April 2019

BAN ON UNREGULATED DEPOSIT SCHEMES

P.N. Shah
Chartered Accountant

1.  BACKGROUND


The Lok Sabha passed the “Banning of Unregulated Deposit Schemes Bill, 2019” on 13th February, 2019. As the said Bill could not be passed by Rajya Sabha before the Parliament was dissolved, the Hon’ble President has issued an Ordinance called “The Banning of Unregulated Deposit Schemes Ordinance, 2019”, on 21st February, 2019. This has come into force on 21st February, 2019. The main objective of the Ordinance is to provide for a comprehensive mechanism to ban unregulated deposit schemes and to protect the interest of depositors. The Ordinance contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme. It creates three different types of offences, viz., Running Unregulated Deposit Schemes, Fraudulent default in Regulated Deposit Schemes and Wrongful inducement in relation to Unregulated Deposit Schemes. There are adequate provisions for disgorgement or repayment of deposits in cases where such schemes have managed to raise deposits illegally. The Ordinance provides for attachment of properties/assets of the deposit taker by the Competent Authority and subsequent realisation of assets for repayment to the depositors. However, there are some controversial provisions in the Ordinance which have created some practical issues. In this article an attempt is made to discuss some of the important provisions of this Ordinance.

 

2. UNREGULATED DEPOSIT SCHEMES


(i)     Section 2(17) of the Ordinance states that an “Unregulated Deposit Scheme” shall mean a Scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business. However, this term does not include a deposit taken under the Regulated Deposit Scheme as stated in the First Schedule to the Ordinance.

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