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The Banning of Unregulated Deposit Scheme Bill, 2018 was passed by Parliament on 13.2.2019 but the Rajya Sabha could not take it up for consideration, therefore the said law has been enacted through an ordinance promulgated by Hon'ble President of India.

The ordinance is applicable to w.e.f. 21.02.2019 and it applies to the whole of India except the state of Jammu and Kashmir.

IS THERE ANYTHING TO WORRY ABOUT FOR A BUSINESSMAN?

The ordinance issued to ban the unregulated deposit schemes does not stop any entity from seeking funds for its business or an individual raising a quick loan from relatives to tide over a crisis. Similarly, the Banning of Unregulated Deposit Schemes Ordinance, 2019 does not ban small and medium enterprises (SMEs) from receiving loans in the course of, or for the purpose of business.

Individuals borrowing or taking loans or money from relatives or friends for marriage or medical emergency or business needs or any other personal reasons have nothing to fear from the law

WHAT FOR THIS THIS ORDINANCE IS ALL ABOUT?

The Banning of Unregulated Deposit Scheme Ordinance seeks to curb the menace of Ponzi schemes and make such unregulated deposit scheme punishable. This Ordinance will help put a check on the illicit deposit-taking activities like the Saradha scam and Rose Valley chit fund scam in the country that had duped the poor and the financially illiterate of their hard earned savings.

The legislation contains a substantive banning clause, which bans deposit takers from promoting, operating, issuing advertisements, or accepting deposits in any unregulated deposit scheme.

We will understand the ordinance in details here, to whom it is applicable, what to do when it's applicable, what are the consequences of the non-compliance.

  • What is Unregulated Deposit Scheme?
  • What is Banned and its Consequences?
  • Sharing of Information with CBI (Central Bureau of Investigation).
  • Sharing of Information by Banker.
  • Priority of Depositor's claim.
  • Punishment for repeat offenders.
  • Publication of advertisement of Unregulated Deposit Scheme.
  • What is a Deposit?
  • What is Regulated Deposit Scheme?

What is 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 (Discussed Below).

What is Banned?

Section 3 (a) The Unregulated Deposit Scheme is banned.

Consequences:

On Accepting Deposit: Imprisonment for a term which shall not be less than two years but which may extend to seven years and with fine which shall not be less than three lakh rupees but which may extend to ten lakh rupees.

On Default In Repayment: Imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine which shall not be less than five lakh rupees but which may extend to twice the amount of aggregate funds collected from the subscribers, members or participants in the Unregulated Deposit Scheme

Section 3(b): No deposit taker can, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an Unregulated Deposit Scheme.

Consequences: Imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which shall not be less than two lakh rupees but which may extend to ten lakh rupees.

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

Consequences: Imprisonment for a term which may extend to seven years, or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of the fraudulent default referred to in said section, whichever is higher, or with both

Wrongful inducement in relation to Unregulated Deposit Scheme (Sec 5): 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 Unregulated Deposit Scheme.

Consequences: Imprisonment for a term, which shall not be less than one year but which may extend to five years and with fine which, may extend to ten lakh rupees.

  • 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 Unregulated Deposit Scheme under this Act.
  • The law also provides for attachment of properties or assets and subsequent realization of assets for repayment to depositors. Clear-cut timelines have been provided for attachment of property and restitution to depositors. It also enables the creation of an online central database for collection and sharing of information on deposit-taking activities in the country.

Sharing of Information with CBI (Central Bureau of Investigation).

Every deposit taker that commences or carries on its business of Regulated/Unregulated Deposit Schemes shall intimate to the competent authority about its businessWhoever fails to give the intimation required or fails to furnish any such statements, information or particulars as required, shall be punishable with fine, which may extend to five lakh rupees. (Sec-26)

The Competent Authority may, if it has reason to believe that the deposits are being solicited or accepted pursuant to an Unregulated Deposit Scheme, direct any deposit taker to furnish such statements, information or particulars, as it considers necessary, relating to or connected with the deposits received by such deposit taker.

The Competent Authority shall share all information received with the Central Bureau of Investigation.

Sharing of Information by Banker.

Where the principal officer of any banking company, a corresponding new bank, the State Bank of India, a subsidiary bank, a regional rural bank, a co-operative bank or a multi-State co-operative bank has reason to believe that any client is a deposit taker and is acting in contravention to the provisions of this Act, he shall forthwith inform the same to the Competent Authority.

Priority of Depositor's claim.

Any amount due to depositors from a deposit taker shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Government or the local authority.

Punishment for repeat offenders

Whoever having been previously convicted of an offence punishable under this Chapter, except the offence under sec 26, is subsequently convicted of an offence shall be punishable with imprisonment for a term which shall not be less than five years but which may extend to ten years and with fine which shall not be less than ten lakh rupees but which may extend to fifty crore rupees.

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 Unregulated Deposit Scheme, 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.

What is a 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, but does not include -

(a) The Amounts received a loan from a scheduled bank or a co-operative bank or any other banking company as defined in section 5 of the Banking Regulation Act, 1949;

(b) The Amounts received a loan or financial assistance from the Public Financial Institutions notified by the Central Government in consultation with the Reserve Bank of India or any non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 and is registered with the Reserve Bank of India or any Regional Financial Institutions or insurance companies;

(c) The Amounts received from the appropriate Government, or any amount received from any other source whose repayment is guaranteed by the appropriate Government, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

(d) The amounts received from foreign Governments, foreign or international banks, multilateral financial institutions, foreign Government owned development financial institutions, foreign export credit collaborators, foreign bodies corporate, foreign citizens, foreign authorities or persons resident outside India subject to the provisions of the Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder;

(e) The amounts received by way of contributions towards the capital by partners of any partnership firm or a limited liability partnership;

(f) The amounts received by an individual by way of loan from his relatives or amounts received by any firm by way of loan from the relatives of any of its partners;

(g) The amounts received as credit by a buyer from a seller on the sale of any property (whether movable or immovable);

(h) The amounts received by an asset reconstruction company which is registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(i) Any deposit made under section 34 or an amount accepted by a political party under section 29B of the Representation of the People Act, 1951;

(j) Any periodic payment made by the members of the self-help groups operating within such ceilings as may be prescribed by the State Government or Union territory Government;

(k) Any other amount collected for such purpose and within such ceilings as may be prescribed by the State Government;

(l) An amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business including -

(i) payment, advance or part payment for the supply or hire of goods or provision of services and is repayable in the event the goods or services are not in fact sold, hired or otherwise provided;

(ii) advance received in connection with the consideration of immovable property under an agreement or arrangement subject to the condition that such advance is adjusted against such immovable property as specified in terms of the agreement or arrangement;

(iii) security or dealership deposited for the performance of the contract for the supply of goods or provision of services; or

(iv) an advance under the long-term projects for supply of capital goods except those specified in item (ii):

If the amounts received under items (i) to (iv) become 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.

Explanation - for the purposes of this clause, -

(i) In respect of a company, the expression 'deposit' shall have the same meaning as assigned to it under the Companies Act, 2013;

(ii) in respect of a non-banking financial company registered under the Reserve Bank of India Act, 1934, the expression 'deposit' shall have the same meaning as assigned to it in clause (bb) of section 45-I of the said Act;

(iii) The expressions 'partner' and 'firm' shall have the meanings respectively assigned to them under the Indian Partnership Act, 1932;

(iv) The expression 'partner' in respect of a limited liability partnership shall have the same meaning as assigned to it in clause (q) of section 2 of the Limited Liability Partnership Act, 2008;

(v) The expression 'relative' shall have the same meaning as assigned to it in the Companies Act, 2013;

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