Banning of Unregulated Deposit Schemes Ordinance, 2019

Ministry of Law and Justice has promulgated the Banning of Unregulated Deposit Schemes Ordinance, 2019 (Hereinafter referred as the Ordinance). The objective of this ordinance is to have a central legislation to tackle the menace of illicit deposits taking activities in the country.

This Ordinance, therefore, ensures a comprehensive ban on unregulated deposit taking activity and for its effective enforcement. It aims to prevent such unregulated deposit schemes or arrangements at their inception and at the same time makes soliciting, inviting or accepting deposits pursuant to an unregulated deposited scheme as a punishable offence. The said Ordinance also seeks to put in place a mechanism by which the depositors can be repaid without delay by attaching the assets of the defaulting establishments.

Key Highlights of Banning of Unregulated Deposit Schemes Ordinance, 2019

1. This ordinance is effective from 21 February 2019.
2. The Ordinance is applicable to all persons i.e. individuals, HUF, Private Trust (Registered or unregistered), Public Trust (Registered or unregistered), Company, society, Partnership Firm (Registered or unregistered), Proprietary Concern, LLP, association of persons…
3.  Pursuant to this ordinance following is banned:                                                                           The unregulated Deposit Scheme[1] in all forms  [Sec-3]
   Promotion or issue of any advertisement soliciting participation or enrolment in or accept deposits[2] in pursuance of an unregulated Deposit scheme.  [Sec-3]
   Any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against deposit pursuant to a regulated Deposit scheme [Sec-4]
   making any statement promise or forecast which is false deceptive or misleading in material facts or deliberately concealing any material facts to induce another person in or become a member or participant of any unregulated deposit scheme [Sec-5]
   A prize chit or 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 [Sec-6]
4. The ban is not on taking deposit for personal use
5. The definition of Deposit as per Section 2(4) of the Ordinance has certain exclusions as provided above. If any money taken fits in those exclusions then it will not be considered as “deposit”. If it is not considered as “deposit” then there is no ban on accepting such money by any person.  
6. A Company and NBFC were always having the restrictions on acceptance of deposit as per their respective acts. Now, even LLPs, Individuals, HUFs, Firms etc. are also covered under the Ordinance.
7.  The Ordinance has given list of Regulated Deposit Schemes in the First Schedule under Column (3). [Refer Annexure 2]
8. The State Government shall appoint Competent Authority to monitor in each State/Union Territory [Section 7 of the Ordinance].
9. The Central Government may designate an authority which shall create, maintain and operate an online data base for information on deposit takers operating in India [Section 9(1) of the Ordinance].
10.  Every Deposit taker which commences or carries on its business as such on or after the commencement of this ordinance, shall intimate the authority referred to in Section 9(1) of the Ordinance in such form and manner as may be prescribed.
11.  Save as otherwise provided in SARFAESI[3] Act, 2002 and IBC, 2016[4], any amount due to depositors from deposit takers shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Govt or local authority [Section 12 of the Ordinance].
12. Save as otherwise provided in SARFAESI Act, 2002 and IBC, 2016, any amount due to depositors from deposit takers, an order of provisional attachment passed by the Competent Authority shall have precedence of attachment [Section 13 of the Ordinance].
13.  Penalty:- Every offence punishable under this Ordinance are cognizable and non-bailable except in case of default in repayment and failure to give details of deposits as required  [Section 21 of the Ordinance]
14. Offences by deposit takers

Act	Imprisonment (min-max)	Penalty (min-max)
Solicits deposits in contravention to sec 3	1-5 years	Rs. 2-10 lacs
Accepts deposits in contravention to sec 3	2-7 years	Rs. 3-10 lacs
Accepts deposits & fraudulently defaults in refund,  in contravention to Sec 3	3-10 years	Rs. 5 lacs -2 times the amount collected
Deposit in contravention to Sec 4	< 7 years	Rs 5 lacs- 25 crore/ 3 times profit w.e. is higher.
Deposit in contravention to Sec 5	1-5 years	< Rs 10 lacs
Repeat offenders	< 5 years	Rs 10 lacs- 50 crore
Failing to give intimation under Sec 10		Rs 5 lacs

[1] Refer Annexure 1 for definition

[2] Refer Annexure 2 for FIRST SCHEDULE
[3]SARFAESI Act, 2002 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 

[4]IBC, 2016 - Insolvency and Bankruptcy Code, 2016