Banning of Unregulated Deposit Scheme- Clarification Needed

Introduction

The Government has issued The Banning of Unregulated Deposit Schemes Ordinance 2019 on 21.02.2019. Pursuant to this ordinance now any Individual or group of individuals can’t take any deposit or loan from any person other than relatives and Partnership firm can take deposit or loan from relatives of partner or partners only.

There are so many messages about it on social media, we had given its crux of this ordinance as well as the expert views for our readers.

Highlights of the scheme are as below:-

The Banning of Unregulated Deposit Schemes Bill, 2018 provides for a mechanism to ban unregulated deposit schemes and protect the interests of depositors.  It also seeks to amend three laws, including the Reserve Bank of India Act, 1934 & the Securities and Exchange Board of India Act, 1992

• Deposit: The Bill defines a deposit as an amount of money received through an advance, a loan, or in any other form, with a promise to be returned with or without interest.  Such deposit may be returned either in cash or as a service, and the time of return may or may not be specified.  
• Unregulated deposit scheme: A deposit-taking scheme is defined as unregulated if it is not registered with the regulators listed in the Bill. 
• Deposit taker:The Bill defines deposit takers as an individual, a group of individuals, or a company who asks for (solicits), or receives deposits.  Banks and entities incorporated under any other law are not included as deposit takers. 
• Competent Authority: The Bill 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.  Police officers receiving information about offences committed under the Bill will report it to the Competent Authority.  
• Designated Courts:The Bill provides for the constitution of one or more Designated Courts in specified areas.  This Court will be headed by a judge not below the rank of a district and sessions judge, or additional district and sessions judge.  
• Central database: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.
•  Offences and penalties: The Bill defines three types of offences, and penalties related to them. 

(i) Running (advertising, promoting, operating or accepting money for) unregulated deposit schemes,

(ii) Fraudulently defaulting on regulated deposit schemes, and

(iii) Wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts.  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.

Relatives from whom the Loans could be accepted

1. Members of a Hindu Undivided Family;

2. husband and wife; or

3. Father: -Provided that the term “Father” includes step-father.

4. Mother: -Provided that the term “Mother” includes step-mother

5. Son – Provided that the term “Son” includes step-son.

6. Son’s Wife.

7. Daughter.

8. Daughter’s husband.

9. Brother -Provided that the term “Brother” includes step-brother.

10. Sister:

Our Views 

This is a very crucial point as this is applicable to the schemes

• so the clarification is required in specific whether
• the unsecured loan in the ordinary course of business obtained by small business houses
• from unrelated parties
• is also an arrangement
• which could be covered as “scheme”.

Such unsecured loans are required for the business.

As per our views the intent of legislature should be restricting the chit fund & deposit schemes.

Till the relief notified by the Govt; Business (Prop, partnership, corporate)  are advised to avoid such transaction as punishment is severe.  

DISCLAIMER: This Article is compiled on the basis of the best of our knowledge & understanding for the brief overview of the readers.