Banning of Unregulated Deposit Schemes Ordinance 2019

On the 21st of February, 2019, the Government has released the Banning of Unregulated Deposit Schemes Ordinance 2019. The proposed ordinance is set to tackle the deposit-taking activities in the country launched by rapacious operators, the likes of whom are exploiting the regulatory gaps and lack of strict administrative measures. The move would potentially save unaware investors from upregulated deposit schemes, also known as Ponzi schemes and put a lid on illicit-deposit taking activities by deeming it punishable. The Bill has been assented by the Lok Sabha through a voice-vote based on the Cabinet’s request to the President. This article is an overview of this Ordinance.

The Ordinance and its Need

Non-banking entities, till now, are authorized to raise deposits from the public under the provisions of various statutes enacted by the Central and State Governments. However, the regulatory framework for deposit-taking activities in the country isn’t seamless, and as a result, we have a lot of schemes and arrangements leading to the unauthorized collection of money. The newly released Ordinance ensures a comprehensive ban on unregulated deposit-taking activities at its very inception. Apart from this, it penalizes any instance of soliciting, inviting or accepting deposits pursuant to an unregulated deposit scheme; and seeks to repay the depositors without any delay by attaching the defaulting establishments.

Types of Offences

The law seeks the creation of the following types of offences:

Fraudulent Default in Regulated Deposit Scheme

Deposit takers, while accepting deposits pursuant to a Regulated Deposit Scheme, are ordered to abstain from committing any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified services promised against such deposit.

Running of Unregulated Deposit Schemes

Unregulated Deposit Scheme, in this context, refers to a prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978. Any person pursuant to such schemes is liable to be punished under the Ordinance.

Wrongful Inducement in Relation to Unregulated Deposit Scheme

No statement, promise or forecast shall be made if it is false, deceptive or misleading in material facts or deliberately conceals any material facts with the object of inducing another person to invest in or become a member or participant of any Unregulated Deposit Scheme.

Deposit or Loan Provisions

The Ordinance prohibits any individuals or group of individuals from availing any deposit or loans from any person other than relatives. On the other hand, partnership firms are only allowed to avail deposits or loans from relatives or partners.

Clause for Punishment and Fine

The Ordinance provides for the punishment of the defaulters of the stated regulations, which may range between one-ten years. This would be added with fines ranging between Rs. 2 lakhs to Rs. 50 crores. Also, the Ordinance contains adequate provisions for disgorgement or repayment of deposits in instances where such schemes manage to raise deposits illegally.

Attachment of Properties

The law facilitates the attachment of properties or assets and subsequent realization of assets for repayment to depositors.

Central Database

The Central Government may designate an authority to create, maintain and operate an online database to track any instance of deposit takers operating in India.

Intimation of Business to be Commenced

Deposit takers who are commencing or pursuing any business are hereon required to intimate the same to the concerned authorities in the prescribed manner and form. If the authorities have reason to believe that the deposits are being solicited or accepted pursuant to an Unregulated Deposit Scheme may ask the deposit taker to furnish such statements, information or particulars deemed essential for this purpose.

Powers of Police Officers

Any police officer, who isn’t ranked below that of an officer-in-charge of a police station, may initiate proceedings against a suspected defaulter under these provisions. The officer may initiate proceedings to enter, search, make essential seizures of records or property, and even take the concerned person into custody so as to produce such person in court. If the seizure is not practicable, the Officer may produce a written order directing the freeze of the property, account, deposits or valuable securities maintained by such deposit taker. Searches, seizures and arrests conducted under this provision must comply with the provisions of the Code of Criminal Procedure, 1973.