The Banning of Unregulated Deposit Ordinance keeps track of illicit deposit schemes that cheats gullible investors but it does not prohibit those regulated by law like chit funds.
To combat the menace of Ponzi schemes, President Ram Nath Kovind last week announced the Banning of Unregulated Deposit Scheme Ordinance 2019 which tries to make such unregulated deposit scheme punishable, among other things.
In a series of tweets, the Department of Financial Services said that Banning of Unregulated Deposit Ordinance-2019 has exempted Individual, Firm, Companies & LLP etc. for taking any loan and deposits for their course of business as per section 2(4) e,f,l and other provisions.
The clarification comes in the wake of rumours that deposits under chit funds and loans taken by small businesses from unrelated parties and enterprises are also prohibited.
It has said that chit funds are regulated by Chit Fund Act, 1982 and are treated as Regulated Deposit as per Schedule 1 of Banning of Unregulated Deposit Ordinance, 2019.
As per the Ordinance, the amounts received by way of contributions towards the capital by partners of any partnership firm or a limited liability partnership are exempt.
Apart from this, amount received by an individual by way of loan from his relatives or amount received by any firm by way of loans from relatives of any of its persons are exempt among other exemptions.
The Lok Sabha passed the Bill to this effect on the last day of the budget session by means of a voice-vote, but the legislation could not get the approval of the Rajya Sabha. Hence, this law was imposed in the form of Ordinance last week, aimed at saving poor and financially illiterate of their hard earned savings from ponzi schemes like Saradha and Rose Valley.
The legislation contains a considerable banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.
The Ordinance said that no deposit taker should directly or indirectly promote, operate, issue any advertisement soliciting participation or enrollment in or accept deposits in pursuance of an unregulated deposit scheme. The law also proposes to create three different types of offences such as running of unregulated deposit schemes, fraudulent default in regulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes.
The Ordinance also speaks of severe punishment ranging from 1 year to 10 years and monetary fines ranging from Rs 2 lakh to Rs 50 crore to act as deterrent. It also has adequate provisions for disgorgement or repayment of deposits in cases where such schemes somehow manage to raise deposits illegally.
The law provides for attachment of properties or assets and subsequent realisation of assets for repayment to depositors. Steady timelines have been provided for attachment of property and restitution to depositors.
