BACKGROUND OF THE BANNING OF UNREGULATED DEPOSIT SCHEMES ACT

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BACKGROUND OF THE ACT

The Banning of Unregulated Deposits Schemes Act, 2019 is a comprehensive legislation aimed at protection the people from illegal and unregulated deposit schemes which lure money for the investors under the privilege of legally regulated scheme. It was passed in Rajya Sabha in July 29, and was promulgated by the President of India on 21 February 2019. This legislation aimed at curbing fraudulent investment schemes which have a greater economic impact due to loss of capital. A deposit scheme is a one in which people deposit money in the bank account to hold, the banking institution holds the deposited money as their liability. Every banking and non-banking institution have their personalised schemes for the people to invest, they also have a duty adhering to the rules and regulations of the governmental policies and enactments. This legislation largely focuses on banning the unregulated deposit schemes operating in the country[1], this process id facilitated through creation of central information database which covers information of all the deposit schemes, it also entrusted powers to the competent authority in inquiry, investigation, search and seizure of unregulated deposit schemes investments, it also provisioned the restitution of the investments to the depositors.

OBJECTIVES OF THE ACT

  1. To provide a comprehensive legal regulatory mechanism to curb unregulated deposit schemes
  2. To protect the interest of the depositors from fraudulent deposit schemes
  3. To prevent exploitation of small investors
  4. To constitute an efficient competent authority to regulate the banning of unregulated deposit schemes
  5. To prevent economic imbalance due to loss of capital and accumulation of money
  6. To impose penalties for offences and violation of provisions
  7. To create a central database comprising of information relating to all existing schemes

IMPORTANT DEFINITIONS

Deposit means an amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form”[2]

Deposit taker means—

  1. any individual or group of individuals
  2. a proprietorship concern;
  3. a partnership firm (whether registered or not);
  4. a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
  5. a company;
  6. an association of persons;
  7. a trust (being a private trust governed under the provisions of the Indian Trusts Act, 1882 or a public trust, whether registered or not);
  8. a co-operative society or a multi-State co-operative society;
  9. any other arrangement of whatsoever nature, receiving or soliciting deposits, (does not include any corporation under State Legislature, any banking company as defined in the Banking Regulation Act,1949)[3]

Regulated Deposit Scheme means the Schemes specified under column (3) of the First Schedule[4]

Unregulated Deposit Scheme means a Scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme, as specified under column (3) of the First Schedule.[5]

THINGS WHICH DO NOT FALL UNDER DEPOSITS

  1. Amounts received as loan from any bank as defined in section 5 of the Banking Regulation Act, 1949;
  2. Amounts received from the Public Financial Institutions or any non-banking financial company
  3. Amounts received from the appropriate Government
  4. Amounts received from foreign Governments, foreign or international banks, multilateral financial institutions
  5. Amounts received by way of contributions
  6. Amounts received by an individual by way of loan from his relatives or partners
  7. Amounts received as credit by a buyer from a seller on the sale of any
  8. Amounts received by an asset re-construction company which is registered with the Reserve Bank of India
  9. Deposits of political parties, self-help groups
  10. Amount received in the course of business

REGULATED AND UNREGULATED DEPOSIT SCHEMES

Regulated deposit schemes comprise of any schemes made and regulated under;

Unregulated deposit schemes are the one in which the deposit taker fraudulently solicit money from the depositor whose scheme is not listed under any such schemes regulated by the above mentioned institutions. Those schemes are deemed to be banned under the Banning of Unregulated Deposit Schemes Act; it is done by the competent authority who act by virtue of the legislation. On the onset of banning the deposit taker is restricted from taking further deposits from investors

MECHANISM TO TACKLE UNREGULATED SCHEMES

Investigation and Inquiry

Under the provisions of the enactment, the competent authority plays a vital role in curbing the growth of unregulated deposit schemes and in banning the previously existing ones. The mechanism for banning is initiated by inquiry and investigation, the competent authority will have the relevant power in par excellence with the civil code. They can make discovery and inspection, enforce attendance of person, examine them on oath, receive evidence, issues commissions for examination of witnesses and documents. The following steps involved are initiating judicial proceedings, impounding records followed by banning and penalising.

Central information database

The appropriate government constitute authorities to create an online database which possess the information of deposit schemes and deposit takers. It is properly maintained and operated to envisage the competent authority to avail information regarding the subject matter if necessary. By this enactment the future deposit takers who willing to initiate a scheme will be regulated and instructed by the competent authority to furnish statements and information regarding the scheme to check the desirability of the competency of the scheme as per the regulated deposit schemes framework.

Penalties and punishments

S.NO OFFENCE PUNISHMENT
1. Soliciting deposits 1 year extending to 5 years
2. Accepting deposits 2 years extending to 7 years
3. Accepting deposit and fraudulently acting in repayment 3 years extending to 10 years
4. failure in furnishing information for central database Fine of five lakhs rupees

REFERENCES