No BAN on deposits made/accepted for business purposes

With the passing of the Banning of the Unregulated Deposit Scheme Ordinance, 2019 in the Lok Sabha, the government stood up to qualify the law, to be an effective step for curbing unregulated deposits made in forged deposit schemes. The government stated the proposed act, on becoming an approved law will provide a legal framework to all depositors tricked by fraudsters for making deposits with bogus claims.

Keeping aside the government perspective, the act now falls in criticism of the business sector, experts quoted.

In response, the ministry said the ordinance is a relieving step of government for depositors, for developing a recourse against malpractices done in name of unregulated deposit scheme. The government further clarified that it might hurt all those who seek deposits as emergency loans or receive amounts in course of different deposit transactions, the law particularly specifies and list exceptions out of such situations.

The government said individual borrowings or loans were taken in course of a marriage, medical emergency or for any business need either from any friend or relative shall not be included in the definition of unregulated deposits -Section 2(17). The ordinance at instance defines unregulated deposits as:

– Deposits received against an unregistered deposit scheme or an arrangement with no regulatory approval.

– Deposits received through direct or indirect means by promoting, operating or by issuing any advertisement soliciting for participation or enrolment in an unregulated deposit scheme.

– Deposits received by making a fraudulent commitment or with no intention

  • of repayment or return of deposit at maturity ;
  • rendering of specified service as promised against such deposit.

– Deposit received against any statement, forecast, or promise made which is false, misleading or deceptive in material facts.

– Deposits received deliberately by concealing material facts or by inducing another person to invest in, or become a partner or member of an unregulated deposit scheme.

– Deposits are taken by way of a Prize, chit or circulation money scheme banned under Prize, Chits, and Money Circulation Scheme (Banning) Act 1978.

While the industry experts quoted, such law can pose difficulty for meeting personal and social commitments, it shall also raise the difficulty for charitable institutions to provide financial aid to students or to those who seek medical assistance. The government further assured the trade network for free credit supply of goods and services and specified further exemptions for them from the definition of unregulated deposits in section (2) of the ordinance.

Further, the ordinance also clarifies for amounts received by individuals as a loan from relatives to be listed under the exemption category of the law u/s 2(4)(f). Taking in course of the normal business lending, the ordinance has been sufficed with all parameters for the Small businesses including proprietorship firms, partnerships SMEs, LLPs for taking deposits as unsecured loans from enterprises and other un-related parties to be out from the definition of unregulated deposits (Section 2(4)(I)).

The ordinance follows an agenda of striking illegal operators of unregulated deposit scheme and preventing them from taking short money amounts from the poor, which at present slips them easily from any legal action.

Overall, the law strikes three illegal traditions from the society – unregulated deposit scheme, fraud in repayment, and inducement of others to fraudulent schemes.  It provides assured remedies to depositors for seeking the safety of their deposits. The center also proposes to make an online database management system for collection and control over deposit transactions and complaints logged.