Unregulated deposit ordinance to lead to creation of central repository of registered firms: Kumar

Financial Services Secretary Rajiv Kumar Friday said the Banning of Unregulated Deposit Scheme Ordinance promulgated by the President will help create a central repository of all the registered entities that can take deposits.

The repository will help put a check on illicit deposit-taking activities that dupe the poor and the financially illiterate of their hard-earned savings, he said.

President Ram Nath Kovind Thursday promulgated the Banning of Unregulated Deposit Scheme Ordinance.

"The Ordinance makes it absolutely necessary for everyone to register before taking a deposit and creating a central repository of all the registered entities which can take deposits. So, whosoever are not registered are not regulated entities," he said at an event organised by Egrow here.

From now on, there is a complete ban on unregulated deposit and anyone promoting this will be punishable, he said.

"It also says you cannot dupe anybody as an agent or even as advertisement, you cannot give face to that scheme which is not regulated by any agency," he added.

The Lok Sabha passed the Bill to this effect on the last day of the budget session by a voice-vote, but the legislation could not get the approval of the Rajya Sabha.

Earlier this week, the Cabinet has requested the President of India for promulgation of the Unregulated Deposit Schemes Ordinance, 2019.

The legislation contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any unregulated deposit scheme.

"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 law also proposes to create three different types of offences -- running of unregulated deposit schemes, fraudulent default in regulated deposit schemes, and wrongful inducement in relation to unregulated deposit schemes.

The Ordinance also provides for severe punishment ranging from 1 year to 10 years and pecuniary fines ranging from Rs 2 lakh to Rs 50 crore to act as deterrent. It also has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.

The law provides for attachment of properties or assets and subsequent realisation of assets for repayment to depositors. Clear-cut timelines have been provided for attachment of property and restitution to depositors.

It also enables creation of an online central database for collection and sharing of information on deposit-taking activities in the country.

Being a comprehensive union law, it adopts best practices from state laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the state governments.