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The Banning of Unregulated Deposit Schemes Bill


The Banning of Unregulated Deposit Schemes Bill

There has been a lot of speculation lately on the Ordinance passed by the government banning
innumerable Unregulated Deposit Schemes floating across the country. It is important for us to
correctly understand the entire scope of this Ordinance and how can it help regulate the investment
scenarios in our country. Let us take a deeper look-
In a bid to save credulous investors from Ponzi schemes, the Central government has recently
banned unregulated deposit schemes, a move that may help tackling the menace of illicit deposit-
taking activities.
Pursuant to this ordinance now any Individual or group of individuals cannot take any deposit or
loan from any person other than relatives, whereas partnership firms can take deposit or loan from
relatives or partners only. Let us understand –

1) What are Unregulated Deposit Schemes?

“Unregulated Deposit Scheme means a Scheme or an Arrangement under which deposits
are accepted or solicited by any deposit taker by way of business and which is not a
Regulated Deposit Scheme, as specified under Column (3) of the First Schedule.

2) What is the Scope of this Ordinance?

  • When the acceptance of or solicitation of Deposits by anyone as a part of some Scheme or
    Arrangement is done by way of business, it will be deemed as an Unregulated Deposit
    Scheme. This basically implies that, taking deposits or soliciting them has to be the sole
    business goal of the Deposit Taker and that deposit taking or soliciting them is the primary
    business function.
  • The Ordinance prohibits a deposit taker to promote, operate or issue any advertisement
    soliciting participation or enrolment in or accept deposits in pursuance of an Unregulated
    Deposit Scheme.
  • The Ordinance also provides substantial Do’s and Don’ts for Regulated Deposit Schemes by
    prescribing a code of good governance for all deposit takers while accepting deposits for
    Regulated Deposit Schemes. This ensures further protection for depositors from operators of
    even Regulated Deposit Schemes mentioned in Column – 3 of Schedule – I to the Ordinance.
  • The Ordinance further protects depositors by prohibiting any person from knowingly making
    any statement, promise or forecast, which is false or deceptive or misleading in material
    facts; or deliberately conceal any material facts with a view to induce any other person to
    invest in or become a member or participant of any Unregulated Deposit Scheme.

3) “How does this Ordinance benefit the Indian Masses?”

  • This ordinance surely provides a safety cover or protective net to the Indian population;
    especially from the unregulated and unorganized Ponzi schemes which devour the hard
    earned savings of the innumerable uneducated investors in our country.
  • The current Indian laws are not very stringent to protect these investors when these
    schemes go defunct or the deposit takers abscond. This is contrary to the investors in the
    organized shares and securities market where SEBI provides adequate protection. India has
    a significant illiterate and unaware population and everyday many incidents highlighting
    how people fall prey to such schemes come to the foreground.
  • This ordinance puts a check on illicit deposit schemes that trick investors and does not
    prohibit any schemes regulated by statutory authorities as mentioned in Column – 3 of the
    First Schedule to the Ordinance.

4) “What it doesn’t mean – Demystifying the Ordinance?”

  • The ordinance issued by the government to ban unregulated deposit schemes does not stop
    any entity from seeking funds for its business or an individual raising a quick loan from
    relatives to tide over a crisis.
  • It does not ban small and medium enterprises (SMEs) from receiving loans in the course of,
    or for the purpose of, business, the government has clarified.

5) What are the penalties for defaulters?

  • The Ordinance 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 too 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.

6) What is the way forward?

  • The Ordinance provides for the central government with powers to appoint a Competent
    Authority, who should not be below the rank of Secretary to the Government.
  • The State Government will appoint other relevant officers to assist the Competent Authority,
    and they will collectively discharge the functions of this ordinance.
  • The Central Government will also designate an authority who shall maintain central
    repository of information of all such Unregulated Deposits Schemes. The duty is cast on
    every Deposit Taker, existing or new, to intimate such authority in a prescribed manner.
  • The Ordinance also provides for the creation of a body that maintains an online database of
    legitimate deposit takers and schemes operating in India.


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