Finance Ministry notifies Banning of Unregulated Deposit Schemes, 2019 [Read Notification]

The Ministry of Finance has notified the Banning of Unregulated Deposit Schemes, 2019. The Act is aimed at tackling the menace of illicit deposit-taking activities in the country.

Companies/ institutions running such schemes exploit existing regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings.

The Act will immediately tackle the menace of illicit deposit-taking activities in the country launched by rapacious operators, which at present are exploiting regulatory gaps and lack of strict administrative measures to dupe poor and gullible people of their hard-earned savings, by altogether banning unregulated deposit-taking schemes, and having adequate provisions for punishment and disgorgement/repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

Details:

The Banning of Unregulated Deposit Schemes Act, 2019 will provide comprehensive legislation to deal with the menace of illicit deposit schemes in the country through,

1. complete prohibition of unregulated deposit-taking activity;
2. deterrent punishment for promoting or operating an unregulated deposit-taking scheme;
3. stringent punishment for fraudulent default in repayment to depositors;
4. designation of a Competent Authority by the State Government to ensure repayment of deposits in the event of default by a deposit-taking establishment;
5. powers and functions of the competent authority including the power to attach assets of a defaulting establishment;
6. designation of Courts to oversee repayment of depositors and to try offences under the Act; and
7. listing of Regulated Deposit Schemes in the Act, with a clause enabling the Central Government to expand or prune the list.

Salient Features:

The salient features of the Act are as follows:

• The Act 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 Act 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 Act 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 Act provides for severe punishment and heavy pecuniary fines to act as a deterrent.
• The Act has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
• The Act provides for attachment of properties/ assets by the Competent Authority, and subsequent realization of assets for repayment to depositors.
• Clear-cut timelines have been provided for attachment of property and restitution to depositors.
• The Act enables the creation of an online central database, for collection and sharing of information on deposit-taking activities in the country.
• The Act 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.
• Being a comprehensive Union law, the Act adopts best practices from State laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the State Governments.