Important features of the banning of unregulated deposits scheme ordinance 2019
The Finance Minister in the Budget Speech 2016-17 had announced that a comprehensive central legislation would be brought in to deal with the
menace of illicit deposit taking schemes, as in the recent past, there have been rising instances of people in various parts of the country being
defrauded by illicit deposit taking schemes. The worst victims of these schemes are the poor and the financially illiterate, and the operations of such schemes are often spread over many States.
The Government has just passed the Banning of Unregulated Deposits Scheme Ordinance, 2019 on 21st
February, 2019 to ban unregulated deposits.
This article would explain the salient features of this bill definition of depositor and deposit taker according to scheme, Banning of unregulated deposits scheme, what is regulated deposit scheme and unregulated deposit scheme under the ordinance, fraudulent default in regulated deposit scheme, attachment of property of dissimulating transferees, punishment, penalties for contravention etc.
What are depositor or deposit takers?
Depositor:- According to law, any person, who makes deposits under this ordinance called the Depositor. In other word person making deposit under this scheme are termed as Depositors.
Deposits takers:- every person whether any individual or group of individuals, proprietorship concern, partnership firm, LLP, company, AOP, trust, co-operative society and any other arrangement of whatsoever nature, receiving or soliciting deposits called Deposit taker except following:-
I. a Corporation incorporated under an Act of Parliament or a State Legislature;
II. 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.
Regulated Deposit Scheme (RDS) – Deposits schemes listed in First Schedule of the Ordinance are Regulated Deposit Schemes (RDS). Apart from this, deposits accepted under any scheme or an arrangement registered with any regulatory body in India constituted or established under a statute shall be treated RDS. The Regulator and Regulated Deposit Scheme refers to the regulators-and schemes and arrangements listed
in the First Schedule of ordinance. Here is the First Schedule of Ordinance:-
| SI No. |
Regulator | Regulated Deposit Scheme |
| 1. | Securities and Exchange Board of India | (i) Any scheme or an arrangement [as defined under section 11AA of the Securities and Exchange Board of India Act, 1992 (15 of 1992)] launched, sponsored or carried out by a Collective Investment Management Company registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999.
(ii) Any scheme or an arrangement registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. (iii) Any scheme or an arrangement, pursuant to which funds are managed by a portfolio manager, registered under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993. (iv) Any scheme or an arrangement regulated under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 or providing for employee benefits as permitted under the Companies Act, 2013 (18 of 2013). (v)Any other scheme or an arrangement registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992), or the regulations made thereunder. (vi) Any amount received as contributions in the nature of subscriptions to a mutual fund registered with Securities and Exchange Board of India under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. |
| 2. | Reserve Bank of India | (i) Any scheme under which deposits are accepted by Non-Banking Financial Companies as defined in clause (f) of section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934) and registered with the Reserve Bank of India; or any other scheme or an arrangement registered under the Reserve Bank of India Act,1934.
(ii) Any scheme or an arrangement under which funds are accepted by individuals or entities engaged as Business Correspondents and Facilitators by banks subject to the Guidelines and Circulars issued by the Reserve Bank of India from time to time. (iii) Any scheme or an arrangement under which funds are received by a system provider operating as an authorised payment system under the Payment and Settlement Systems Act, 2007 (51 of 2007). (iv) Any other scheme or an arrangement regulated under the Reserve Bank of India Act, 1934 (2 of 1934), or the guidelines or circulars of the Reserve Bank of India. |
| 3. | The Insurance Regulatory and Development Authority of India | A contract of insurance pursuant to a certificate of registration obtained in accordance with the Insurance Act, 1938 (4 of 1938). |
| 4. | State Government or Union territory Government | (i) Any scheme or an arrangement made or offered by a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to cooperative societies for the time being in force in any State or Union territory.
(ii) Any scheme or an arrangement commenced or conducted as a chit business with the previous sanction of the State Government in accordance with the provisions of the Chit Funds Act, 1982 (40 of 1982). (iii) Any scheme or an arrangement regulated by any enactment relating to money lending which is for the time being in force in any State or Union territory. (iv) Any scheme or an arrangement by a prize chit or money circulation scheme under section 11 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (43 of 1978). |
| 5. | National Housing Bank | Any scheme or an arrangement for acceptance of deposits registered under the National Housing Bank Act, 1987 (53 of 1987). |
| 6. | Pension Fund Regulatory and Development Authority | Any scheme or an arrangement under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of
2013). |
| 7. | Employees Provident Fund Organisation | Any scheme, Pension Scheme or Insurance Scheme framed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952). |
| 8. | Central Registrar, Multi-State Co-operative Societies | Any scheme or an arrangement for acceptance of deposits from voting members by a Multi-State Co-operative Society registered under the Multi-State Co-operative Societies Act, 2002 (39 of 2002). |
| 9. | Ministry of Corporate Affairs, Government of India | (i) Deposits accepted or permitted under the provisions of Chapter V of the Companies Act, 2013 (18 of 2013).
(ii) Any scheme or an arrangement under which deposits are accepted by a company declared as a Nidhi or a Mutual Benefit Society under section 406 of the Companies Act, 2013 (18 of 2013). |
Unregulated Deposit Scheme (UDS):- UDS means a scheme or an arrangement which are not Regulated Deposit Scheme (RDS) as specified under the first schedule and under which deposits are accepted or solicited by any deposit taker by way of business/profit making purpose.
Banning of Unregulated Deposit Scheme (UDS)
Following changes will takes place from the effective date of Ordinance:-
- Banning of all Unregulated Deposit Scheme
- Deposit taker can’t accept or operate any UDS
- Banning of Fraudulent default in Regulated Deposit Scheme(RDS)
- A Prize Chit or Money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 shall be deemed to be an UDS.
Types of Deposits considered under the Ordinance:-
A wide meaning had been given to deposit which cover almost all the cases except provided in exhaustive list. As per section 2(4) of Ordinance Deposits definition is:-
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. Amounts received as loan from a scheduled bank or a co—operative bank or any other banking company.
b. Amounts received as loan or financial assistance from the Public Financial Institutions or any nonbanking financial company or any Regional Financial Institutions or insurance companies;
c. Amounts received from the appropriate Government, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;
d. 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 person resident outside India subject to the provisions of the Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder;
e. amounts received by way of contributions towards the capital by partners of any partnership firm or a limited liability partnership;
f. 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. amounts received as credit by a buyer from a seller on the sale of any property (whether movable or immovable);
h. Amounts received by an asset re—Construction Company.
i. any deposit made under section 34 or an amount accepted by a political party under section 29B of the Representation of 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 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;
(iii) Security or dealership deposited for the performance of the contract for 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):
But 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
Relatives for the purpose of this ordinance, monies received from whom not to be treated as deposits.
Relative Definition:-Same meaning to as “Relatives” has been assigned to as given in Companies Act, 2013. As per Companies Act, 2013 relative means anyone who is related to another, if—
(i) They are members of a Hindu Undivided Family;
(ii) They are husband and wife; or
(iii)Any other person as may be prescribed
Prescribed persons who shall be deemed to be the relative of another, if he or she is related to another in the
following manner, namely: –
(1) Father (includes step-father)
(2) Mother (includes the step-mother)
(3) Son (includes the step-son)
(4) Son’s wife.
(5) Daughter.
(6) Daughter’s husband.
(7) Brother (includes the step-brother)
(8) Sister (includes the step-sister)
Regulated Deposit Schemes: No Fraudulent Default
If any Deposit taker, accepts deposit under any Regulated Deposit Scheme shall not commit any fraudulent default in making repayment of deposit or rendering services promised at the time of taking deposit.
Unregulated Deposit Scheme: No unfair persuading
No person shall knowingly make any statement, forecast or promise which is not true,deceiving or misleading to actual facts,or hide any material fact for the purpose of persuading someone to become a member or make deposit in Unregulated Deposit Scheme(UDS).
Deposit Taker shall make Intimation of Business
Every Deposit taker [person accepting/soliciting deposits as defined in Section 2(4) explained above & Companies(if accepting deposits)] which commence business or carries on existing business discussed under this ordinance shall be required to intimate about the business to authority referred(not yet referred in any notification) in such form and manner as may be prescribed(not yet prescribed)
1. The Competent Authority may, if it has sufficient reason to believe that deposit taker is accepting / soliciting deposits relating to Unregulated Deposit Scheme ,direct such deposit taker to furnish information, statements etc. as it consider necessary related to deposits.
Attachment of Property of Deceptive Transferee
1. If Designated Court is satisfied that there is reasonable cause to believe that the deposit taker has transferred property deceptively, not for comparable consideration, it may by notice require transferee to of such property to appear on a date as specified in notice and show cause why so much of the transferee’s property as is equivalent to the proper value of the property transferred should not be attached.
2. If the said Transferee does not appear on the date specified and Designated Court is satisfied that the property transfer was not bonafide and not for comparable consideration. It shall order for attachment of so much of the said transferee’s property as in its opinion is equivalent to the proper
value of the property transferred.
Punishment for contravention of Section 10 i.e. Intimation of business by deposit taker.
If a deposit taker fails to provide such information statements and other particulars called for by the designated court ,he shall be liable for fine of an amount which may extend to Rs.5 lakh.
Attention to offence
The Designated Court shall not take into notice any offence punishable under section 4 except upon a complaint made by the Regulator.It means an offence shall be taken into consideration on complaint of Regulator.
Offences to be cognizable and non-bailable
Every Offence punishable under this Ordinance shall be considered and Non-bailable i.e. bail for accused is not available except the following offence:-
1. Punishment for contravention of section 4 (Fraudulent default in Regulated Deposit Schemes)
2. Punishment for contravention of section 10 (Intimation of business by deposit taker)
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