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How to check if your deposit is illegal in nature?

CA Sandeep Bhatnagar 
on 16 April 2019


President of India has promulgated the BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019 w.e.f. February 21, 2019. This law has been brought to safeguard the hard-earned money of ignorant depositors from scrupulous deposit takers.

Scope: -

This ordinance is applicable to every person in respect of following three offences: -

  1. Running an unregulated deposit scheme.
  2. Making a fraudulent default in repayment of deposits received under a regulated deposit scheme.
  3. Wrongfully inducing another person to invest in unregulated deposit schemes.

Deposits kept out of ordinance: -

  1. Loan from Banks or Public Financial Institutions.
  2. Amount received from Government or a statutory authority.
  3. Amount received from foreign party or foreign govt. as per provisions of FEMA.
  4. Capital employed by partners in the firm or LLP.
  5. Loan received by a firm from relatives of partner. (Note: Loan from partners, companies not covered)
  6. Loan received by an individual from relative (Note: Loan from friends or any person other than relative not covered).
  7. Amount received as credit by a buyer from a seller on sale of movable or immovable property.
  8. Amount received by an Asset Reconstruction Company.
  9. Amount accepted by a political party.
  10. Periodic payment made by members of self-help groups operating within laws framed by the State Govt.
  11. Any other amount collected for such purpose and within such limit as is prescribed by the State Govt.
  12. Amount received in course of or purpose of business and bearing genuine connection to such business including: -

  1. Payment, advance or part payment for the supply or hire of goods or provision of services.
  2. Advance received in connection with and adjusted against consideration of an immovable property under an agreement.
  3. Security deposit for performance of a contract.
  4. Advance for long term projects for supply of capital goods, If the amount received under (i) to (iv) becomes refundable such amount shall be deemed as deposit on the expiry of 15 days from the date on which it becomes due for refund.

Unregulated Deposit Scheme: -

A deposit scheme which is not registered with any of the following nine regulations is an unregulated scheme: -

  1. SEBI
  2. RBI
  3. State Government
  4. IRDA
  5. National Housing Bank
  6. Pension Fund Regulatory and Development Authority Act, 2013.
  7. Employees Provident Fund Organization.
  8. Central Registrar Multi-State Co-operative Societies.
  9. Ministry of Corporate Affairs 

As can be understood from the scope that wrongful inducement by any person and not just the deposit taker implies that celebrities and brand ambassador of such schemes would also be covered under the law.

In various tweets by Department of Financial Services it has been clarified that Individuals, Firms, Companies and LLP etc. can take loan and deposit for their course of business and are exempt from this Ordinance. Further Chit Funds not sanctioned in accordance with Chit Fund Act, 1982 shall be deemed as unregulated deposits and thus collections in kitty parties are also prohibited.

Offences and Punishment: -



Fine (in Rs.)

Solicit deposits under Unregulated Deposit Schemes

1 year - 5 years

2 lakhs to 10 lakhs

Accept deposits under Unregulated Deposit Schemes

2 years - 7 years

3 lakhs to 10 lakhs

Fraud in repayment of deposits accepted under Unregulated Deposit Schemes

3 years - 10 years

5 lakhs to 200% of aggregate funds collected

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

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.

Wrongful inducements in relation to Unregulated Deposit Schemes

1 year to 5 years

Up to 10 lakhs

Repeated offenders

5 years - 10 years

10 lakhs to - 50 crores

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


However, this Ordinance does not cover personal loans but will affect huge network of unorganized lending prevalent in the country.

The author is a practicing Chartered Accountant and can also be contacted at Any comments or queries are welcome.


The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however it should not be perceived as a professional or legal advice. Reader should consult a professional before making any decision based upon this document. Under no circumstance author or the publisher shall have any liability to you for any loss or damagQe of any kind incurred as a result of the use of this information.

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