THE BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019.

The honorable President of India has promulgated the above Ordinance in exercise of the power conferred by clause (1) of article 123 of the Constitution which is effective from 21^st February,2019.

The main objective is to ban the “Unregulated Deposit Schemes” and to protect the interest of depositors.

FIVE POINTS TO KNOW ABOUT THE ORDINANCE

                   1)     WHAT IS 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.

                  2)     WHAT IS A REGULATED DEPOSIT SCHEME?

All those Schemes or arrangements regulated by SEBI, RBI, IRDA, MCA, EPFO, National Housing bank or any other body which is constituted or established under a statute.

                  3)     WHAT IS 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.

                 4)     WHAT ARE NOT INCLUDED IN DEPOSITS?

Loan from Bank

Loan from Public Financial Institutions

Amount received from the government

Capital Contribution by the partners

Amount received from relatives.

Periodic payment received by the members of Self-help Groups

Amount received for the purposes

           5) UNSECURED LOANS TAKEN FOR BUSINESS IS NOT VOILATION OF THE        ORDINANCE:

If we look at the definition of “Unregulated Deposit scheme” as enumerated under sub section 17 of Section 2 of the ordinance, it clearly states that accepting or soliciting of the deposits by the deposit taker is the principal business activity. So, borrowing of loans in normal course of business by entities which are not engaged in the business of accepting or soliciting the deposits is not barred by the Ordinance.

     Further, Section 2(4)(I) also states that any amount received in the course of, or for the purpose
        of, business and bearing genuine connection with such business is not a deposit for the purpose 

of this ordinance.

So combined reading of section 2(17) and 2(4)(l) clarifies that borrowing of unsecured loans for the purpose of business is not covered under this ordinance unless the principal business activity of that entity is accepting deposits.

Note: We may have to wait for clarifications or rules with this regard.

Sanjay R

Chartered Accountant

+91 77602 52581

sanjayr648@gmail.com