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Highlights of Banning of Unregulated Deposit Schemes Ordinance 2019.
Applicable from 21st February 2019 to whole of india except jammu and Kashmir.
Earlier Unregulated Deposits Schemes Bill 2019 was passed by Lok Sabha on 13th February 2019.
Could not be presented in Rajya Sabha.
Become Ordinance w.e.f 21st February 2019.
Purpose of this ordinance
Section 3 to section 6
a. Complete Ban on unregulated deposit schemes
b. No to operate/promote/issue any advertisement for soliciting any participation or enrolment in or accept deposit in pursuance of unregulated deposit schemes.
c. Default in repayment of regulated deposit scheme
Meaning of Unregulated deposit
As per definition in clause (17) “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 a Regulated Deposit Scheme, as specified under column (3) of the First Schedule. Total 9 regulators governing schemes.
Now the meaning of by way of deposit can be termed as primary activity is to accept deposits from the public either for money lending business or for any other purpose, for some consideration (either high returns or any other property). Like MLM schemes, chit fund schemes not regulated and such other schemes in which deposits are invited to offer good returns either in money or in kind or even if such returns are not offered or given but deposits are accepted as a substantial activity for further lending.
Meaning of Deposits
Any amount of advance/loan or any other form taken with promise to return with or without any benefit.
Some of the important receipts which are excluded from the definition of deposits are:-
a. any amount received as loan from a banking company, cooperative bank,
b. amount received as loan or financial assistance from financial institutions or NBFC
c. amounts received from foreign government, foreign banks, foreign development institutions foreign citizens, foreign authorities or person resident outside India as per the provisions of FEMA.
d. amounts received by way of contributions towards the capital by partners of any partnership firm or a limited liability partnership; (However loans advanced by the partner to the firm is not exempt)
e. 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;
Meaning of Relative as per companies act 2013
1. Husband wife
2. Members of HUF
3. Father (including step father)
4. Mother (including step mother)
5. Son (including step son)
6. Son’s wife
7. Daughter
8. Daughter’s husband
9. Brother (including step brother)
10. Sister (including step sister)
f. amounts received as credit by a buyer from a seller on the sale of any property (whether movable or immovable);
g. 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;
h. any other amount collected for such purpose and within such ceilings as may be prescribed by the State Government;
i. an amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business
including-
- 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;
- 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;
- security or dealership deposit for the performance of the contract for supply of goods or provision of services; or
- an advance under the long-term projects for supply of capital goods.
However, if the above amounts mentioned in (i) to (iv) become refundable and they are not refunded on the expiry of fifteen days, they shall be deemed to be deposits.
Moreover if the above amounts are taken to deal in the goods or properties or services which requires some necessary permission or approval under any law, such amounts shall be deemed to be deposits if the necessary permission or approval are not obtained.
For companies, deposit means as defined acceptance of deposit rules 2014.
For NBFCs’ as per section 45-I of RBI Act, 1934
Meaning of Depositor
Any person who make deposit
Meaning of Deposit Taker
a. Individual or group of individuals
b. A proprietorship concern
c. A partnership firm (whether registered or not)
d. LLP
e. Company
f. AOP
g. Trust (private or public)
h. Cooperative society or multi state cooperative society
i. Any other arrangement
receiving or soliciting deposit, but excluding
(i) Corporation incorporation under act of parliament or a state legislature
(ii) Banking company, cooperative bank or multi state cooperative bank.
Intimation about taking deposits
All deposit takers engaged in any business are required to intimate about any deposit taken on or after 21.02.2019 and their business to an authority designated for central database for the information on deposit takers. This will enable the competent authority to verify as to whether deposits are taken in pursuance of Unregulated deposit scheme.
What are penal consequences.
In addition to the attachment of property of the deposit takers there are provisions of punishment and imposition of fine.
Soliciting deposits: Imprisonment between 1 year and 5 years and fine 2 lakh to 10 lakh.
Accepting unregulated Deposits: Imprisonment between 2 and 7 years and 3 lakh to 10 lakh rupees.
Default in repayment of unregulated deposits: Imprisonment between 3 and 10 years, and a fine from 5 lakh to twice the amount collected from depositors.
Default in repayment of regulated deposits: Imprisonment between 0 to 7 years or with fine 5 Lakh to 25 crore or 3 times the amount of profit from such default, whichever is higher or with both.
Repeated offenders under the Bill will be punishable with imprisonment between five to 10 years, along with a fine ranging from 10 lakh to 50 crore rupees.
Further Offences are non Bailable
FREQUENTLY ASKED QUESTIONS
Q1. Whether Loans taken for Personal Needs Are Also Banned :
Ans. No, only deposits which are taken by way of business are banned.
Q2. Whether the Individual, Firm, HUF etc. can Obtain Deposit Etc. From Non-Relative Etc. for Money Lending Business :
Ans. No , such amount is covered in the definition of unregulated deposits and is banned in section 3. Further, RBI also prohibit any person to involve in money lending business without RBI registration.
Q 3 Whether loan can be taken for business use from any person other than relative?
Ans. Yes, loan can be taken from any person for the purpose of business other than money lending business, only requirement is to intimate such deposit with prescribed authority, although rules not yet notified.
Q 4 Whether deposits taken in MLM business/scheme are banned?
Ans. If the deposits taken in MLM scheme which is its main business (not involved in sale of goods or services), it will amount to accepting deposits by way of business and thus it is banned in the scheme.
Q 5 What is the requirement or provision under the ordinance for loan taken from relatives by individuals?
Ans. The amount received which are excluded from the meaning of deposits are not covered under the ordinance, hence there is no requirement to intimate the same and no provisions of this ordinance are applicable.
Q 6 What is the requirement or provision under the ordinance for loan taken by a company?
Ans. For companies the deposits are as per Acceptance of deposit rules 2014 and hence we have to see whether it is falling under the meaning of deposits in those rules, if it is deposit than we have to see whether it is by way of business to cover in unregulated deposits schemes.
Q 7 What is the position of companies/entities offering assured return in property investment scheme?
Ans. For the both companies and other entities if they accept advance against any property and as per the agreement the advance will be adjusted against the immovable property, then the same is out of the meaning of deposits and hence out of the purview of this ordinance. In other case it may amount to accepting unregulated deposit and hence is banned in the ordinance as Unregulated Deposit Schemes.
Q 8 What about the deposit schemes run by Jewellers are they covered under the ordinance?
Ans. If the jeweller is company then if the advance taken and not adjusted against goods or returned within 365 days, then covered under deposit and will be termed as unregulated deposit schemes. Otherwise the same will be treated as amount received against sale of goods.
In case of entity other than company, there is no time limit to adjust the advance against goods so the scheme of deposit can be extended beyond 12 months.
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