UNREGULATED DEPOSIT SCHEMES

Government had recently announced banning of unregulated deposit schemes.  Experts tangled over the said ordinance 2019 and said that it could hurt the individuals who are able to raise quick loans from their relatives and friends.

• The ordinance pertained to businesses availing loan from unrelated parties and enterprises.
• Various provision and exclusions of the ordinance are brought down here to understand the impact clearer.
• The ordinance is intended to cub illicit deposit/Ponzi schemes which hurt small investors.
• It states that any deposit scheme under which deposits are accepted or solicited by any deposit-taker by way of business, which is not a regulated deposit scheme is banned.
• The term Deposit is defined as AN AMOUNT OF MONEY RECEIVED BY WAY OF ADVANCE OR LOAN 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 IN THE FORM OF A SPECIFIED SERVICE WITH OR WITHOUT ANY BENEFIT IN THE FORM OF INTEREST, BONUS, PROFIT OR IN ANY OTHER FORM.

Clarifications:

1. Exclusions in the ordinance are also provided as to what is not a deposit which has led to confusion among the Experts.
2. Individuals who receive loans from their relatives are excluded under section 2(4)(f).
3. As far as clarification for the term Relative as to whether it only included immediate family and not friends and far-off relations, it is clarified that Individuals borrowing or taking loans or money from relatives or friends for marriage or medical emergency or business needs or any other personal reasons have nothing to fear. These are not unregulated deposit schemes as defined in Section 2(17).
4. Also, an individual can receive money from a person abroad, of course, subject to FEMA regulations.

Other Exemptions:

• Individuals can borrow money from relatives or friends for any purpose may be business or personal as per the clarification.

Partnerships and Companies:

• Under Section 2(4) € any amount received by way of contributions towards capital by partners of any partnership firm is excluded from the definition of DEPOSIT.
• This implies that such amounts are allowed and do not attract penal provisions under the ordinance.
• Also, as per Section 2(4) (i), amounts received by a firm as a loan from relatives of any of the partners is excluded from the definition of Unregulated deposits and hence is allowed.
• A money received from a partner as a loan is still under question. Here further clarification is awaited.