THE BANNING OF UNREGULATED DEPOSITS SCHEME ORDINANCE 2019  

Introduction:  

 The Banning of Unregulated Deposit Schemes Bill, 2019, which was passed on the 13th day of February, 2019 in the House of the People and .

The Hon’ble President of India, on the aid and advice of the Union Government, on February 21, 2019 has promulgated The Banning of Unregulated Deposit Schemes Ordinance, 2019’ 

Objective of Banning Of Unregulated Deposits Scheme Ordinance 2019: 

In order to put a check on illicit deposit-taking activities different scam in the country 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 Deposits Scheme (UDS):

UDS contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Deposit Taking Scheme which is not regulated. The principle is crystal clear that this Ordinance bans unregulated deposit taking activities

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 2019

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

Sr No Regulatory
1 IRDA
2 State and Union Government
3 National Housing Bank
4 Pension fund regulatory and development authority
5 EPFO
6 Central Registrar Multi State Co Operative Society
7 MCA

Meaning Of Deposit:

“Deposit” means 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,

It does not include the following deposits which are exempt from the provisions of Banning of Unregulated Deposit Schemes Ordinance, 2019.

Sr No. Activities
1 Loans received from Bank
2 Loans/ financial assistance from private finance institutions (PFIs) or any registered non-banking financial companies (NBFCs), regional financial institutions and insurance companies;
3 An amount received from or guaranteed by the appropriate government;
4 Amount received from a statutory authority;
5 Amounts received from the foreign government, foreign banks, and foreign authorities or person resident outside India as per the provisions of the Foreign Exchange Management Act (FEMA) 1999;
6 Capital contributions by partners of a partnership firm or LLP;
7 Loans received by an individual from his relatives;
8 Loans received by a firm from relatives of partners;
9 Any credit is given by a seller to a buyer on the sale of any property (whether movable or immovable);
10 Any periodic payment made by the members of self-help groups as per the ceiling prescribed by state/ Union Territory government;
11 Amounts received by a registered Asset Reconstruction Company (ARC);
12 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 (including for reasons where deposit taker did not obtain the 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):

a) Payment, advance or part payment for supply/ hire of goods/services;

b) Advance received in connection with and adjusted towards consideration of an immoveable property under an agreement or arrangement;

c) Security deposit;

d) Advance under long-term projects for supply of capital goods;

13 any other amount collected for such purpose and within such ceilings as may be prescribed by the State Government;
14 any deposit made under section 34 or an amount accepted by a political party under section 29B of the Representation of People Act, 1951;

Offence And Punishment Under The Ordinance:

Sr No. Offence Imprisonment Fine
1 Solicit deposits under Unregulated Deposit Schemes 1 year – 5 year 2 Lakh to 10 Lakh
2 Accept deposits under Unregulated Deposit Schemes 2 years – 7 years

 

3 lakhs to 10 lakhs
3 Fraud in repayment of deposits accepted under Unregulated Deposit Schemes 3 years – 10 years 5 lakhs to 200% of aggregate funds collected
4 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
5 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
6 Wrongful inducements in relation to Unregulated Deposit Schemes 1 year – 5 year Up to 10 Lakhs
7 Repeated offenders 5 years – 10 years 10 lakhs – 50 crores
8 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

No Restriction on Deposit: 

Deposit taker should accept the deposit by way of business. This is a critical phase which mandates accepting of deposits should be by way of business

Amount Taken for Unregulated and Ponzi Scheme are not allowed as per this Ordinance 2019.

But 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 purpose.

Other Provisions:

we will have to appreciate that the term Deposit and Deposit Takers are used under sections 3 to 6 and these sections either ban Unregulated Deposit Schemes or regulate the Regulated Deposit Schemes. Thus, in order to avoid any misunderstanding, it would be futile to see these definitions without the context given to these terms under section 3 to 6.

Section : 3 This ordinance shall apply Promotion, operation, issue Of Advertisements Soliciting Participation Or Enrolment Or Acceptance Of Deposits.

Section : 4 This ordinance shall apply to deposit taker who commit any fraudulent default while repayment or returning deposits on maturity or doesn’t remit services promised against such deposit.

Section : 5 This ordinance shall apply to any person who make false statement or promise / misleads any facts and induce other person to invest in Unregulated Deposit schemes.

Section : 6 This ordinance shall apply to Prize chit or money circulation scheme which are already banned under provisions of Prize Chits and Money Circulation Scheme ( Banning ) Act 1978.

Disclaimer : All Readers are advised to refer relevant provision of law before applying or accepting any of the point mentioned above or not. Author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the contents of this write up.

The author is practicing CA and reached at dhavaldoshi1988@gmail.com.

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