Banning of Unregulated Deposit Schemes Bill, 2019

The Banning of Unregulated Deposit Schemes Bill

The Banning of Unregulated Deposit Schemes Bill was introduced in Lok Sabha on July 19, 2019 and was passed on 24, July 2019 it was subsequently passed in Rajya Sabha on July 29, 2019, and was then assented by the President of India.

The BUDSD seeks amendment in 3 Laws:

1) The Reserve Bank of India Act, 1934


3) Multi States Co-operative Societies act, 2002

Earlier, Ponzi schemes were banned under the “Price chit and Money circulation banning Act, 1978. Though it is an Act passed by The Lok Sabha. The respective state governments are the enforcement agencies of this law. Hence, there were no distinguished powers between the centre and the State.

There was a dire need for a new Law to regulate the depository schemes to avoid frauds with customers. BUDSD was in introduced my Modi administration to curb fraudulent investment schemes.

The bill aims to protect the investors from fraudulent investment schemes. Thus, it provides a brief mechanism to ban deposit schemes which do not have a revenue model to give ROI to their investors.

The law bans all the illicit deposit taking activities with immediate effect. It allows schemes which are regulated by IRDAI, RBI, SEBI, EPFO and State governments. It also recognizes Co-operative Societies registered under, Co-operative Societies Act, 1992; Chit funds under the Chit funds Act, 1982; Money lenders regulated by State Acts and Deposits or loans taken by people for doing business (other than deposit taking).

It will form a competent authority for redressal and regulation of investment schemes. The role of the competent authority is to discover such schemes and report the CBI or similar agency to investigate on the same. The officers herby appointed shall have discretionary powers.

The proposed Bill aims to provide a comprehensive legislation to tackle illicit deposit schemes by completely prohibiting such activities. Nine regulators including the RBI, SEBI, the Ministry of Corporate Affairs, and the State governments regulate financial activities. According to the Bill, all deposit-taking schemes are required to be registered with the relevant regulator, failing which the “Deposit Takers” will be considered “unregulated” and hence be banned.

As indicated by the Bill, “Deposit Takers” incorporate every single imaginable element (counting people) accepting or requesting stores, aside from explicit elements like those consolidated by enactment. “Store” is characterized in such a design, that store takers are limited from disguising open stores as receipts, and at a comparable time to not control or obstruct acknowledgment of cash by an organization inside the standard course of its business.

The Bill makes three varying kinds of offenses, to be specific, running of Unregulated Deposit Schemes, deceitful default in Regulated Deposit Schemes, and unfair affectation in reference to Unregulated Deposit Schemes.

A ‘Competent Authority’ will be delegated which has the forces practically like a common court, including forces to associate properties of the store takers. It likewise enables police to look and hold onto any property accepted to be associated with an offense under the Bill, with or without a warrant.

The Bill likewise supports making assigned courts to handle such cases.

The Bill empowers production of a web focal database, for assortment and sharing of information on store taking exercises inside the nation. The purpose of the Bill is to tackle the menace of illicit deposit schemes operating within the country. The Bill will prohibit unregulated deposit taking activity and also sanction a stringent punishment for the businesses and institutions which operate such unregulated deposit taking schemes.

Background and Rationale:

In recent times there has been a spurt of ponzi schemes being run by companies and institutions to dupe general public of their hard earned money. Some of the examples are several jewellery companies that have disguised their deposits as advance payments for monthly payments which were redeemed with the acquisition of jewellery and also included interest. Many builders are raising funds from the house-buyers through such schemes.

Adding to the subtlety, banks and money organizations continue loaning assets to those manufacturers and diamond setters like Nirav Modi and Deepak Kulkarni (developer situated in Pune) albeit completely mindful that these beneficiaries are genuinely desperate. In this way, all the cash is directed through advances to standard borrowers who are attracted through loan costs. After this, the deceitful undertakings are sold to banks in spite of the fact that with no advantages. At last when the venture neglects to appear the purchasers aren’t left with any cure on account of a void in law making during this respect.

Salient Provisions

The following are some important provisions of the Bill:


The Bill defines ‘deposit taker’ as all the possible entities that has individuals also, who are receiving or soliciting deposits. But it does not include some specific entities that are incorporated by legislation.

‘Deposit’ is defined in such a fashion that deposit takers are restricted from camouflaging public deposits as receipts, and at an equivalent time to not curb or hinder acceptance of money by an institution within the ordinary course of its business.

Disallowance of unregulated plans:

The Bill bans the store takers from advancing, working, giving notices or tolerating stores in any Unregulated Deposit Scheme and makes it an offense ex-risk, rather than the predominant authoritative cum-administrative structure which just becomes effective ex-post with impressive time slacks.

Extent of unregulated Deposits:

One of the essential classifications of unregulated stores incorporates the plans by the significant domain engineers offering fixed returns till ownership of the property. Another classification is that the gems plots that give plans which license shoppers to pay 11 portions and in this way the organization pays the last portion and another class is that different plans which offer clients to pay the portions for a time of at least 10 months and get half limits in the month to month commitments.

Offenses under the Scheme:

The Bill makes three varying sorts of offenses, to be specific, running of Unregulated Deposit Schemes, false default in Regulated Deposit Schemes, and illegitimate prompting with respect to Unregulated Deposit Schemes.

Stringent discipline:

The Bill accommodates serious discipline for false default in reimbursement to contributors. It likewise endorses overwhelming monetary fines. This is intended to go about as an obstruction for future transgressors. The able authority has the ability to append the advantages or properties to understand the sum that has been because of the contributors and resulting reimbursement.

Reimbursement of deposits and connection of property:

The Bill accommodates spewing or reimbursement of stores in situations where such plans in any case figure out how to help stores unlawfully. Obvious courses of events are given to connection of property and compensation to investors.

Able power:

An able will be assigned by the administration which will guarantee reimbursement of the stores inside the instance of default by a store taking foundation.

Focal database:

The Bill empowers the formation of a web focal database, for assortment and sharing of information on store taking exercises inside the nation. It is relied upon to supply a stock of approved plans and license conventional open to cover suspicious plan. There will even be a stock of the organizations that are indicted for running the illicit store plans.

Being a far reaching Union law, the Bill embraces best practices from State law and depends the essential duty of executing the arrangements of the enactment to the State Governments in this manner maintaining the standard of helpful federalism.

Does the Bill affect Bitcoin and other Crypto-currencies:

It has been represented that with the arrangement of Bitcoin and computerized monetary standards, various ponzi plans have created under its shadow. Being another and promising business division, various people skipped into placing assets into these without expanding proper data on the proportional. These similarly given a course to save charges. Nevertheless, in India such cryptographic types of cash have quite recently been given the status for all intents and purposes like ponzi plans. Right now, an indirect way the Bill will check the utilization of Bitcoin and advanced types of cash and particularly those which ensure 2 and on different occasions more return will be for the most part hit. Regardless, the exchanges that are running as indicated by the standard benchmarks are not being tended to.

“The views of the authors are personal

Frequently Asked Questions

What is relevance of the appropriate government under the Act?

“Appropriate Government” has been vested with right to appoint the authorities for administration of the Act.

Whether the amount received by Public Financial Institutions/NBFCs/HFCs included under deposits?

No, they are not included under ‘deposits’.

Whether amounts received from relatives are considered as ‘deposits’?

Under Section 2 (4) (f) of the Act, in case of individual, amounts received by way of loan from his relatives and in case of any firm amounts received by way of loan from the relatives of any of its partners are not considered as deposits.

Ameyprasad Atigre
Ameyprasad Atigre, currently pursuing 1st Year Law Course [B.A.LL.B (Hons.)] from Government Law College, Mumbai (Maharashtra). The areas of interest for him are Contract Law, Constitutional Law, Criminal Law, Labour Law, Human Rights Law, Intellectual Property Law, Cyber Law. He is looking forward to creating a breakthrough career in law, he takes acute care in developing his research skills as well as dealing with National and International Moot Court Competitions and International Law Committee. He has worked with Adv. Pandit Atigre in Dist. Court of Kolhapur. He has a keen interest in writing his own Blogs, Legislative Comments, Short Articles, Newsletter articles, Articles for Journals.