The Banning of Unregulated Deposit Schemes Act, 2019 is a law that aims to prevent unregulated deposit schemes by providing a comprehensive mechanism, except for deposits taken in the ordinary course of business, and safeguard the interests of depositors.
Provisions of the act:
Deposit: The Act defines a deposit as an amount of money received through an advance, a loan, or in any other form with a promise to be returned with or without interest.
It also defines certain amounts that shall not be included in the definition of deposits, such as amounts received in the form of loans from relatives and contributions towards capital by partners in any partnership firm.
Unregulated Deposit Scheme: The Act bans unregulated deposit schemes. A deposit-taking scheme is defined as unregulated if it is taken for a business purpose and is not registered with the regulators.
The Act provides for the establishment and setting up of one or more designated courts in specified areas. This Court will be headed by a judge not below the rank of a district and sessions judge, or additional district and sessions judge.
Central Database: The Act provides for the central government to designate an authority to create an online central database for information on deposit takers. All deposit takers will be required to inform the database authority about their business.
The Act provides for the appointment of one or more government officers, not below the rank of Secretary to the State or Central Government, as the Competent Authority. The competent authority will have powers similar to those vested in a civil court
The Competent Authority may:
- Provisionally attach the property of the deposit taker, as well as all deposits received; summon and examine any person it considers necessary for the purpose of obtaining evidence
- Orders the production of records and evidence
Offences and penalties: The Act defines three types of offences and penalties, which are as follows:
- Running (advertising, promoting, operating, or accepting money for) unregulated deposit schemes. It will be punishable with imprisonment between two and seven years, along with a fine ranging from Rs 3 to 10 lakh.
- Fraudulently defaulting on regulated deposit schemes. It will be punishable with imprisonment between 3 and 10 years and a fine ranging from Rs 5 lakh to twice the amount collected from depositors.
- Wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts
- The repeated offenders under the Act will be punishable with imprisonment between five to 10 years, along with a fine ranging from Rs 10 lakh to Rs 5 crore.