Menace of illicit deposit schemes cracked down

And the day has come when the risk to remain tight in a BUDS has become more painful…….

Banning of Unregulated Deposit Scheme Ordinance, 2019 (BUDS) with effect from 21.02.2019

Menace of illicit deposit schemes cracked down

Meaning of Deposit

A deposit has been defined to mean:

An amount of money received by way of an advance or loan or in any other form,

By any deposit taker

• Means an individual,
• group of individuals,
• proprietorship concern,
• partnership firm,
• a limited liability partnership (LLP)
• company
• Association of Persons (AOP),
• a trust (private or public),
• a co-operative society or
• any other arrangement.

Receiving or soliciting deposits but does not include

• a corporation incorporated under an act of the Parliament or a state legislature,
• a banking company,
• State Bank of India (SBI),
• Regional Rural Banks (RRBs),
• a co-operative bank or
• multi-state co-operative bank as defined in the Banking Regulations Act, 1949

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 excludes

• Amounts received as a loan from scheduled banks, or co-operative banks or any banking company as defined under Section 5 of The Banking Regulations Act, 1949
• Amounts received as a loan from PFIs
• Amounts received from the appropriate Government or from any Statutory authority
• Amounts received from the foreign government, international banks, multilateral financial institutions, foreign body corporate, foreign citizens, foreign authorities or person resident outside India subject to the FEMA regulations
• Amounts received towards capital from partners of an LLP/ partnership firm or as a loan from partners relatives
• Amounts received by an individual as a loan from his relatives
• Amounts received as consideration for the sale of a movable/immovable property.
• Amounts received from ARC which is registered with RBI
• Amounts received by a political party
• Periodic payments made by the members of the self help groups.
• Amounts collected for any such purpose and within ceilings as specified by State Government
• Amounts received in the course of or for the purpose of business and bearing a genuine connection including
  • Payment in the nature of full, part or advance for supply/ hire/ provision of goods /services
  • Advance payment received for consideration of immovable property under an agreement subject to the condition that such advance is adjusted upon final settlement.
  • Security/ Dealership deposit for the performance of the contract for the supply of goods/ provision of services
  • Advance under long term projects for the supply of capital goods

Provided such abovementioned amounts will be deemed to be deposits from the expiry of 15 days from the date in which such amounts become refundable.

Provided further where the Deposit taker has not taken necessary requisite approval/permission, such amounts accepted shall be deemed to be deposits.

With effect from 21.02.2019, the Unregulated Deposits Schemes shall be banned.

INFORMATION ON DEPOSIT TAKERS

Every Deposit taker

> who accepts/ continues / solicits deposit as defined above

> every company who accepts deposits under Chapter V of The Companies Act, 2013

Shall intimate in such form and within such time to the competent authority as will be prescribed.

The Central Government will create a central database on the information of such deposit takers.

POWERS, DUTIES AND PENALTIES

Vast and exhaustive powers have been conferred on the Authorities including the powers of inquiry, inspection, call for information, search, seizure, summons, arrests and power to pass order for freezing of assets /accounts and heavy penalties have been imposed on the defaulting deposit takers.

REGULATED DEPOSIT SCHEMES

The following will be regarded as Regulated Deposit Schemes where such schemes are regulated by

1) SEBI

2) RBI

3) IRDAI

4) State Government /Union Territory Government

5) National Housing Bank

6) Pension Fund Regulatory and Development Authority

7) Employees Provident Fund Organization

8) Central Registrar, Multi State Co-operative Society

– Amounts accepted from members / shareholders of a Co-operative society shall be deemed to be deposits if such members / shareholders are nominal/associate members by whatever name called who do not have full voting rights in the meetings of such co-operative society.

9) Ministry of Corporate Affairs

– Deposits accepted under Chapter V of The Companies Act, 2013

– Deposits accepted by Nidhi companies.

Impact

Every Ponzi scheme is followed by a new law and such reactive law-making adds to the woes of genuine entrepreneurs. The penal provisions under such law are equally scary. ‘Scheme’ means to make plans, especially in a devious way or with intent to do something illegal or wrong. The intention is to prohibit such persons from defrauding investors.

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