Unregulated deposit ordinance scheme does not ban SMEs, Govt

Banning of Unregulated Deposit Scheme Ordinance which seek to curb the menace of ponzi schemes and make such unregulated deposit scheme punishable.

As per news sources, the President of India, Ram Nath Kovind on February 21, promulgated the Banning of Unregulated Deposit Scheme Ordinance which seek to curb the menace of ponzi schemes and make such unregulated deposit scheme punishable.

It is likely that the Ordinance will help put a check on the illicit deposit taking activities like Saradha scam and Rose Valley chit fund scam in the country that had duped the poor and the financially illiterate of their hard earned savings.

As per reports, the ordinance issued to ban the unregulated deposit schemes does not stop any entity from seeking funds for its business or an individual raising a quick loan from relatives to tide over a crisis. Similarly, the Banning of Unregulated Deposit Schemes Ordinance, 2019 does not ban small and medium enterprises (SMEs) from receiving loans in the course of, or for the purpose of, business, the government has clarified.

According to media reports, the Lok Sabha had passed the Bill to this effect on the last day of the budget session by a voice-vote. However, the legislation could not get the approval of the Rajya Sabha. Therefore, the Cabinet had requested the President of India for promulgation of the Unregulated Deposit Schemes Ordinance, 2019.

The legislation contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.

The Ordinance said, “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.”

The law also proposes to create three different types of offences, running of unregulated deposit schemes, fraudulent default in regulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes.

In fact, the Ordinance also provides for severe punishment ranging from 1 year to 10 years and pecuniary fines ranging from ₹ 2 lakh to ₹ 50 crore to act as deterrent. It too has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

Moreover, the law also provides for attachment of properties or assets and subsequent realisation of assets for repayment to depositors. Clear cut timelines have been provided for attachment of property and restitution to depositors. It also enables creation of an online central database for collection and sharing of information on deposit-taking activities in the country.

Being a comprehensive union law, it adopts the best practices from state laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the state governments. As per reports, last month, the Law Minister Ravi Shankar Prasad had said that, the CBI has lodged about 166 cases in the last four years related to chit funds and multi-crore scams, with the maximum in West Bengal and Odisha.

As per information provided by RBI, during the period between July 2014 and May 2018, 978 cases of unauthorised schemes were discussed in State Level Coordination Committee (SLCC) meetings in various states/UTs and were forwarded to the respective regulators/law enforcement agencies in the states.

A large number of such instances have been reported from the eastern part of the country. Subsequently, the Finance Minister in the Budget 2017-18 had announced that the draft bill to curtail the menace of illicit deposit schemes had been placed in the public domain and would be introduced shortly after its finalisation.

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