Unregulated Deposit Scheme- Important Points

Banning of Unregulated Deposit Schemes Ordinance 2019 (Applicable from 13^th Feb 2019)

Meanings

Deposit: an amount of money received by way of an advance or loan or in any other form, by any 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, but does not include:

a. Amount from government and guaranteed by government.

b. Amount received from foreign government or foreign bank.

c. Loan from Banks and Financial Institutions

d. Loan from Public Financial Institutions notified by Govt.

e. Capital contributions by partners in P Firms/ LLP

f. Loan received by Individuals from relatives

g. Loan received by firm from relative of partners

h. Amount received as credit by buyer from seller on sale of any property

i. Amount received by ARC registered under SRFAESI Act 2002

j. Amount received in the course of normal business of selling goods or immoveable property provided the amount is adjusted against supply/ sale or is refundable in case of non supply/ sale.

k. Amount received as security or dealership deposit for the performance of the contract for supply of goods or provision of services;

l. an advance under the long-term projects for supply of capital goods

In case of (j) to (l), if the amounts received becomes refundable, such amounts shall be deemed to be deposits on the expiry of fifteen days from the date on which they become due for refund.

Provided further that where the said amounts become refundable, due to the deposit taker not obtaining necessary permission or approval under the law for the time being in force, wherever required, to deal in the goods or properties or services for which money is taken, such amounts shall be deemed to be deposits.

Deposit Taker: It means an individual or group of individuals, proprietorship firm, partnership firm, LLP, Company, Association of Persons, Trust, Coop Society or any other arrangement but excluding Banks, Central/ State Corporations

Unregulated Deposit Scheme: “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

Banning of Unregulated Deposit Schemes (UDS)

On and from date of commencement of this Ordinance, Unregulated Deposit Schemes will be banned. No deposit taker will directly/ indirectly promote, operate, issue any advertisement soliciting participation, inviting or accepting deposit under UDS. (Sec 3)

Fraudulent default in Regulated Deposit Schemes

No deposit taker, while accepting deposits under a Regulated Deposit Scheme (RDS), shall commit any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against such deposit. (Sec 4)

Wrongful inducement in relation to Unregulated Deposit Schemes

No person shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, to induce another person to invest in, or become a member or participant of any UDS. (Sec 5)

A prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 shall be deemed to be an UDS.

Authorities

The Government shall, by notification, appoint officers not below the rank of Secretary as the Competent Authority (CA) for the purposes of this Ordinance.

In case of any contravention to this Ordinance, CA can issue order to attach deposits, money or any property acquired in the name of deposit taker or on his behalf.

The officers shall not:—

(a) impound any records without recording his reasons for so doing; or

(b) retain in his custody any such records for a period exceeding 3 months, without obtaining the previous approval of the CA.

Intimation by Deposit Taker

Every deposit taker need to intimate about their business to CA existing or starting on or after 13^th Feb 2019 in form as prescribed (Sec 10).

Priority of depositors’ claim.

Repayment of depositor dues takes priority over all dues except as provided in SRFAESI Act 2002 and IBC Code 2016. Similarly, attachment order (for money/ property) issued by CA will have similar priority.

 Application for confirmation of attachment and sale of property

CA shall within 30-60 days of the date of the order of provisional attachment, file an application with such particulars as may be prescribed, before the Designated Court for making the provisional attachment absolute, and for permission to sell the property so attached by public auction or, if necessary, by private sale. A notice will be issued to Depositor and person whose property is attached, to show cause with in 30 days. Similar notice may be issued to the persons having interest/ title in the property, to raise any objections.

Attachment of property of malafide transferees

In case of malafide transfer of property by depositor, designated court has power to call transferee to appear and show cause why transferred property should not be attached.

Depositor can deposit fair value of said attached property before the issue of final order. He also need to pay such costs, as applicable.

Appeal to High Court

Any person including the Competent Authority, if aggrieved by any final order of the Designated Court, may appeal to the High Court, within a period of sixty days from the date of such order.

OFFENCES AND PUNISHMENTS

Offences by deposit takers (individuals)

Act	Imprisonment (min-max)	Penalty (min-max)
Solicits deposits in contravention to sec 3	1-5 years	Rs. 2-10 lacs
Accepts deposits in contravention to sec 3	2-7 years	Rs. 3-10 lacs
Accepts deposits & fraudulently defaults in refund,  in contravention to sec 3	3-10 years	Rs. 5 lacs -2 times the amount collected
Deposit in contravention to Sec 4	< 7 years	Rs 5 lacs- 25 crore/ 3 times profit w.e. is higher.
Deposit in contravention to Sec 5	1-5 years	< Rs 10 lacs
Repeat offenders	< 5 years	Rs 10 lacs- 50 crore
Failing to give intimation under Sec 10		Rs 5 lacs

Offences by deposit takers ( other than individuals)

Where an offence is committed by person in charge of deposit taker for conduct of the business, shall be deemed to be guilty of the offence and shall be liable to the punishment/ penalty. In case, he proves that the offence was committed without his knowledge, than he shall not be deemed guilty.

Offences to be cognizable and non-bailable.

Every offence punishable under this Ordinance, except the offence under section 22 and section 26 (ref Sec 4 & Sec 10), shall be cognizable and non-bailable.

Publication of advertisement of Unregulated Deposit Scheme

Where any newspaper or other publication of any nature, contains any statement, information or advertisement promoting, soliciting deposits for, or inducing any person to become a member of any UDS, the appropriate Government may direct such newspaper or publication to publish a full and fair retraction, free of cost, in the same manner and in the same position in such newspaper or publication as may be prescribed.

REGULATED DEPOSIT SCHEMES

TABLE

SI No.	Regular	Regulated Deposit Scheme
(1)	(2)	(3)
1	Securities and Exchange Board of India	(i) Any scheme or an arrangement [as defined under section 11AA of the Securities and Exchange Board of India Act, 1992 (15 of 1992)] launched, sponsored or carried out by a Collective Investment Management Company registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999.(ii) Any scheme or an arrangement registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.(iii) Any scheme or an arrangement, pursuant to which funds are managed by a portfolio manager, registered under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993.(iv) Any scheme or an arrangement regulated under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 or providing for employee benefits as permitted under the Companies Act, 2013 (18 of 2013).(v) Any other scheme or an arrangement registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992), or the regulations made thereunder.(vi) Any amount received as contributions in the nature of subscriptions to a mutual fund registered with Securities and Exchange Board of India under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.
2.	Reserve Bank of India	(i) Any scheme under which deposits are accepted by Non-Banking Financial Companies as defined in clause (f) of section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934) and registered with the Reserve Bank of India; or any other scheme or an arrangement registered under the Reserve Bank of India Act, 1934. (ii) Any scheme or an arrangement under which funds are accepted by individuals or entities engaged as Business Correspondents and Facilitators by banks subject to the Guidelines and Circulars issued by the Reserve Bank of India from time to time. (iii) Any scheme or an arrangement under which funds are received by a system provider operating as an authorised payment system under the Payment and Settlement Systems Act, 2007 (51 of 2007). (iv) Any other scheme or an arrangement regulated under the Reserve Bank of India Act, 1934 (2 of 1934), or the guidelines or circulars of the Reserve Bank of India.
3.	The Insurance Regulatory and Development Authority of India	A contract of insurance pursuant to a certificate of registration obtained in accordance with the Insurance Act, 1938 (4 of 1938).
4.	State Government or Union territory Government	(i) Any scheme or an arrangement made or offered by a co­operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State or Union territory. (ii) Any scheme or an arrangement commenced or conducted as a chit business with the previous sanction of the State Government in accordance with the provisions of the Chit Funds Act, 1982 (40 of 1982). (iii) Any scheme or an arrangement regulated by any enactment relating to money lending which is for the time being in force in any State or Union territory. (iv) Any scheme or an arrangement by a prize chit or money circulation scheme under section 11 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (43 of 1978).
5.	National Housing Bank	Any scheme or an arrangement for acceptance of deposits registered under the National Housing Bank Act, 1987 (53 of 1987).
6.	Pension Fund Regulatory and Development Authority	Any scheme or an arrangement under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013).
7.	Employees Provident Fund Organisation	Any scheme, Pension Scheme or Insurance Scheme framed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952).
8.	Central Registrar, Multi-State Co-operative Societies	Any scheme or an arrangement for acceptance of deposits from voting members by a Multi-State Co-operative Society registered under the Multi-State Co-operative Societies Act, 2002 (39 of 2002).
9.	Ministry of Corporate Affairs, Government of India	(i) Deposits accepted or permitted under the provisions of Chapter V of the Companies Act, 2013 (18 of 2013). (ii) Any scheme or an arrangement under which deposits are accepted by a company declared as a Nidhi or a Mutual Benefit Society under section 406 of the Companies Act, 2013 (18 of 2013).

(2) The following shall also be treated as Regulated Deposit Schemes under this Ordinance, namely:—

(a) Deposits accepted under any scheme or an arrangement registered with any regulatory body in India constituted or established under a statute; and

(b) Any other scheme as may be notified by the Central Government under this Ordinance.