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This article is written by Utkarsh Singh, a student of Amity Law School, NOIDA. This is an exhaustive article that deals with Offences and Punishment Regarding Banning of Unregulated Deposit Scheme Act.

Introduction

Many money lenders have been deceived by the unregulated deposit schemes. The government has made an inter-ministerial group to reduce the differences between existing legislation. There was a recommendation to bring a new law for the unregulated deposit scheme. The government made a law called the Banning of Unregulated Deposit Scheme Act, 2019 This is the scheme of the government to stop the Ponzi scheme or bring back the looted money by the rich people. This Act will save gullible money lenders from unregulated deposit schemes. This Act gives for a process to ban the unregulated deposits, leaving the deposits are taken in the normal course of business. The law has rules and norms which provide adequate punishment and may have to give or repay the money which was a deposit in the cases where such unregulated schemes manage to raise deposits illegally. 

After the Saradha scam, the finance committee in its 21st Report which was dated on September 21, 2015. Proposed the introduction of a comprehensive law or norms system that governs all the factors which are engaged in the activities which include the acceptance of the investment or deposit form the public. When the recommendations were made the committee saw that some entities were included in the non-financial and financial deposits and so, it was very difficult to find a way and recognize a proper way to make laws for such a system. What factor lies under the jurisdiction of different kinds of regulatory authorities and despite the same laws, several such entities were not regulated by any law. On July 29, the Rajya Sabha passed the Banning of Unregulated Deposit Schemes Bill, 2019. The Bill was presented in the Lok Sabha on July 19 by Finance Minister Nirmala Sitharaman and intends to shield speculators from fake venture plans, for example, unregulated deposits.

What is ‘deposit’

Now let us see the loan or deposit taken in the course of business. The government defines the term ‘deposit’ in a very wide manner. It covers any measure of cash obtained by a method of development or advance or in some other structure with or with no interest or return. It is not important that the down payment should be for a certain period so long as the money is returnable. The meaning of the word deposit itself has some exclusions. These exclusions cover amounts received from the government, financial institutions, banks, etc.

The word deposit also excludes loans taken from the family members or relatives, business loans and many more. There is also a law giving the power to the state government to endorse certain money gathered, which would not be defined under the deposit term. The significant exclusion is any money received in the way of, or for the cause of, business and bearing a genuine connection to such business. If this exclusion is translated in its proper spirit most of the money received by some person in the way of his business would not form the deposit as defined in the law. The law indicates that particular kinds of sums obtained by the method of advance or deposit will not be treated as deposits for the motivations behind this Ordinance. This incorporates advancements as a major aspect of the thought for the offer of the property, security deposit, advance for gracefully or recruit of products or arrangement of administrations, and so forth. The legislature through different Tweets has explained the position and has emphasized that what is denied is an acknowledgement of deposits by unregulated deposit scheme and not an acknowledgement of different business advances or advances.

Unregulated deposit schemes and Ponzi schemes

Section 2(17) of Banning of Unregulated Deposit Scheme Act, 2019 defines the definition of Unregulated Deposit Schemes. To be an unregulated deposit scheme first it should be an agreement or scheme, the scheme is a systematic plan at a large scale to achieve a particular goal of money. Then the money should be deposited to the money taker in the way of business. Depositing money or taking money to let say the trading purpose is not considered as an unregulated deposit scheme or taking money as a loan from a firm, friend or family is not considered as an unregulated deposit. 

A typical sort of trick including unregulated deposits is the Ponzi conspiracy, a kind of venture extortion wherein one gathering guarantees significant yields on speculation with almost no hazard. The early financial specialists in a Ponzi plot are reimbursed by the plan getting new speculators, etc. Once there are not, at this point enough individuals to make sure about another round of ventures, the plan breakdown and the speculators lose their cash.

The regulators overseeing deposit-taking schemes

Their total nine government organizations which are charged with the regulation and oversight of the deposit-taking matters, which includes the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), the Ministry of Corporate Affairs (MCA), and the state and union territory government. Each and every organization has different kinds of deposit-taking schemes which are supervised by them like Securities and Exchange Board of India (SEBI) supervise the mutual funds, the Reserve Bank of India (RBI) supervises the non-banking financial companies (NBFCs). Any deposit-taking plan must be enrolled with the important position, in view of the classification it falls under, and at exactly that point is its activity legitimate.

What is the mechanism by which the Bill aims to combat unregulated deposit schemes

As given in the norms of the Bill, government authority or officer will be allotted, by which the rank of the appointed authority will not be below secretary to the central or state government. The norms in the Bill give the power to authority that it can seize the property or provisionally attach the items of the money taker and the money he has received by them. The Bill additionally permits the equipped position to call and look at individuals to get proof and request records to be delivered. In addition, the norms of the Bill provides the authority for the formation of the designated courts in specific areas. The assigned court will have the capacity to make the temporary connection supreme once drew nearer by the able power. Then, the court will order the officer or supervisor how to deposit the recovered money equally to all the depositors and how to redistribute them. This whole process is completed in a total of 180 days of the application from the competent authority to the court. The central government will moreover assign a position to set up an online database with data on different deposit-takers. The database will be utilized to find out which deposit-takers are directed, and which are most certainly not. Deposit-takers will be required to advise the expert in control regarding the database about their activities and the condition of their business.

Offences and penalties

Punishment for contravention of Section 3 of the Unregulated Deposit Scheme Act

  1. Any deposit taker who requests deposits in denial of Section 3 will be culpable with detainment for a term which will not be short of one year yet which may stretch out to five years and with fine which will not be under two lakh rupees yet which may reach out to ten lakh rupees.
  2. Any deposit taker who takes the money in denial of Section 3 will be liable with jail for a time which will not be short for one year yet which may stretch up to seven years and with fine which will not be under three lakh rupees yet which may reach out to ten lakh rupees.
  3. Any deposit taker who takes the money in denial of Section 3 and in fraud is not able to repay back the money or is not able to give a specific type of service, will be culpable with jail for a time which will not be short than three years yet which may stretch out to ten years and with fine which will not be under five lakh rupees yet which may reach out to double the money of taken funds collected from the subscribers, member or participants in the Unregulated Deposit Scheme.

Punishment for contravention of Section 4 of the Unregulated Deposit Scheme Act

Any deposit taker who negates the arrangements of Section 4 will be culpable with detainment for a term which may stretch out to seven years, or with fine which will not be under five lakh rupees however which may reach out to twenty-five crore rupees or multiple times the measure of benefits made out of the fake default alluded to in the said area, whichever is higher, or with both.

Punishment for contravention of Section 5 of the Unregulated Deposit Scheme Act

Any deposit taker who negates the arrangements of Section 5 will be culpable with detainment for a time which may not be short by one year but which may stretch out to five years and with fine which may reach up to ten lakh rupees.

Punishment for repeat offenders

Whoever having been recently indicted for an offence culpable under this Chapter, aside from the offence under Section 26, is in this way sentenced for an offence will be culpable with detainment for a term which will not be under five years yet which may stretch out to ten years and with fine which will not be under ten lakh rupees yet which may reach out to fifty crore rupees.

Offences by deposit takers other than individuals

  1. Where a felony under this Act has been done by a money taker other than a person, every person who, at the time the felony was done, was in charge of and was liable to, the money taker for the act of the business, as well as the money taker, will be deemed to be culpable of the felony and will be liable to be proceeded against and punish accordingly.
  2. Nothing contained in sub-section(1) will render any such individual at risk to any discipline given in this Act on the off chance that he demonstrates that the offence was submitted without his insight or that he practised all due steadiness to forestall the commission of such offence.
  3. Despite anything contained in sub-section (1), where an offence under this Act has been submitted by a deposit taker other than an individual, and it is demonstrated that the offence is-
  1. has been submitted with the assent or intrigue of; or
  2. is owing to any disregard with respect to any chief, administrator, secretary, advertiser, accomplice, representative or different officials of the deposit taker, such individual will likewise be considered to be liable of that offence and will be subject to be continued against and rebuffed as needed.

                     

Punishment for contravention of Section 10 of Unregulated Deposit Scheme Act

Whoever neglects to give the suggestion required under sub-section (1) of Section 10 or neglects to outfit any such explanations, data or specifics as required under sub-section (2) of that Section, will be culpable with fine which may stretch out to five lakh rupees.

Cognizance of offences

Despite anything contained in Section 4 of Unregulated Deposit Scheme Act, 2019 no Designated Court will take comprehension of an offence culpable under that Section aside from upon a grievance made by the Regulator-

Given that the arrangements of Section 4 and this Section will not have any significant bearing corresponding to a deposit taker which is an organization.

Conclusion

The Ordinance is a try on the part of the Government to lessen the authority gap and make an online central database where the information regarding all kinds of money submitting or deposit will be present to the moneylender or money investors. The authorities and the state government have faced difficulties in the past in looking over the Unregulated Deposit Scheme which was done in many states. Now, the persona who is collecting the money as their part of the business has to make sure that the norms of the law are not broken, failing which such money takers will be subject to penal consequences. While the law has given a long union law, the duty of actualizing certain arrangements of the Ordinance vests with the State Governments. It is normal that each State Government will assign the applicable Authority to manage the usage of this Ordinance.

References


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