Summary of Unregulated Deposit Schemes Ordinance

Ministry of Law and Justice, on 21st February,2019 introduces a new ordinance "THE BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019" to curb the practice of collecting illicit deposit and protecting the small investors. This ordinance has made stringent provision for banning the unregulated deposit, to cease the ponzi schemes and to protect the hard earned money of small investors who are easily persuaded to believe something.

The ordinance extend to Whole of India except J&K.

Deposit has been defined in the ordinance as "amount of money received by the deposit taker in the form of advance or loan with a promise to repay the amount in cash or kind, with or without any benefits. However ordinance has excluded some transactions as deposit such as Amount received as loans from banks, PFIs, government or foreign institution, capital contribution by partner, amount received by individual from relative, advance from customers, amount received to Asset reconstruction companies and so on.

The ordinance is applicable to every Deposit Taker who are receiving or soliciting deposit and it covers individual or group of individuals, partnership, LLP, Companies, Trust, proprietor, association of person, cooperative society and any other arrangement BUT DOES NOT INCLUDE Statutory company and Banking Company. 

The REGULATED DEPOSIT SCHEMES are Given in SCHEDULE I of the ordinance. Schedule I covers the deposit schemes regulated by SEBI, RBI, IRDA, Government, PFRDA, National Housing Bank, EPFO, MCA, Central Registrar of Multi-state cooperative socities.
The deposit accepted under any scheme which is registered with regulatory body or any scheme notified by Central Government shall also be treated as REGULATED DEPOSIT SCHEMES.\
The ordinance provides that no deposit taker shall commit any fraudulent default in the repayment of principal or benefit under Regulated deposit scheme.   
The companies accepting deposit as per COMPANIES ACT,2013 shall be treated as regulated Deposit Schemes

UNREGULATED DEPOSIT SCHEME means a scheme or arrangement under which deposits are accepted or solicited by ANY DEPOSIT TAKER  by way of business AND which is not a Regulated Deposit Scheme.
Any prize chit or a money circulation scheme banned under the provision of Prize Chits and Money Circulation Scheme(Banning) Act, 1978 SHALL BE DEEMED to be a Unregulated Deposit scheme.

The ordinance provides for the banning of unregulated deposit schemes and no deposit taker shall promote any advertisement for the unregulated deposit schemes.


The various offences under the ordinance are Soliciting Deposit under Unregulated Deposit Schemes, Acceptance of deposit under Unregulated Deposit Schemes, the fraudulent default in regulated deposit schemes, Wrongful inducement in relation to Unregulated Deposit Schemes, Failure to file intimation by deposit taker about its business to the authority
The Ordinance also provides for severe punishment ranging from 1 year to 10 years and monetary fines ranging from Rs 2 lakh to Rs 50 crore to act as deterrent.

The ordinance prescribe that Central Government may designate a authority who will act as a central database for information on deposit takers operating in India.The ordinance makes it necessary for every deposit taker to intimate the authority before commencing any deposit scheme.

Any person running deposit scheme without registration would attract penal provisions of this law.

ABOUT THE AUTHOR

Shivam Gera: Commerce Graduate from Satyawati College, University of Delhi and a Budding Company Secretary (All India Rank Holder)

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