Banning of Unregulated Deposit Schemes Ordinance 2019

On the 21st of February, 2019, the Government unveiled the Banning of Unregulated Deposit Schemes Ordinance 2019. This critical legislation targets the unauthorized deposit-taking activities proliferated by unscrupulous operators who exploit regulatory loopholes and lack stringent administrative checks. By criminalizing such practices, the ordinance aims to shield unsuspecting investors from fraudulent schemes like Ponzi schemes and curb unlawful deposit activities. The Bill was endorsed by the Lok Sabha through a voice vote at the Cabinet's behest. This article provides an in-depth overview of this significant Ordinance.

The Ordinance and its Need

Until recently, non-banking entities could raise deposits from the public under various laws enacted by the Central and State Governments. However, the regulatory framework for deposit-taking has been inconsistent, leading to unauthorized money collections. The Banning of Unregulated Deposit Schemes Ordinance 2019 enforces a comprehensive ban on such activities from their inception. It also penalizes the solicitation, invitation, or acceptance of deposits through unlawful schemes and mandates expeditious repayment to depositors by seizing assets from defaulting entities. For more details on regulations, explore our tax registration guide.

Types of Offences

Fraudulent Default in Regulated Deposit Scheme

Deposit takers in regulated schemes must avoid any fraudulent default related to repayment or promised services. This measure is crucial in protecting depositors and maintaining the integrity of regulated financial schemes.

Running of Unregulated Deposit Schemes

The term "Unregulated Deposit Scheme" includes illegal prize chits or money circulation systems prohibited by the Prize Chits and Money Circulation Scheme (Banning) Act, 1978. Individuals involved in these schemes are subject to penalties under the ordinance.

Wrongful Inducement in Relation to Unregulated Deposit Scheme

No person is allowed to make false, deceptive, or misleading statements with the intent to induce others into joining or investing in any Unregulated Deposit Scheme. Such acts are punishable as per law.

Deposit or Loan Provisions

The Ordinance bars individuals or groups from obtaining deposits or loans except from relatives. Similarly, partnership firms may only accept such funds from partners or relatives. This regulation intends to streamline deposit-taking and ensure transparency, much like the controls in place for company registration procedures.

Clause for Punishment and Fine

Penalties for ordinance violations range from one to ten years in prison and fines between Rs. 2 lakhs to Rs. 50 crores. There are also provisions for the reimbursement of illegally raised deposits, similar to measures found in various annual company filing processes.

Attachment of Properties

The ordinance allows for the attachment and liquidation of properties and assets for depositor compensation. This aligns with strategies in jurisdictions like Kanpur with GST and ITR filing, ensuring fairness and accountability.

Central Database

The Central Government may appoint an authority to establish an online database for tracking deposit takers operating nationwide. This is part of a broader strategy to foster responsibility, similar to systems implemented in income and tax declarations for crypto.

Intimation of Business to be Commenced

Businesses initiating or continuing operations must report to the relevant authorities. If unregulated deposits are detected, they must submit necessary information or reports. This is part of the compliance similar to the rules for a successful India business startup.

Powers of Police Officers

Police officers of adequate rank can initiate proceedings against suspected offenders under this ordinance. They have the authority to conduct searches, seizures, and arrests, following the Code of Criminal Procedure, 1973. This underscores the importance of adherence to procedural laws in enforcement actions.

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Frequently Asked Questions

Common questions about Banning of Unregulated Deposit Schemes Ordinance 2019.

The Banning of Unregulated Deposit Schemes Ordinance 2019 is a new law introduced by the Indian government to tackle the issue of unauthorized deposit-taking activities and unregulated deposit schemes, also known as Ponzi schemes. It aims to protect investors from falling prey to such schemes by imposing strict regulations and penalties.

This Ordinance was introduced because the existing regulatory framework for deposit-taking activities in India had gaps and loopholes, which allowed unscrupulous operators to exploit the system and collect money from the public through unauthorized and unregulated deposit schemes. The Ordinance seeks to fill these gaps and provide a comprehensive ban on such activities.

The Ordinance defines three main types of offenses: fraudulent default in regulated deposit schemes, running of unregulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes. It covers any activities related to soliciting, inviting, or accepting deposits pursuant to an unregulated deposit scheme.

The Ordinance provides for punishment ranging from 1 to 10 years of imprisonment and fines ranging from Rs. 2 lakhs to Rs. 50 crores for those found guilty of violating its provisions. It also allows for the attachment of properties or assets and their subsequent realization for repayment to depositors.

Yes, the Ordinance prohibits individuals or groups of individuals from availing deposits or loans from any person other than their relatives. Partnership firms are only allowed to avail deposits or loans from relatives or partners.

The Ordinance allows the Central Government to designate an authority to create, maintain, and operate an online database to track any instance of deposit takers operating in India. This is intended to help monitor and regulate such activities effectively.

Yes, the Ordinance requires deposit takers who are commencing or pursuing any business to intimate the concerned authorities in the prescribed manner and form. Authorities can also ask for statements, information, or particulars if they suspect that deposits are being solicited or accepted pursuant to an unregulated deposit scheme.

Police officers not below the rank of an officer-in-charge of a police station can initiate proceedings against suspected defaulters, including entering, searching, seizing records or property, and taking the concerned person into custody for producing them in court. They can also freeze properties, accounts, deposits, or valuable securities maintained by the deposit taker.

The Ordinance contains provisions for disgorgement or repayment of deposits in instances where unregulated deposit schemes manage to raise deposits illegally. It also facilitates the attachment of properties or assets and their subsequent realization for repayment to depositors.

Yes, the Ordinance empowers police officers to conduct searches, seizures, and arrests in compliance with the provisions of the Code of Criminal Procedure, 1973. However, such actions must be carried out by officers not below the rank of an officer-in-charge of a police station.