BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019 AND COMPANIES ACT, 2013-CONCEPTUAL COMPARISON

BANNING OF UNREGULATED DEPOSIT SCHEMES ORDINANCE, 2019 AND COMPANIES ACT, 2013-CONCEPTUAL COMPARISON

INTRODUCTION

Recently the Ministry of Law and Justice with the consent of President of India has introduced an Ordinance namely Banning of Unregulated Deposit Schemes Ordinance, 2019 (hereinafter referred to as ‘Ordinance’) which deals with unregulated deposit scheme which are currently running in economy due to which lot of depositors or we can say investors are getting harmed by getting trapped into fraudulent activity or scheme of the deposit takers. The present Ordinance has been passed keeping in mind all the aspects and circumstances and clearly signifies the actual purpose of the Ordinance. In this article, we will be discussing the Ordinance in detail, its impact on companies and necessary steps to be taken by every person covered in its ambit to do for abiding this Ordinance.

PURPOSE

The purpose of this particular ordinance is very clear and crisp and conveys that it has been introduced to safeguard the interest of the depositors who had given deposit of sum of money to any person with a promise to get it returned, either with consideration involving time value of money or not, and later gets defrauded by such deposit taker. The present Ordinance will also give backing to depositors and will also increase the tendency of resolution under recovery suits, etc. By the help of this Ordinance, the chances of getting defrauded by use of frivolous schemes will get reduced and also the depositor will be aware of the exact source where they can invest their money in the safer manner.

APPLICABILITY OF THE ORDINANCE

The present ordinance is applicable in every state except Jammu and Kashmir and includes every person in its ambit be its individual, group of individuals, companies, LLPs, etc. except corporation incorporated under an Act of Parliament or a state legislature, and a banking company, new bank, State Bank of India or a subsidiary bank, regional rural bank co-operative bank or multi state co-operative bank as defined under Banking Regulation Act, 1949.

By covering every sort of person in its ambit the Ordinance seems to be more effective and binding. It shows that the intention of the legislature is to give one-sided safeguard to the interest of depositors without giving thought to the kind of person he is dealing with.

APPLICABILITY OF DEFINITION OF ‘DEPOSITS’ GIVEN UNDER SECTION 2(4) OF THE ORDINANCE-

The ordinance has clearly stated the definition of ‘deposits’ and also very clearly provided the exemption list of transaction which shall not be construed as Deposit for the purpose of this Ordinance. It is to be noted that pursuant to the explanation provided in Section 2(4) of the Ordinance, the definition of deposit provided in the Ordinance shall not apply to Companies and NBFCs registered with Reserve Bank of India, and the definition of ‘deposit’ provided under Companies (Acceptance of Deposit) Rules, 2014 (hereinafter referred to as ‘the Company Rules’) and Section 45-I(bb) of the Reserve Bank of India Act, 1934, respectively, shall apply in their case. Hence, the definition of deposit provided in the Ordinance shall apply to all other persons (except Companies and Registered NBFCs) without any second thought.

For better clarity, we will be comparing the provisions of the Ordinance and the Companies Act, 2013 in glimpse, and will be ascertaining the duties, responsibilities and steps to be taken by the Company (not being NBFCs), and how they have to deal with the present Ordinance.

DIFFERENCE BETWEEN CONCEPT OF ‘DEPOSIT’ PROVIDED UNDER THE ORDINANCE AND COMPANIES ACT-

A) Starting phrase of the definition-

If we go through the definition of ‘deposits’ provided in the Ordinance, the same starts with-

Section 2(4) of the Ordinance-

“‘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 kind or in the form of specified service, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include….”

On the other hand, if we go through the definition of ‘deposit’ provided under the Company rules, the same starts with-

Rule 2(1)(c)-

“‘deposit’ includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include-“

After giving a plain reading to both the initiating phrases of the definition, we can opine that in the Ordinance, the definition of deposit imposes an extra requirement of the existence of promise of return, while the definition of deposit provided in the Company rules does not imply any such condition.

B) Difference in exemption list- How to interpret?

The Ordinance has very precisely provided the list of transactions which shall not be taken as deposit for the purpose of this Ordinance. The provided list is somewhere different from the exemption list provided in the Company rules.

It is to be noted that any difference in exemption provided in the Ordinance in comparison to the Company rules shall not apply to Companies, and vice-versa.

The List provided in different statute has to be read as per the applicability and individually, and the exemption provided in any one clause must be taken as final in case any ambiguity comes due to language of any other clause.

KIND OF DEPOSITS

Unlike Companies Act taking deposit as a single concept and not bifurcating any category into it, the Ordinance has introduced two categories of deposits i.e. Regulated Deposits and Unregulated Deposits.

  • Regulated Deposits

Pursuant to the provisions of Section 2(14) read with First Schedule of the Ordinance, the legislature has provided the concrete list of deposits schemes which shall be taken as Regulated Deposit Scheme for the purpose of this Ordinance.

In addition to the list of schemes provided under the First Schedule, any deposits accepted under any scheme or arrangement duly registered with any constituted or established regulatory body under a statute in India shall also be taken as Regulated Deposit Scheme.

In other way round, any sort of deposit received by any depositor taker and not particularly falling under the First Schedule shall be construed as Unregulated Deposits for the purpose of this Ordinance.

  • Unregulated Deposits

Pursuant to the provisions of section 2(17) of the Ordinance, any scheme which is not Regulated Deposit Scheme shall be construed to be Unregulated Deposit Scheme and shall be banned in terms of this Ordinance. The definition provided in the Ordinance has used the words ‘accepted’ or ‘solicited’, which signifies that the deposit taker, either accepting it directly, or requesting through any other means will be taken into consideration for the purpose of this Ordinance.

Also, any prize chit or money circulation scheme which has been particularly banned under the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 shall be taken as Unregulated Deposit Scheme for the purpose of this Ordinance.

WHEN SHOULD THE DEPOSIT TAKEN BY A COMPANY SHALL BE CONSTRUED AS ‘UNREGULATED’ ?

Pursuant to 9th clause of the First Schedule, in case of company, the deposit taken shall be considered as Regulated, if such deposit has been accepted or permitted under the Provisions of Chapter-V of Companies Act, 2013, or any deposit accepted by Nidhi Company or Mutual Fund Benefit Society recognized under Section 406 of the Companies Act, 2013.

The legislature by using the phrase ‘accepted or permitted under the provisions of Chapter-V’, has clearly conveyed that, in case, any deposit is taken by a company not in consonance to the provisions stipulated under Chapter-V of Companies Act, 2013, such deposit shall be construed as Unregulated for the purpose of this Ordinance.

In the similar manner, the authenticity of the Nidhi and Mutual fund Benefit Society shall be taken under Regulated Deposit category only when such entity has been recognised under Section 406 of the Companies Act, 2013 and not otherwise.

Restriction and/or obligation on ‘Person’ under the Ordinance-

By way of Section 3 of the Ordinance, the legislature has put a ban on Unregulated Deposit Schemes in all aspects. The legislature has also put two sorts of restrictions/obligation on the Persons who are engaged or are going to be engaged in the activity of accepting deposits, which are mentioned below-

  • Person shall not promote, operate, solicit, advertise, or involve himself/itself in any of the Unregulated Deposit Scheme, in any manner, either directly or indirectly,

and

  • No deposit taker shall commit any fraudulent default in satisfying the terms of deposit taken under ‘Regulated Deposit Scheme’.

By putting the above mentioned two restrictions the legislature has very modishly saved the interest of the lender of money, and has ensured that the money shall not be taken or used by any person fraudulently in the name of any Unregulated Scheme, and if any money is taken by any person in good faith under Regulated Schemes, the same should be met with terms as decided without any default. Such provision is providing double safeguard to the investors.

DUTIES OF EVERY PERSON UNDER THE ORDINANCE-

Pursuant to the provisions of Section 10(1) every person (including companies) acting as deposit taker which carries on such business as on the date the notification of this Ordinance, or starts afterwards shall inform the concerned authority within the stipulated time and manner. Till now, the law has not specified the form and manner and time.

COGNIZANCE OF OFFENCES IN CASE OF COMPANIES- 

Pursuant to the proviso of Section 27 of the Ordinance- provisions of section 4 i.e. with respect to regulated scheme shall not apply in case of companies and the designated court under the Ordinance does not have power to deal with any offence in that respect. Section 4 deals with the repayment of regulated deposits on time and in fulfillment to all the terms and conditions decided. In case the deposit taken by companies are not in terms of Companies Act, 2013 i.e. the deposit scheme introduced by the Company is not a regulated one, the designated court might take the cognizance of offence under the Ordinance.

CONCLUSION

The present Ordinance has been introduced with very rigid approach and implications to deal with the cases of acceptance, solicitation or promotion of Unregulated Deposit Schemes and thus, each and every provisions of this Ordinance must be taken for detailed analysis by the person before carrying the business of deposit taking. The Ordinance has put complete vigilance over the deposit takers who were not having any effective eye on them till time and was defrauding normal public by taking off their hard-earned money. Also, this Ordinance provides an eminent backing and safeguard to the layman investing money in good faith.

DISCLAIMER

The above views shall not be taken as any sort of legal opinion in any forum or organization. Views are solely of the author, and it may vary depending upon the facts and circumstances of the case or matter. In case of any query, you can reach the writer on [email protected]

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