Ordinance clamps down on unregulated deposits

Prescribes fines, jail terms for violators

February 24, 2019 10:03 pm | Updated 10:03 pm IST - NEW DELHI

In a bid to clamp down on Ponzi and fake deposit schemes, the government has, through an ordinance, banned unregulated deposit schemes.

The ordinance has also put in place a mechanism that will penalise the operation and advertisement of such unregulated schemes with jail time as well as monetary fines.

Unregistered deposits

The Banning of Unregulated Deposit Schemes Ordinance 2019 states that any deposit scheme not registered with the government would be treated as an unregulated deposit scheme and would, as such, be banned.

This extends to the entire country except Jammu and Kashmir and is to come into force immediately.

“No deposit taker shall directly or indirectly promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an unregulated deposit scheme,” the ordinance said.

The ordinance has separate penalties for those who solicit deposits for an unregulated scheme, those who accept such deposits, and those who then fraudulently default on repaying the depositors.

Those who solicit deposits for an unregulated scheme can face jail time of 1-5 years and a fine of ₹2-10 lakh. Those who accept deposits for unregulated schemes can be jailed for 2-7 years with a fine of ₹3-10 lakh. Those who accept deposits for an unregulated scheme and then default in repaying back the depositors will face jail time of 3-10 years and a fine of not less than ₹5 lakh and that could extend to twice the amount of deposits collected.

The law also makes it incumbent upon newspapers to verify the advertisements placed in them to ensure that none of them is for unregulated deposit schemes. If an advertisement is placed for such a scheme, then the government can direct the newspaper to place a “full and fair retraction” in the same position, free of cost.

The Ordinance provides for the creation of a body that maintains an online database of legitimate deposit takers and schemes operating in India.

The law provides for the attachment of assets and their subsequent sale for repayment to depositors duped by fraudulent schemes.

The Lok Sabha had passed a Bill to this effect on the last day of the recently-concluded Budget session through a voice-vote, but the legislation could not get the approval of the Rajya Sabha. In order to bring it into force, the government decided to enforce it via an Ordinance that was approved by the Union Cabinet and promulgated by the President of India.

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