ICICI

The banning of unregulated deposit scheme ordinance, 2019

CA Kapil Goyal 
on 13 March 2019


BASIC

The Government of India on 21st February, 2019 promulgated the unregulated deposit schemes ordinance 2019 to curb Ponzi scheme, this ordinance called The Banning of Unregulated Deposit Schemes Ordinance, 2019. It extends to whole of India except the State of Jammu and Kashmir.

The ordinance provides a comprehensive mechanisium to ban the unregulated deposit scheme and protect the interest of depositors. The Ordinance will immediately tackle the deposit taking activities in the country launched by rapacious operators.

The Ordinance amend the three laws i.e. the Reserve Bank of India Act 1934, the Securities and Exchange Board of India act,1992 and the Multi-State co-operative societies  act, 2002.

WHAT IS 'UNREGULATED DEPOSIT SCHEME'

Section 2(17) of the ordinance defines unregulated deposit schemes 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.

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

  • The Securities and Exchange Board of India(SEBI)
  • The Reserve Bank of India(RBI)
  • The Insurance Regulatory and Development Authority of India(IRDAI)
  • State Government or Union Territory Government
  • National Housing Bank
  • Pension Fund Regulatory and Development Authority
  • Employees Provident fund  Organisation
  • Central Registrar Multi-State Co-operative Societies
  • Ministry of corporate Affairs, Government of India

IMPORTANT DEFINITIONS

DEPOSIT:-

Section 2(4) defines a '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.

DEPOSIT NOT INCLUDE

  1. Amounts received as loan from a scheduled bank or a co-operative bank or any other banking company;
  2. Amounts received as 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.
  3. 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;
  4. Amounts received from foreign Governments, foreign or international banks, multilateral financial institutions, foreign Government.
  5.  amounts received by way of contributions towards the capital by partners of any partnership firm or a limited liability partnership;
  6. 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;
  7. amounts received as credit by a buyer from a seller on the sale of any property (whether movable or immovable);
  8. amounts received by an asset re-construction 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;
  9. any deposit made under section 34 or an amount accepted by a political party under section 29B of the Representation of People Act, 1951;
  10. 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;
  11. any other amount collected for such purpose and within such ceilings as may be prescribed by the State Government;
  12. an amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business including:
  • 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
  • advance received in connection with consideration of an 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;
  • security or dealership deposited for the performance of the contract for supply of goods or provision of services; or
  • an advance under the long-term projects for supply of capital goods except those specified in item (ii):

PROVIDED THAT 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.

DEPSOSIT TAKER

'Deposit taker' means:

  1. any individual or group of individuals;
  2.  a proprietorship concern;
  3. a partnership firm (whether registered or not);
  4. a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
  5. a company;
  6.  an association of persons;
  7. a trust (being a private trust governed under the provisions of the Indian Trusts Act, 1882 or a public trust, whether registered or not);
  8. a co-operative society or a multi-State co­operative society; or
  9. any other arrangement of whatsoever nature,

Receiving or soliciting deposits, but does not include—

  1. a Corporation incorporated under an Act of Parliament or a State Legislature;
  2. a 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 as defined in the Banking Regulation Act,1949;

PERSON

 'Person' includes:

  1. an individual;
  2.  a Hindu Undivided Family;
  3. a company;
  4. a trust;
  5. a partnership firm;
  6. a limited liability partnership;
  7.  an association of persons;
  8.  a co-operative society registered under any law for the time being in force relating to co­operative societies; or
  9. every artificial juridical person, not falling within any of the preceding sub-clauses;

PROPERTY

'Property' means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;

PROHIBITION

Section 3 of the ordinance provide that from the date of commencement of this Ordinance the Unregulated Deposit Schemes shall be banned; and no deposit taker shall, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an Unregulated Deposit Scheme.

WRONGFUL INDUCEMENT IN RELATION TO UNREGULATED DEPOSIT SCHEMES

No person by whatever name called 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.

CENTRAL DATABASE 

 The ordinance provides for the Central Government may designate an authority, whether existing or to be constituted, which shall create, maintain and operate an online database for information on deposit takers operating in India.

COMPLIANCE REQUIREMENTS FOR PERSON TAKING DEPOSITS

 Every deposit taker which commences or carries on its business as such on or after the commencement of this Ordinance shall intimate the authority about its business in such form and manner and within such time, as may be prescribed. 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.

OFFENCES AND PUNISHMENTS


OFFENCES

IMPRISONMENT

FINE( RS)

Any deposit taker who solicits deposits in contravention of Unregulated deposit schemes.

imprisonment  between one year to five years

Fine ranging from two lakh rupees to ten lakh rupees.

Any deposit taker who accepts deposits in contravention of Unregulated deposit schemes.

Imprisonment between two years to seven years

fine ranging from three lakh rupees to ten lakh rupees

Any deposit taker who accepts deposits in contravention of Unregulated deposit schemes. and fraudulently defaults in repayment of such deposits or in rendering any specified service,

Imprisonment between three years to ten years

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

Any deposit taker who contravenes the provisions of section 4

imprisonment for a term which may extend to seven years,

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.

Any person who contravenes the provisions of section 5

punishable with imprisonment for a term which shall not be less than one year but which may extend to five years

fine which may extend to ten lakh rupees.

Punishment for repeat offenders.

Imprisonment between  five years to ten years

fine ranging from ten lakh rupees but to fifty crore rupees.

Punishment for contravention of section 10.

 

punishable with fine which may extend to five lakh rupees.


The author can also be reached at kapilca@yahoo.co.in


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