Banning of Unregulated Deposit Schemes

Ordinance, 2019

Vinod Kothari
Vinod Kothari & Company
Kolkata New Delhi Mumbai

1006-1009 Krishna Building A/11, Hauz Khas, 403-406,

224 AJC Bose Road New Delhi 110016 175 , Shreyas Chambers,
Kolkata – 700017 Phone:011-41315340/ D.N. Road, Fort,
Phone:033-22811276/ 65515340 Mumbai – 400 001
22813742/7715 E: delhi@vinodkothari.com Phone: 022 22614021/
E: corplaw@vinodkothari.com 30447498
E: bombay@vinodkothari.com
www.vinodkothari.com / www.india-financing.com
Email: info@vinodkothari.com / vinod@vinodkothari.com
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• The presentation is a property of Vinod
Kothari & Co.

• No part of it can be copied, reproduced

or distributed in any manner, without
explicit prior permission.

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and full link
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About Us
• Vinod Kothari & Co.,
▫ Based in Kolkata, Mumbai,
Delhi
• We are a team of
consultants, advisors &
qualified professionals
having over 30 years of
practice.

Our Organization’s Credo:

Focus on capabilities; opportunities follow

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Almanac of events
Referred to
Introduced in Lok Standing
Standing
Sabah Committee Report
Committee
July 18, 2018 Jan 3, 2019
Aug, 10, 2018

President
Passed in Lok
promulgated the
Sabha Feb 13,
Ordinance on Feb
2019
21, 2019
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Quick snapshot
• The Ordinance is seemingly important – effective
at once;
• Rules are yet to be made;
• Scope – all kinds of deposit takers are covered;
• Immediate repercussion – anything which falls
under the definition of deposit and not
regulated – is banned with immediate effect;
• The bar is not only on solicitation but also on
acceptance;
• Isolated transaction is also scheme /
arrangement
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Meaning of Deposit
• An amount of money received
▫ by way of an advance or loan or in any other form,
▫ not in kind
• By any deposit taker
▫ Means an individual, group of individuals, proprietorship
concern, partnership firm, LLP, Company, AOP, Trust (private or
public), co-operative society or any other arrangement.
▫ Does not include a Corporation incorporated under Act of
Parliament or State Legislature, Banking company, SBI, RRBs,
Co-operative bank or a Multi-state co-operative bank as defined
in Banking Regulation Act, 1949.
• 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.
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Exclusions from the meaning of

Deposit
• Loans received from Banks;
• Loans/ financial assistance from PFIs or any registered
NBFCs, Regional Financial Institutions and Insurance
companies;
• Amount received from or guaranteed by appropriate
Government;
• Amount received from a statutory authority;
• Amounts received from foreign government, foreign
banks, foreign authorities etc or person resident outside
India as per provisions of FEMA Act, 1999;
• Capital contributions by partners of partnership firm or
LLP;
• Loans received by an individual from his relatives;
• Loans received by a firm from relatives of partners;

Contd.
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• Any credit given by a seller to a buyer on the sale of any property (whether
movable or immovable);
• Amounts received by a registered ARC;
• Amounts received under Section 34 or Section 29B of the Representation
of the People Act, 1951;
• any periodic payment made by the members of the self-help groups as per
the ceiling prescribed by State/ Union Territory Government;
• Amount received in the course of, or for the purpose of, business and
bearing a genuine connection to such business for following and
which has not become refundable (including for reasons where deposit
taker did not obtain necessary permission or approval under the law for
the time being in force, wherever required, to deal in the goods or
properties or services for which money is taken):
▫ Payment, advance or part payment for supply/ hire of goods / services;
▫ Advance received in connection with and adjusted towards consideration
of an immoveable property under an agreement or arrangement;
▫ Security deposit;
▫ Advance under long-term projects for supply of capital goods;
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Applicability in case of Companies

& NBFCs

• For companies: the meaning of ‘deposit’ shall be

as per defined in Companies Act, 2013;
• For registered NBFCs: definition of ‘deposit’
shall be as given in Section 45-I (bb) of Reserve
Bank of India Act, 1934.
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What about the following?

• Loan given by co. to LLP?
• Loan given by Non Banking Non Financial Co.
to:
 Any individual?
 Its director?
• Loan given by partner to partnership firm?
• Inter-state deposit?
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Sec 3
• From Feb 21, 2019-
• Unregulated deposit scheme 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.
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Sec 4, 5, 6

Regulated Deposit Scheme Unregulated Deposit Scheme

• No deposit taker, under such • No person should knowingly
scheme, should commit any make any misleading
fraudulent default – statement, or promise or
• (a)in the repayment or return forecast which is false or
of deposit on maturity; deceptive;
• (b) in rendering any specified • Deemed to be Unregulated
service promised against such Deposit Scheme:
deposit. • (a)Prize chit money;
• (b) money circulation scheme
banned under Money
Circulation Scheme (Banning)
Act, 1978.
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Offences
• Soliciting deposits under Unregulated Deposit Schemes
 Imprisonment: 1 year to 5 years; and
 Fine: INR 2 lakhs to 10 lakhs

• Acceptance of deposits under Unregulated Deposit Schemes

 Imprisonment: 2 years to 7 years; and
 Fine: INR 3 lakhs to 10 lakhs

• Acceptance of deposits under Unregulated Deposit Schemes an Fraudulent

default
 Imprisonment: 3 years to 10 years; and
 Fine: INR 5 lakhs to twice the amount of aggregate funds collected.

• Fraudulent default in Regulated Deposit Schemes.

 Imprisonment: upto 7 years; and
 Fine: INR 5 lakhs to 25 crores or three times the amount of profit made out of
fraudulent default.
 The provisions are different from that provided under Section 76A of Companies
Act, 2013.

Contd.
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• Wrongful inducement in relation to Unregulated Deposit Schemes

 Imprisonment: 1 year to 5 years; and
 Fine: upto INR 10 lakhs

• Repeated offenders
 Imprisonment: 5 year to 10 years; and
 Fine: INR 10 lakhs to 50 crores

• Failure to file intimation by deposit taker about its business, to the

authority
 Fine upto 5 lakhs.
 Where the authority has reasons to believe that deposits are being
accepted or solicited under Unregulated Deposits Scheme, it may ask for
further information.
 This information pertains to details of amounts falling within the
meaning of deposits as defined in the Ordinance.
 Further, companies accepting deposits under Chapter V of Companies
Act, 2013 are also required to provide the information.