Overview of the Banning of Unregulated Deposit Schemes Ordinance, 2019

• a scheduled bank,
• a co-operative bank,or
• any other banking company

• Public Financial Institutions,
• Any NBFC,
• Regional Financial Institutions, or
• Insurance companies.

• the appropriate Government, or
• any amount received from any other source whose repayment is guaranteed by the appropriate Government, or
• any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

• foreign Governments,
• foreign or international banks,
• multilateral financial institutions,
• foreign Government owned development financial institutions,
• foreign export credit collaborators,
• foreign bodies corporate,
• foreign citizens,
• foreign authorities or
• persons resident outside India

subject to the provisions of FEMA, 1999 and the rules and regulations made thereunder;

Note: The expression “relative” shall have the same meaning asassigned to it in the Companies Act, 2013.

• payment, advance or part payment for the supply or hire of goods or provision of services and is repayable in the event the goods or services are not in fact sold, hired or otherwise provided;
• advance received in connection with consideration of an immovable property under an agreement or arrangement subject to the condition that such advance is adjusted against such immovable property as specified in terms of the agreement or arrangement;
• security or dealership deposited for the performance of the contract for supply of goods or provision of services; or
• an advance under the long-term projects for supply of capital goods.

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.

1. a Corporation incorporated under an Act of Parliament or a State Legislature;
2. a banking company, a corresponding new bank, the State Bank of India, a subsidiary bank, a regional rural bank, a co-operative bank or a multi-State co-operative bank as defined in the Banking Regulation Act, 1949

• Collective Investment Scheme;
• Alternative Investment Funds;
• Funds managed by a portfolio manager;
• Any scheme or an arrangement regulated under the SEBI (Share Based Employee Benefits) Regulations, 2014 or providing for employee benefits as permitted under the CompaniesAct, 2013;
• Any other scheme or an arrangement registered under SEBI Act, 1992;
• Mutual Funds

• Any scheme under which deposits are accepted by NBFCs;
• Any scheme or an arrangement under which funds are accepted by individuals or entities engaged as Business Correspondents and Facilitators by bankssubject to the Guidelines and Circulars issued by RBI from time to time;
• Any scheme or an arrangement under which funds are received by a system provider operating as an authorized payment system under the Payment andSettlement Systems Act, 2007;
• Any other scheme or an arrangement regulated under RBI Act, 1934, or theguidelines or circulars of the Reserve Bank of India. For Example: Peer to Peer lending.

• Any scheme or an arrangement made or offered by a co-operative society registered under any lawrelating to co-operative societies;
• Any scheme or an arrangement commenced or conducted as a chit business with the previous sanctionof the State Government in accordance with theprovisions of the Chit Funds Act, 1982;
• Any scheme or an arrangement regulated by anyenactment relating to money lending which is for thetime being in force in any State or Union territory;
• Any scheme or an arrangement by a prize chit or money circulation scheme under the Prize Chits and Money Circulation Scheme (Banning) Act,1978

• Deposits accepted or permitted under the provisions of Chapter V of the Companies Act, 2013;
• Any scheme or an arrangement under which deposits are accepted by a company declared as a Nidhi or aMutual Benefit Society under section 406 of theCompanies Act, 2013.

• deposits accepted under any scheme or an arrangement registered with any regulatory body in India constituted or established under a statute; and
• any other scheme as may be notified by the Central Government.

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’:

1. The degree of continuity;
2. The existence of a commercial element;
3. The scale of the activity;
4. The portion which the activity bears to other activities carried on by the same person but which are not regulated; and
5. The nature of the particular regulated activity that is carried on.

OFFENCES AND PUNISHMENT

OFFENCES AND PUNISHMENT

OFFENCES AND PUNISHMENT