An ordinance has been passed by the government of India on 21st Feb 2019 named as “the banning of the Unregulated Deposit Scheme Ordinance 2019”. The purpose of Banning of Unregulated Deposit Schemes Ordinance is to totally ban all forms of the Unregulated Deposits. This may be intended to protect investors from dubious outfits selling Ponzi and pyramid schemes.
This ordinance has provided security to such lenders who by mistake deposit the money to the unregulated scheme since the complete ordinance is applicable on one who took the loan in unregulated schemes.
Effective date of Ordinance
The ordinance becomes effective from the date of its announcement i.e. 21st Feb 2019.
Unregulated Deposit Scheme
Section 2 (17) of the ordinance says that UDS means a scheme or arrangement as per which deposits are either 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 of the said ordinance.
Therefore, this Ordinance applies only to those deposits takers who are in the business of taking or accepting deposits and which are not regulated.
Regulated Deposit Schemes
Regulated deposits schemes are specified under column (3) of the First Schedule to this Ordinance is the schemes that are regulated by SEBI, RBI, IRDA, State Government, Union Territory Government, National Housing Bank, Pension Fund Regulatory and Developmental Authority, EPFO, Multi-State Co-Operative Society, Deposits accepted or permitted under Chapter-V of the Companies Act and any deposits accepted by a company declared as a Nidhi or a Mutual Benefit Society under the Companies Act.
Receipts not be treated as Deposits
- Loans received from banks
- Loans/ financial assistance from private finance institutions (PFIs) or any registered non-banking financial companies (NBFCs), regional financial institutions and insurance companies.
- The amount received from or guaranteed by appropriate a government;
- Amount received from a statutory authority;
- Amounts received from the foreign government, foreign banks, and foreign authorities or person resident outside India as per the provisions of the
- Foreign Exchange Management Act (FEMA) 1999
- Capital contributions by partners of a partnership firm or LLP;
- Loans received by an individual from his relatives
- Loans received by a firm from relatives of partners.
- Any credit is given by a seller to a buyer on the sale of any property (whether movable or immovable)
- Amounts received by a registered Asset Reconstruction Company (ARC);
- Amounts received under Section 34 or Section 29B of the Representation of the People Act, 1951.
- Any periodic payment made by the members of self-help groups as per the ceiling prescribed by state/ Union Territory government;
- The amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business for following and which has not become refundable
- Payment, advance or part payment for supply/ hire of goods/services;
Advance received in connection with and adjusted towards consideration of immovable property under an agreement or arrangement
- Security deposit;
- Advance under long-term projects for supply of capital goods;
Ordinance Applicability on Personal loans
Ordinance banned only the accepting money through “Unregistered Deposit scheme”. The definition of “Unregistered Deposit scheme” does not expressly prohibit the taking of personal loans. Hence to our opinion, Personal Loan taken are outside the scope of this ordinance and hence are not prohibited.
The ordinance has come recently and there is a lot of ambiguity that needs to be clarified in respect of various aspects of the law. To be briefing out Ordinance prohibited the acceptance of Unregulated deposits and not on accepting of Personal Loans.