The Banning of Unregulated Deposit Schemes Act 2019 has received the assent of the President on the 31st July, 2019. The Act puts a comprehensive ban on unregulated deposit taking activity making it a punishable offence
The President of India on the 21st February, 2019 had promulgated the Banning of Unregulated Deposit Schemes Ordinance, 2019.
The Ordinance has been promulgated to have a central legislation to tackle the menace of illicit deposits taking activities in the country.
Presently, non-banking entities are allowed to raise deposits from the public under the provisions of various statutes enacted by the Central Government and State Governments.
However, the regulatory frame work for deposit taking activity in the country is not seamless. Despite such diverse regulatory frame work, schemes and arrangements leading to unauthorised collection of money and deposits fraudulently by inducing public to invest in uncertain schemes promising high returns or other benefits are still operating in the society.
The Ordinance 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 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.
- The Bill contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags;
- The Bill creates three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.
- The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.
- The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
- The Bill provides for attachment of properties / assets by the Competent Authority, and subsequent realization of assets for repayment to depositors;
- Clear-cut time lines have been provided for attachment of property and restitution to depositors;
- The Bill enables creation of an online central database, for collection and sharing of information on deposit-taking activities in the country;
- The Bill defines “Deposit Taker” and “Deposit” comprehensively;
- “Deposit Takers” include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation;
- “Deposit” is defined in such a manner that deposit-takers are restricted from camouflaging public deposits as receipts, and at the same time, not to curb or hinder acceptance of money by an establishment in the ordinary course of its business; and
- Being a comprehensive Union Law, the Bill adopts best practices from State laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the State Governments.
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