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Banning of Unregulated Deposit Scheme Ordinance 2019

The Banning of Unregulated Deposit Schemes Bill, 2019 was passed by the Lok Sabha on 13.02.2019 yet couldn’t be passed by the Rajya Sabha. Since the Parliament isn’t in session, the BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019 has been issued by the President of India vide Notification dt. 21.02.2019. As per Article 123 of the Constitution, the President have capacity to declare Ordinances amid opening of Parliament.

It is critical to comprehend the contrast among ‘Act’ and ‘ordinance’. Act is law which is passed by parliament and has likewise gotten the consent of president and is in power. A law is additionally a ‘Law’ however without being liable to the talk and consideration in both or one of the places of the Parliament. The President, subject to conditions as indicated in Article 123 of Constitution, may in meeting with the Cabinet, pass a law as Ordinance. Law is transitory law till its expiry or till it is cancelled or till it is affirmed by the governing body.

Objective:

The Ordinance is to accommodate an exhaustive instrument to boycott Unregulated Deposit Schemes and to secure the enthusiasm of the investors and for issues associated therewith. It means to forestall such unregulated store plans or game plans at their initiation and in the meantime makes requesting, welcoming or tolerating stores compliant with an unregulated saved plan as a culpable offense.

What is “Unregulated Deposit Scheme”?

This term is defined in the “Ordinance u/s 2(17) which provides that Unregulated Deposit Scheme 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 regulated deposit scheme as specified in First Schedule of the Ordinance.

What is a regulated deposit scheme?

Schemes that are listed in Schedule-1.  Currently, schemes that are regulated by SEBI, RBI, IRDA, State Government, Union Territory Government, National Housing Bank, Pension Fund Regulatory and Developmental Authority, EPFO, Multi-State Co-Operative Society, Deposits accepted or permitted under Chapter-V of the Companies Act and any deposits accepted by a company declared as a Nidhi or a Mutual Benefit Society under the Companies Act are regulated deposit schemes.

Deposits accepted under any scheme or an arrangement registered with any regulatory body in India constituted or established under a statute is also considered as a regulated deposit scheme.

Further, Central Government, has a power to notify any other scheme as a regulated deposit scheme.

This Ordinance just covers the Deposit Schemes which are unregulated and which are acknowledged by any store taker by method for business, for example, unlawful store/ponzi plans/unregulated chit finances that hurt little financial specialists (Small Investors).

Now question arise, whether amount received by an Individual as a loan from his friends or relative is covered under this Ordinance?

The answer is BIG NO. This Ordinance is material if there should arise an occurrence of unregulated deposit schemes. Any acknowledgment of deposit or advance from companions, regardless of whether for individual or business objects, are out of the ambit of this Ordinance. In a progression of tweets, the Department of Financial Services has additionally elucidated that this Ordinance exempts Individual, Firm, organizations and LLP and so forth from taking any advance and deposit for their course of business just as definition is likewise clear. So here, it is critical to comprehend the contrast between “Deposit for Business” and “Business of Accepting Deposits” and as indicated by this Ordinance, later one for example “Business of Accepting Deposits” which is Unregulated, is Banned.

List of Offence and punishment under the Ordinance

Offence Imprisonment Monetary 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 – 5 years Up to 10 lakhs
Repeated offenders 5 years – 10 years 10 lakhs – 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

Conclusion-

As opposed to introductory anxieties in regards to people, firms or corporate taking credits from relatives or companions for business or for other individual reasons, won’t be influenced by this Ordinance. Appropriately, there is no prohibition on Individuals/Firm/Companies getting advances for their business purposes.

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