Banning of Unregulated Deposit Schemes Ordinance 2019
The government has released the Banning of Unregulated Deposit Schemes Ordinance 2019 on 21st of February, 2019. It is applicable to the whole of India except the State of Jammu and Kashmir.
After the issuance of this ordinance-
- any Individual or group of individuals can’t take any deposit or loan from any person other than relatives and,
- A partnership firm can take deposit or loan from relatives of partner or partners only.
The Banning of Unregulated Deposit Ordinance puts a check only on illicit deposit schemes that dupe gullible investors but it does not prohibit those regulated by law like chit funds.
The Ordinance and its Need
Investors looking for a return which is considerably higher than what the market generates often fall for unregulated deposit schemes called Ponzi schemes. And due to the absence of regulation, deceitful promoters of this kind of schemes take the advantage by collecting funds from public and then they take a quick exit which leaves investors empty-handed.
But now this has been completely banned by the Government which has provided a protective layer for the investors.
Only those statues which are enacted by Central and State Governments are authorized to raise deposits from the public under the provisions and apart from the above statues, if anybody is caught inviting, accepting, promoting and soliciting deposits for unregulated schemes will be considered as a punishable offense.
Types of Offences
The law also proposes to create three different types of offenses:
Unjustifiable Default in Regulated Deposit Scheme – While accepting deposits from public under-regulated deposit scheme shall not commit any unjustifiable default or any deceitful act in the repayment or return of deposit on maturity or in providing any service which was promised against such deposit.
Running of Unregulated Deposit Schemes – From 21st February 2019, unregulated schemes are banned with certain exceptions. No person shall directly or indirectly promote, accept or invite to deposit any amount, the Ordinance provides for severe punishment ranging from 1 year to 10 years and pecuniary fines ranging from Rs 2 lakh to Rs 50 crore to act as a deterrent. It also has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
Wrongful inducement in relation to unregulated deposit schemes – Any deceptive or misleading statement or promise shall not be made deliberately to conceal any material facts with the motive of inducing another person to invest in any amount in Unregulated Deposit Scheme.
Attachment of Properties or Assets
The law 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.
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.
Intimation of Business to be commenced
The Ordinance makes it absolutely necessary for everyone to register before taking a deposit and creating a central repository of all the registered entities which can take deposits. So, whosoever are not registered are not regulated entities.
Authorities may ask the deposit taker to furnish such statements, information or particulars deemed essential for this purpose.