The President on 21.02.2019 while exercising his powers under article 123 of the Constitution promulgated an ordinance namely, “The Banning of Unregulated Deposit Schemes Ordinance, 2019”.
The object of the ordinance is to provide for a comprehensive mechanism to ban the unregistered deposit schemes, to protect the interest of depositors & connected matters therewith. The ordinance aims to attack Ponzi schemes, illicit activities of taking money etc.
Now, Unregulated Deposit Scheme is defined under S. 2(17) of the ordinance as a scheme or arrangement under which deposits are accepted or solicited by any deposit taker by way of business & which is not a regulated deposit scheme, as specified under 1st Schedule.
Deposit as per S. 2(4) is defined as any amount of money received by way of an advance or loan or in any other Formby any deposit take with the promise to return it with or without any benefit in the form of interest, bonus, profit or in any other form. The amount can be returned either in cash or in kind or in the form of a specified service. The ordinance further provides what shall not be included in deposit like amounts received as loan from a Scheduled or co-operative bank, amount received from appropriate government, amounts received from foreign governments etc.
Schedule I to the ordinance gives the list of regulated deposit schemes regulated by SEBI, RBI, IRDAI, State Government or UT Government, National Housing Bank, Pension Fund Regulatory & Development Authority, Employees Provident Fund Organisation, Central Registrar, Multi-State Co-operative Societies & MCA.
Deposit taker is the person who receives or solicits the deposits. A deposit taker can be an individual, group of individual, proprietorship, firm, LLP, company, AoP, Trust, Co-operative society or any other arrangement of whatever nature but cannot be a corporation incorporated under an act of parliament of state legislature & a banking company.
Following are the duties of a Deposit taker:
• Not to promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an Unregulated Deposit Scheme.
• No fraudulent default in Regulated Deposit schemes.
• Duty to intimate designated authority about its business in prescribed manner & time.
Further, a general duty is placed on every person by whatever name called to not to make any wrongful inducement to invest in any Unregulated deposit scheme.
Deemed Unregulated Deposit Scheme:
• A prize chit or a money circulation scheme banned under Prize Chits & Money Circulation Scheme (Banning) Act, 1978.
For the purposes of this Ordinance, following authorities are created:
• The appropriate government shall appoint competent authority for discharging functions under this ordinance.
• Designated Courts.
• Authority to create, maintain & operate an online database for information on deposit takers operating in India.
Powers of competent authority:
• Direct any deposit taker to furnish such statements, information or particulars related to deposits taken, if the authority has reason to believe that deposits are being taken pursuant to unregulated deposit scheme.
• Power to attach the deposits taken pursuant to unregulated deposit scheme.
• Power as of Civil Court as per CPC, 1908 for matters relating to discovery & inspection, enforcing the attendance, compelling production of documents, receiving evidence on affidavits, issuing commissions etc.
• Power to summon any person for attendance.
Provisions are also made regarding Restitution of depositors by giving priority to claims of depositors over all other debts.
As per S. 18, the designated courts are given power to approve the statement of dues, power to assess the value of assets, power to give directions to competent authority, power to approve necessary expenses of competent authority, power to make the provisional attachment as absolute, cancel the provisional attachment, finalizing the list of dues of depositors, direct the Competent Authority to sell the property & share the money among the depositors etc.
An appeal can be made to high court from the orders of Designated Courts within the period of 60 days. Further, SC can transfer the case from one designated court to another if there is a default in any deposit scheme of the nature referred to in S.30 (Investigation of offences by CBI).
Various provisions have been made regarding the procedure of investigation, search & seizure, Offences & Punishments in terms of imprisonment, fines to deter the investment in unregulated deposit schemes.