated Deposit Scheme. The said provision is not applicable to deposit taker which is a Company. (Section 4)

Penalty for contravention:  Imprisonment for maximum 7 years (or)

Fine of Rs. 5 Lacs to Rs. 25 Crore or thrice the amount, w.e.h.

  • No person shall knowingly make any statement, promise or forecast which is false, deceptive, misleading or conceal any material facts, to induce another person to invest or become member of Unregulated Deposit Scheme. (Section 5)

Penalty for contravention: Imprisonment for 1 to 5 years

Fine to the extend of Rs. 10 Lacs

  • Prize chit or a money circulation scheme banned under Prize Chits and Money Circulation Scheme (Banning) Act, shall deem to be an Unregulated Deposit Scheme. (Section 6)

Penalty for repeat offenders: Imprisonment for 5 to 10 years

Fine of Rs. 10 Lacs to Rs. 50 Crore

Information on Deposit Taker – Section 9 to 11:

  • Central Government shall create, maintain and operate an online database for information on deposit takers.
  • Every deposit taker accepting or soliciting deposit and every Company accepting deposits under Companies, Act 2013, shall inform the concerned authority about it’s of business.

Penalty for failure to give intimation: Fine to the extent of Rs. 5 Lac.

  • Concerned authorities have power to share the information with CBI authority.
  • Any other authority who is in possession of any information/ documents in respect of offences under this ordinance shall be shared with police officer or CBI authority.
  • Principal Officer of banking company, SBI, a subsidiary bank, regional rural bank, co-operative/ multi-state co-operative bank, believes that the client is deposit taker and is in contravention, shall inform about him to competent authority.

Restitution to Depositors – Section 12 to 20:

  • Amount due to depositor from a deposit taker shall be paid in priority over all other debts.
  • An order of provisional attachment passed by concerned authority, shall have priority, to extent of the claims of the depositors.

Author: Hiral Mehta is an Associate at M&K Associates and can be reached at mail@mnklaws.com

Disclaimer: The views, information or opinions expressed herein are compiled by the Legal team of M&K Associates, Company Secretaries, Hyderabad. The above information is solely for disseminating knowledge and private circulation. We are hereby not liable for any loss, damage or inconvenience caused as a result of reliance on such information and we accept no legal liability or other responsibility by or on behalf of any errors, omissions, or statements on this content.

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