- Acceptance of deposits being receipt of money by various entities is governed by regulatory authorities but such acceptances are also being made apart from the banking sector and it is difficult to regulate these large, diverse and complex non-banking sources leading to unauthorized use.
Some of the examples of the entities accepting deposits being governed by the regulatory authorities are as follows—
- Non-Banking Financial Companies (NBFCs) are regulated by the Reserve Bank of India (RBI);
- Chit Funds and Money Circulation Schemes are under the domain of State Governments;
- Housing Finance Companies come under the purview of National Housing Bank;
- Collective Investment Schemes come under the purview of the Securities and Exchange Board of India;
- and taking of deposits by companies other than NBFCs are regulated by Ministry of Corporate Affairs.
OBJECTIVES OF THE ORDINANCE:
The Banning of Unregulated Deposit Schemes Ordinance, 2019, inter alia, provides for the following, namely:—
to make a provision for banning of unregulated deposit schemes;
to impose an obligation on the deposit taker, pursuant to a regulated deposit scheme, not to commit any fraudulent default in the repayment or return of the deposit;
to provide for deterrent punishment for promoting or operating an unregulated deposit taking scheme;
to provide for punishment for fraudulent default in repayment to depositors;
designation of a Competent Authority by the State Government to ensure repayment of deposits in the event of default by a deposit taking establishment;
|(vi)||to constitute the Designated Courts for such area or areas or such case orcases as per the provisions of the proposed Bill;|
|(vii)||to empower the Central Government to designate an authority which shall create, maintain and operate an online data base for information on deposit takers operating in India; and|
|(viii)||to confer powers and functions upon the Competent Authority includingthe power to attach assets of a defaulting establishment|
PREAMBLE OF THE ORDINANCE:
- To provide for a comprehensive mechanism to ban the unregulated deposit schemes;
- To protect the interest of depositors; and
- for matters connected therewith or incidental thereto.
MEANING OF DEPOSIT
“Deposit” means an amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include:
Amounts received as loan from
Amounts received as loan or financial assistance from
Amounts received from
Amounts received from
subject to the provisions of FEMA, 1999 and the rules and regulations made thereunder;
|e.||Amounts received by way of contributions towards the capital by partners of any partnership firm or an LLP;|
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;
Note: The expression “relative” shall have the same meaning asassigned to it in the Companies Act, 2013.
|g.||Amounts received as credit by a buyer from a seller on the sale of any property (whether movable or immovable);|
|h.||Amounts received by an asset re-construction company which isregistered with the RBI under SARFAESI Act, 2002;|
|i.||Any deposit made under section 34 or an amount accepted by a political party under section 29B of the Representation of the People Act, 1951;|
|j.||Any periodic payment made by the members of the self-help groupsoperating within such ceilings as may be prescribed by the State Governmentor Union territory Government;|
|k.||Any other amount collected for such purpose and within such ceilings as may be prescribed by the State Government;|
An amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business including:
Note: If the amounts received, become refundable, such amounts shall be deemed to be deposits on the expiry of 15 days from the date on which they become due for refund.
MEANING OF DEPOSIT TAKER
“Deposit taker” means—
any individual or group of individuals;
|(ii)||a proprietorship concern;|
|(iii)||a partnership firm (whether registered or not);|
|(iv)||a limited liability partnership;|
|(vi)||an association of persons;|
|(vii)||a trust (being a private trust governed under the provisions of the Indian Trusts Act, 1882 or a public trust, whether registered or not);|
|(viii)||a co-operative society or a multi-State co-operative society; or|
|(ix)||any other arrangement of whatsoever nature, receiving or soliciting deposits, but does not include—
MEANING OF REGULATED DEPOSIT SCHEME
Regulated Deposit Scheme means the schemes listed below:
|S. No.||Regulator||Regulated Deposit Scheme|
|3.||IRDA||A contract of insurance;|
|4.||State Government or Union Territory Government||
|5.||National Housing Bank||Any scheme or an arrangement for acceptance of deposits registered under the National Housing Bank Act, 1987|
|6.||Pension FundRegulatory andDevelopment Authority||Any scheme or an arrangement under the Pension Fund Regulatoryand Development Authority Act, 2013|
|7.||Employees Provident Fund Organisation||Any scheme, Pension Scheme or Insurance Schemeframed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952;|
|8.||Central Registrar, Multi-State Co- operative Societies||Any scheme or an arrangement for acceptance ofdeposits fromvoting members by a Multi-StateCo-operative Society registered under the Multi-StateCo-operative Societies Act, 2002.
It implies that deposits cannot be accepted from non-voting members.
|9.||MCA, Government of India||
|10.||The following shall also be treated as Regulated Deposit Schemes,namely:—
MEANING OF UNREGULATED DEPOSIT SCHEME
“Unregulated Deposit Scheme” means a Scheme or an arrangement underwhich deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme.
BANNING OF UNREGULATED DEPOSIT SCHEMES:
On and from the date of commencement of this Ordinance (i.e.21st February, 2019), the Unregulated Deposit Schemes shall be banned and no deposit taker shall, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an Unregulated Deposit Scheme.
CP Comments on Regulated and Unregulated Deposit Scheme:
The Ordinance defines Regulated and Unregulated Deposit Schemes as stated above. Regulated Deposit Scheme refers to scheme regulated under various statutes and regulations and an exhaustive regulator-wise list of such schemes and the statutes which govern them is provided in Schedule I. Thus, by default all other schemes would automatically fall under Unregulated Deposit Schemes.
The Ministry of Finance (Department of Financial Services) submitted before SCF that ‘definition of unregulated deposit scheme is wide enough to cover in its ambit any scheme that is not specifically regulated. If unregulated deposit scheme were to be defined by characteristics or features, then the possibility is always there that some illegal operators may deliberately disguise schemes to escape the provisions of the Bill, it implies that every scheme which is not regulated by the regulators specified in Schedule I is unregulated deposit scheme’.
While replying to the debate on the Bill in Lok Sabha, the Hon’ble Minister stated ‘I would like to mention that we have ensured, while amending the Bill that no loophole is there and nobody should find a way to misuse it. If we describe it in too much detail, the people may misuse it. Therefore, with great acumen, this has been drafted. However, if there are still any other suggestions while framing the rules, we will ensure that there will be no possibility of misuse of any sort’.
MEANING OF ‘BY WAY OF BUSINESS’
The definition of ‘Unregulated Deposit Scheme’ covers deposits which are accepted or solicited by any deposit taker by way of business.
The term ‘by way of business’ has not been defined in the Ordinance.
In common parlance, whether a particular deposit has been accepted or solicited by way of business or not will depend upon the degree of regularity or frequency with which such an activity is being carried out.
The U.K Financial Conduct Authority has listed out the following factors which need to be taken into account in determining whether ‘I am carrying out activities by way of business’:
OFFENCES AND PUNISHMENT
No deposit taker, while accepting deposits pursuant to a Regulated Deposit Scheme, shall commit any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against such deposit.
OFFENCES AND PUNISHMENT
No person shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, to induce another person to invest in, or become a member or participant of anyUnregulated Deposit Scheme.
OFFENCES AND PUNISHMENT
|4.||A prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 shall be deemed to be an Unregulated Deposit Scheme under this Ordinance.|