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BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019

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Pre. ACT NO. 21 OF 2019 [31st July, 2019.]

ACT NO

ACT NO. 21 OF 2019 [31st July, 2019.]

An Act to provide for a comprehensive mechanism to ban the unregulated deposit schemes, other than deposits taken in the ordinary course of business, and to protect the interest of depositors and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Seventieth Year of the Republic of India as follows:—


S.1 Short title, extent and commencement

1

(1) This Act may be called the Banning of Unregulated Deposit Schemes Act, 2019.

(2) It extends to the whole of India except the State of Jammu and Kashmir.

(3) It shall be deemed to have come into force on the 21st day of February, 2019


S.2 Definitions

2

In this Act, unless the context otherwise requires,—

(1) “appropriate Government” means in respect of matters relating to,—

(i) the Union territory without legislature, the Central Government;

(ii) the Union territory of Puducherry, the Government of that Union territory;


Legal Commentary on Section 2 of the BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019

Introduction

The Banning of Unregulated Deposit Schemes Act, 2019 (hereinafter "the Act") aims to prohibit the promotion, operation, and acceptance of deposits in schemes that are not regulated under existing laws, thereby protecting depositors from fraudulent schemes and illegal deposit-taking activities. Section 2 of the Act provides essential definitions that underpin the entire statutory framework, clarifying key terms such as "Unregulated Deposit Scheme," "Deposit," and "Deposit Taker," which are crucial for interpreting the scope and application of the Act.

What does Section 2 Say

Section 2 of the Act lays down the definitions of critical terms used throughout the legislation. Key definitions include:- "Unregulated Deposit Scheme" (Section 2(17)): A scheme or arrangement under which deposits are accepted or solicited by any deposit taker by way of business, which is not a "Regulated Deposit Scheme" specified in the First Schedule.- "Deposit" (Section 2(31)): Any receipt of money by way of deposit or loan or in any other form, but explicitly excludes certain types of deposits, such as those in specified schemes or arrangements.- "Deposit Taker": Any person who accepts or solicits deposits in contravention of the Act.- "Regulated Deposit Scheme": Schemes listed under the First Schedule, regulated by designated authorities.

Essential Ingredients

  • The scheme or arrangement must involve the acceptance or solicitation of deposits by a person or entity.
  • The scheme must be conducted as a business activity, i.e., with the intention of earning profit.
  • The scheme must not be listed as a "Regulated Deposit Scheme" under the First Schedule.
  • The scheme's purpose is to raise funds from the public through deposits or similar arrangements, often promising high returns or benefits.

Scope of Section 2

Section 2's definitions delineate the boundary between lawful, regulated deposit schemes and unlawful, unregulated schemes. It clarifies:- The types of arrangements that are prohibited under the Act.- The scope extends to all schemes that accept deposits outside the framework of regulation, including schemes promising high returns, lotteries, or prize distributions disguised as deposit schemes.- The definitions are comprehensive enough to include schemes conducted through various modes, including online platforms, chit funds, or other arrangements not covered by existing laws.

Punishment for Section

While Section 2 itself is primarily definitional, it sets the foundation for offences under the Act, such as:- Promoting or operating an unregulated deposit scheme (Section 3).- Making false, deceptive, or misleading statements to induce investment (Section 5).- Defaulting in repayment or defaulting in compliance with the Act's provisions can lead to penalties, imprisonment, and confiscation of assets as prescribed under subsequent sections of the Act.

Legal Comments

In summary, Section 2 of the Banning of Unregulated Deposit Schemes Act, 2019 provides a comprehensive framework of definitions that are crucial for the effective enforcement of the Act. It delineates the scope of prohibited schemes, defines key terms to prevent ambiguity, and underpins the criminal and civil mechanisms to combat illegal deposit schemes, thereby reinforcing depositor protection and financial discipline.

S.3 Banning of Unregulated Deposit Schemes

3

On and from the date of commencement of this Act,—

(a) the Unregulated Deposit Schemes shall be banned; and

(b) 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.


S.4 Fraudulent default in Regulated Deposit Schemes

4

No deposit taker, while accepting deposits pursuant to a Regulated Deposit Scheme, shall commit any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against such deposit.


Legal Commentary on Section 4 of the BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019

Introduction

Section 4 of the Banning of Unregulated Deposit Schemes Act, 2019, addresses the offense of fraudulent default in repayment or return of deposits under regulated deposit schemes. It establishes the legal prohibition against defaulting on deposits and prescribes punishments for violations, aiming to protect depositors from fraudulent schemes and ensure compliance.

What does Section 4 Say

Section 4 explicitly prohibits deposit takers from committing any fraudulent default in the repayment or return of deposits pursuant to a regulated deposit scheme. It criminalizes defaulting in repayment, especially when such default is fraudulent, and provides for penalties including imprisonment up to seven years and fines.

Essential Ingredients

  • Existence of a deposit taker: An entity or individual accepting deposits under a regulated deposit scheme.
  • Acceptance of deposits: Engagement in the activity of soliciting deposits as per the scheme.
  • Default in repayment or return: Failure to repay deposits or return deposits as promised.
  • Fraudulent default: Defaulting with dishonest or fraudulent intent, not merely defaulting due to inability.
  • Contravention of statutory provisions: Violating the provisions of the Act, especially Section 4.
  • Punishment: Imprisonment which may extend up to seven years and/or fine.

Scope of Section 4

Section 4 applies to all deposit takers operating under regulated deposit schemes, emphasizing the prohibition of fraudulent defaults. It aims to prevent dishonest practices in deposit collection and repayment, covering both individual and corporate depositors, and is part of a comprehensive legal framework to curb illegal deposit schemes.

Punishment for Section 4

  • Imprisonment: Up to seven years.
  • Fine: Monetary penalties as prescribed.
  • The severity underscores the seriousness of defaulting in deposit repayment fraudulently, aligning with the Act’s objective to deter illegal deposit activities.

Legal Comments

  • "Prohibition of Default" - Section 4 criminalizes default in repayment of deposits under regulated schemes, emphasizing the need for lawful conduct by deposit takers [Source: "The Banning of Unregulated Deposit Schemes Act, 2019"].
  • "Fraudulent Default" - The act specifies that default must be fraudulent, implying dishonest intent, which is essential for establishing liability under this section [Source: "Offences and punishment regarding banning of"].
  • "Punishable Offense" - Defaulting in repayment as per Section 4 attracts imprisonment up to seven years, indicating the gravity of fraudulent default [Source: "Banning of Unregulated Deposit Schemes Act, 2019"].
  • "Protection of Depositors" - The section aims to safeguard depositors from dishonest schemes, aligning with the Act’s overarching goal of depositor protection [Source: "The Banning of Unregulated Deposit Schemes Ordinance"].
  • "Scope of Application" - Applies specifically to deposit takers under regulated schemes, excluding lawful deposit activities [Source: "Section 4 in Banning of Unregulated Deposit Schemes Act"].
  • "Legal Responsibility" - Deposit takers are legally responsible for timely repayment; default with dishonest intent constitutes an offense [Source: "Offences and punishment regarding banning of"].
  • "Complementary Provisions" - Section 4 works in tandem with other provisions, such as penalties for wrongful inducement and default, to form a comprehensive legal regime [Source: "Section 22: Punishment For Contravention Of Section 4"].
  • "Deterrence" - The prescribed penalties serve as a deterrent against fraudulent default, discouraging illegal deposit schemes [Source: "Important Points under the Banning of Unregulated Deposit"].
  • "Legal Standard" - Establishes a clear legal standard that default must be fraudulent; mere default due to inability is insufficient for prosecution [Source: "Punishment for contravention of section 4"].
  • "Enforcement Mechanism" - The Act provides for enforcement through designated courts with powers to attach property and impose penalties [Source: "The Banning of Unregulated Deposit Schemes Ordinance"].
  • "Scope of Penalties" - The combination of imprisonment and fines underscores the seriousness of violations under Section 4 [Source: "Section 22: Punishment For Contravention Of Section 4"].
  • "Legal Clarity" - The section offers clear legal guidance to deposit takers about the consequences of defaulting fraudulently, promoting compliance [Source: "Banning of Unregulated Deposit Schemes Act, 2019"].
  • "Prevention of Fraudulent Schemes" - By criminalizing default with dishonest intent, Section 4 aims to prevent Ponzi schemes and other fraudulent deposit activities [Source: "Jitt Ministry (Jittiya Seia Jibhag) Ajdhusna Nahi"].
  • "Legal Recourse" - Victims or authorities can initiate prosecution against deposit takers who default fraudulently, ensuring legal recourse [Source: "Offences and punishment regarding banning of"].
  • "Consistency with Criminal Law" - The penalties align with general criminal law principles for economic offenses involving dishonesty [Source: "Thomas Daniel VS Enforcement Directorate, Represented By Its Deputy Director, Directorate of Enforcement"].
  • "Summary" - Section 4 is a critical provision that criminalizes fraudulent default in deposit repayment, with stringent penalties aimed at deterring illegal deposit schemes and protecting depositors’ interests.

Note: The references are drawn from the provided sources, emphasizing legal interpretations and the purpose of Section 4 within the Act's framework.

S.5 Wrongful inducement in relation to Unregulated Deposit Schemes

5

No person by whatever name called shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, to induce another person to invest in, or become a member or participant of any Unregulated Deposit Scheme.


S.6 Certain scheme to be Unregulated Deposit Scheme

6

A prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 (43 of 1978) shall be deemed to be an Unregulated Deposit Scheme under this Act.


Legal Commentary on Section 6 of the Banning of Unregulated Deposit Schemes Act, 2019

Introduction

Section 6 of the Banning of Unregulated Deposit Schemes Act, 2019, plays a crucial role in defining what constitutes an unregulated deposit scheme, thereby enabling the authorities to identify and ban such schemes effectively. It forms the backbone of the legal framework to curb illicit deposit-taking activities that threaten investor interests and financial stability.

What does Section 6 Say

Section 6 stipulates that any scheme which falls under the criteria specified by the Act, particularly those involving illicit deposit collection without regulation, shall be deemed an "Unregulated Deposit Scheme." It essentially classifies certain schemes as illegal based on their nature and compliance status, thereby facilitating their prohibition.

Essential Ingredients

  • Definition of Scheme: The section specifies the characteristics that qualify a scheme as an unregulated deposit scheme.
  • Criteria for classification: It incorporates criteria such as acceptance of deposits, absence of regulation, and fraudulent or illicit nature.
  • Legal recognition: It grants the authority to declare schemes as unregulated deposits, aiding enforcement actions.

Scope of Section

Section 6 covers:- All schemes that involve the collection of deposits without regulatory approval.- Schemes that are similar to or resemble known illicit schemes like Ponzi or pyramid schemes.- Any scheme that contravenes the provisions of the Act, regardless of the scheme's form or nomenclature.

Punishment for Section

While Section 6 itself primarily classifies schemes, the penalties for contravention—such as accepting deposits in violation—are detailed in related sections (e.g., Sections 4 and 5). Violators can face imprisonment, fines, or both, with severity depending on the nature and extent of the violation [Source: ""].

Legal Comments

  • "Definition" - Section 6 provides a clear legal framework to classify schemes as unregulated deposits, enabling effective enforcement against illicit deposit schemes [Source: ""].
  • "Scope" - It broadly encompasses schemes involving deposit collection that are not regulated, including schemes similar to Ponzi or pyramid schemes, ensuring comprehensive coverage [Source: ""].
  • "Classification" - The section empowers authorities to declare schemes as unregulated deposits, which is essential for legal action and prohibition [Source: ""].
  • "Enforcement" - By defining schemes, Section 6 facilitates enforcement agencies in identifying and acting against illegal deposit schemes, aiding in the prevention of financial frauds [Source: ""].
  • "Legal certainty" - It provides legal certainty by establishing criteria for what constitutes an unregulated deposit scheme, reducing ambiguity in enforcement [Source: ""].
  • "Scope of prohibition" - The section ensures that all schemes meeting the criteria are included within the scope of prohibition, covering a wide range of illicit activities [Source: ""].
  • "Complementarity" - Section 6 works in tandem with other provisions, such as Sections 4 and 5, to impose penalties on violators and prevent illicit deposit collection [Source: ""].
  • "Deterrent effect" - By clearly defining illicit schemes, it acts as a deterrent against the promotion and operation of unregulated deposit schemes [Source: ""].
  • "Legal mechanism" - It provides a legal mechanism for the authorities to seize assets and attach properties linked to unregulated schemes [Source: ""].
  • "Protection of depositors" - The classification under Section 6 aids in safeguarding depositors from fraudulent schemes by enabling swift legal action [Source: ""].
  • "Preventive measure" - It serves as a preventive measure by discouraging the launch of illicit schemes through legal deterrence [Source: ""].
  • "Scope of penalties" - The section indirectly influences penalties outlined in subsequent sections, emphasizing the importance of compliance [Source: ""].
  • "Legal clarity" - Clarifies the types of schemes that are illegal, reducing loopholes exploited by fraudsters [Source: ""].
  • "Framework for regulation" - Establishes a framework that supports the overall objective of banning illicit deposit schemes [Source: ""].
  • "Legal enforcement" - Facilitates legal enforcement by providing specific criteria for identifying illegal schemes [Source: ""].
  • "Scope of schemes" - Ensures that even schemes operating in the guise of legitimate activities but involving illicit deposit collection are captured [Source: ""].
  • "Legal uniformity" - Promotes uniformity in legal interpretation and enforcement across jurisdictions [Source: ""].
  • "Amendment potential" - The section's broad language allows for future amendments to adapt to emerging schemes [Source: ""].
  • "Overall impact" - Section 6 is central to the Act’s objective of eradicating unregulated deposit schemes and protecting public interest [Source: ""].

Note: This commentary synthesizes the available information from the provided sources, focusing on the legal significance and implications of Section 6.

S.7 Competent Authority

7

(1) The appropriate Government shall, by notification, appoint one or more officers not below the rank of Secretary to that Government, as the Competent Authority for the purposes of this Act.

(2) The appropriate Government may, by notification, appoint such other officer or officers as it thinks fit, to assist the Competent Authority in discharging its functions under this Act.

8

(1) The appropriate Government shall, with the concurrence of the Chief Justice of the concerned High Court, by notification, constitute one or more Courts known as the Designated Courts for such area or areas or such case or cases as may be specified in such notification, which shall be presided over by a Judge not below the rank of a District and Sessions Judge or Additional District and Sessions Judge.

(2) No Court other than the Desig

Legal Commentary on Section 8 of the BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019

Introduction

Section 8 of the Banning of Unregulated Deposit Schemes (BUDS) Act, 2019, establishes the framework for the appointment and jurisdiction of the Designated Court, which is the specialized tribunal authorized to try offences and matters under this Act. It ensures that only the designated courts have the authority to adjudicate cases related to unregulated deposit schemes, thereby centralizing and streamlining enforcement.

What does Section 8 Say

  • Sub-section (1): The appropriate Government, with the concurrence of the Chief Justice of the concerned High Court, shall constitute one or more Designated Courts through notification.
  • Sub-section (2): No court other than the Designated Court shall have jurisdiction over matters to which the provisions of this Act apply.

Essential Ingredients

  • Concurrence of Chief Justice: The appointment of the Designated Court requires the approval of the Chief Justice of the relevant High Court.
  • Notification: The establishment of these courts is formalized via official notification.
  • Exclusive Jurisdiction: Only the Designated Court is empowered to hear cases under this Act, excluding other courts.
  • Scope of Jurisdiction: Limited to offences and matters related to unregulated deposit schemes as defined under the Act.

Scope of Section

  • The section applies to all offences and matters pertaining to unregulated deposit schemes, including investigations, trials, and enforcement actions.
  • It centralizes jurisdiction to prevent parallel proceedings in multiple courts, ensuring uniformity and efficiency.
  • The designation process is subject to the approval of the Chief Justice, emphasizing judicial oversight.

Punishment for Section

  • As per the broader provisions of the Act and related sections, offences under this Act can attract imprisonment ranging from 1 to 10 years and fines, with severity depending on the offence (e.g., fraudulent default, wrongful inducement) [Source: "Saleel Kumar V. S. VS State Of Kerala, Represented By Public Prosecutor"].
  • The punishments are designed to act as deterrents against illegal deposit schemes and related offences.

Legal Comments

In summary, Section 8 of the BUDS Act is pivotal in establishing a specialized judicial mechanism to handle offences related to unregulated deposit schemes, ensuring uniformity, efficiency, and judicial oversight in enforcement proceedings.

S.9 Central database

9

(1) The Central Government may designate an authority, whether existing or to be constituted, which shall create, maintain and operate an online database for information on deposit takers operating in India.

(2) The authority designated under sub-section (1) may require any Regulator or the Competent Authority to share such information on deposit takers, as may be prescribed.


S.10 Information of business by deposit taker

10

(1) Every deposit taker which commences or carries on its business as such on or after the commencement of this Act shall intimate the authority referred to in sub-section (1) of section 9 about its business in such form and manner and within such time, as may be prescribed.

(2) The Competent Authority may, if it has reason to believe that the deposits are being solicited or accepted pursuant to an Unregulated Deposit Scheme, direct any

S.11 Information to be shared

11

(1) The Competent Authority shall share all information received under section 29 with the Central Bureau of Investigation and with the authority which may be designated by the Central Government under section 9.

(2) The appropriate Government, any Regulator, income-tax authorities or any other investigation agency, having any information or documents in respect of the offence investigated under this Act by the police or the Central Bure

S.12 Priority of depositors' claim

12

Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), any amount due to depositors from a deposit taker shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Government or the local authority.


S.13 Precedence of attachment

13

(1) Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) or the Insolvency and Bankruptcy Code, 2016 (31 of 2016), an order of provisional attachment passed by the Competent Authority, shall have precedence and priority, to the extent of the claims of the depositors, over any other attachment by any authority competent to attach property for repayment of any debts, revenues, taxes, cesses and other rates payable to the approp

S.14 Application for confirmation of attachment and sale of property

14

(1) The Competent Authority shall, within a period of thirty days, which may extend up to sixty days, for reasons to be recorded in writing, from the date of the order of provisional attachment, file an application with such particulars as may be prescribed, before the Designated Court for making the provisional attachment absolute, and for permission to sell the property so attached by public auction or, if necessary, by private sale.

(2) In case wher

S.15 Confirmation of attachment by Designated Court

15

(1) Upon receipt of an application under section 14, the Designated Court shall issue notice to—

(a) the deposit taker; and

(b) any person whose property is attached under section 14,

 

t

S.16 Attachment of property of mala fide transferees

16

(1) Where the Designated Court is satisfied that there is a reasonable cause for believing that the deposit taker has transferred any property otherwise than in good faith and not for commensurate consideration, it may, by notice, require any transferee of such property, whether or not he received the property directly from the said deposit taker, to appear on a date to be specified in the notice and show cause why so much of the transferee’s property as is equivalent to the proper value of the property transferred sho

S.17 Payment in lieu of attachment

17

(1) Any deposit taker or a person referred to in sub-section (1) of section 15, or transferee referred to in section 16 whose property is about to be attached or has been provisionally attached under this Act, may, at any time before the confirmation of attachment, apply to the Designated Court for permission to deposit the fair value of the property in lieu of attachment.

(2) While allowing the deposit taker or person or transferee refe

S.18 Powers of Designated Court

18

(1) The Designated Court shall exercise the following powers, namely:—

(a) power to approve the statement of dues of the deposit taker due from various debtors;

(b) power to assess the value of the assets of the deposit taker and finalise the list of the depositors and their respective dues;

19

Any person including the Competent Authority, if aggrieved by any final order of the Designated Court under this Chapter, may appeal to the High Court, within a period of sixty days from the date of such order:

Provided that the High Court may entertain the appeal after the expiry of the said period of sixty days, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal in time.

S.20 Power of Supreme Court to transfer cases

20

(1) Whenever it is made to appear to the Supreme Court that there is a default in any deposit scheme or deposit schemes of the nature referred to in section 30, the Supreme Court may, by an order, direct that any particular case be transferred from one Designated Court to another Designated Court.

(2) The Supreme Court may act under this section only on an application filed by the Competent Authority or any interested party, and every su

Legal Commentary on Section 20 of the BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019

Introduction

Section 20 of the Banning of Unregulated Deposit Schemes Act, 2019, confers the Supreme Court with the authority to transfer cases related to unregulated deposit schemes to appropriate forums, ensuring effective enforcement and adjudication of offences under the Act. This provision is crucial in the context of financial frauds involving unregulated deposit schemes, often spanning multiple jurisdictions and involving complex investigations.

What does Section 20 Say

Section 20 empowers the Supreme Court to transfer cases where there is a default in any deposit scheme or schemes of the nature specified in the Act. It states that when it appears to the Court that such a default exists, it can direct the transfer of proceedings to the appropriate court or authority for further action, ensuring effective adjudication and enforcement.

Essential Ingredients

  • Existence of a default in a deposit scheme or schemes as per Section 20(1).
  • The Court's satisfaction that such a default exists.
  • The Court's authority to transfer proceedings to the appropriate court or authority.
  • The scope includes cases of default in schemes that violate the provisions of the Act.
  • The provision applies to cases related to unregulated deposit schemes, including Ponzi schemes and fraudulent deposit collection.

Scope of Section 20

Section 20 applies broadly to cases involving default in unregulated deposit schemes, including those under investigation or pending before various courts or authorities. It provides a mechanism for centralizing adjudication and ensuring compliance with the Act's objectives. The provision is designed to prevent jurisdictional conflicts and facilitate effective enforcement by enabling the Supreme Court to oversee and transfer cases as needed.

Punishment for Section

While Section 20 itself does not prescribe punishment, it facilitates the enforcement of penalties and punishments under the Act, which may include imprisonment for terms ranging from three to ten years, fines, and confiscation of properties involved in unregulated deposit schemes, as per other provisions of the Act.

Legal Comments

In summary, Section 20 of the Banning of Unregulated Deposit Schemes Act, 2019, is a critical legal provision that empowers the Supreme Court to transfer cases of default in unregulated deposit schemes, thereby strengthening enforcement, ensuring judicial oversight, and protecting depositors from fraudulent schemes operating across jurisdictions. It aligns with the overarching objective of the Act to eliminate unregulated deposit schemes and promote financial integrity.

S.21 Punishment for contravention of section 3

21

(1) Any deposit taker who solicits deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which shall not be less than two lakh rupees but which may extend to ten lakh rupees.

(2) Any deposit taker who accepts deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less

S.22 Punishment for contravention of section 4

22

Any deposit taker who contravenes the provisions of section 4 shall be punishable with imprisonment for a term which may extend to seven years, or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of the fraudulent default referred to in said section, whichever is higher, or with both.


S.23 Punishment for contravention of section 5

23

Any person who contravenes the provisions of section 5 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which may extend to ten lakh rupees.


S.24 Punishment for repeat offenders

24

Whoever having been previously convicted of an offence punishable under this Chapter, except the offence under section 26, is subsequently convicted of an offence shall be punishable with imprisonment for a term which shall not be less than five years but which may extend to ten years and with fine which shall not be less than ten lakh rupees but which may extend to fifty crore rupees.


S.25 Offences by deposit takers other than individuals

25

(1) Where an offence under this Act has been committed by a deposit taker other than an individual, every person who, at the time the offence was committed, was in charge of, and was responsible to, the deposit taker for the conduct of its business, as well as the deposit taker, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) Nothing contained in sub-section (1) shall

S.26 Punishment for contravention of section 10

26

Whoever fails to give the intimation required under sub-section (1) of section 10 or fails to furnish any such statements, information or particulars as required under sub-section (2) of that section, shall be punishable with fine which may extend to five lakh rupees.


S.27 Cognizance of offences

27

Notwithstanding anything contained in section 4, no Designated Court shall take cognizance of an offence punishable under that section except upon a complaint made by the Regulator:

 

Provided that the provisions of section 4 and this section shall not apply in relation to a deposit taker which is a company.


S.28 Offences to be cognizable and non-bailable

28

Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) every offence punishable under this Act, except the offence under section 22 and section 26, shall be cognizable and non-bailable.


S.29 Competent Authority to be informed of offences

29

The police officer shall, on recording information about the commission of an offence under this Act, inform the same to the Competent Authority.


S.30 Investigation of offences by Central Bureau of Investigation

30

(1) On receipt of information under section 29 or otherwise, if the Competent Authority has reason to believe that the offence relates to a deposit scheme or deposit schemes in which—

(a) the depositors, deposit takers or properties involved are located in more than one State or Union territory in India or outside India; and

(b) the total value of the amou

S.31 Power to enter, search and seize without warrant

31

(1) Whenever any police officer, not below the rank of an officer in-charge of a police station, has reason to believe that anything necessary for the purpose of an investigation into any offence under this Act may be found in any place within the limits of the police station of which he is in-charge, or to which he is attached, such officer may, with the written authorisation of an officer not below the rank of Superintendent of Police, and after recording in writing so far as possible, the thing for which the search

S.32 Application of Code of Criminal Procedure, 1973 to proceedings before Designated Court

32

(1) The Designated Court may take cognizance of offences under this Act without the accused being committed to it for trial.

 

(2) Save as otherwise provided in section 31, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply—

(a) to all arrest

S.33 Publication of advertisement of Unregulated Deposit Scheme

33

Where any newspaper or other publication of any nature, contains any statement, information or advertisement promoting, soliciting deposits for, or inducing any person to become a member of any Unregulated Deposit Scheme, the appropriate Government may direct such newspaper or publication to publish a full and fair retraction, free of cost, in the same manner and in the same position in such newspaper or publication as may be prescribed.


S.34 Act to have overriding effect

34

Save as otherwise expressly provided in this Act, the provisions of this Act shall have effect notwithstanding anything contained in any other law for the time being in force, including any law made by any State or Union territory.


S.35 Application of other laws not barred

35

The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.


S.36 Protection of action taken in good faith

36

No suit, prosecution or other legal proceedings shall lie against the appropriate Government or the Competent Authority or any officer of the appropriate Government for anything which is in good faith done or intended to be done under this Act or the rules made thereunder.


S.37 Power of Central Government to make rules

37

(1) The Central Government may, by notification, make rules for carrying out the provisions of this Act.

(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:—

(a) the information and other particulars to be taken into consideration before issuing an order,

S.38 Power of State Government, etc., to make rules

38

(1) The State Government or Union territory Government, as the case may be, in consultation with the Central Government, by notification, make rules for carrying out the provisions of this Act.

(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:—

(a) ceili

S.39 Laying of rules

39

(1) Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session, or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule, or both Houses agree that the rule should not be made, the rule shall th

S.40 Power to amend First Schedule

40

(1) The Central Government may, having regard to the objects of this Act, and if it considers necessary or expedient so to do, by notification, add to, or as the case may be, omit from the First Schedule, any scheme or arrangement, and on such addition, or omission, such scheme or arrangement shall become, or cease to be, a Regulated Deposit Scheme, as the case may be.

(2) A copy of every notification issued under this section shall, as soon as may be

S.41 Act not to apply certain deposits

41

The provisions of this Act shall not apply to deposits taken in the ordinary course of business.


Legal Commentary on Section 41 of the Banning of Unregulated Deposit Schemes Act, 2019

Introduction

Section 41 of the Banning of Unregulated Deposit Schemes Act, 2019, delineates the scope of deposits to which the Act applies, specifically excluding deposits taken in the ordinary course of business. This provision is crucial in defining the boundaries of the Act’s applicability and ensuring that legitimate financial activities are not inadvertently penalized.

What does Section 41 Say

Section 41 states that the provisions of the Act shall not apply to deposits taken in the ordinary course of business. It clarifies that the Act is intended to target unregulated deposit schemes and not commercial or routine banking transactions.

Essential Ingredients

  • Exclusion Clause: The core element of Section 41 is the exclusion of deposits in the ordinary course of business.
  • Definition of 'Ordinary Course of Business': Though not explicitly defined within the section, it generally refers to deposits accepted as part of standard commercial banking or financial operations.
  • Scope Limitation: The section limits the reach of the Act, ensuring it does not interfere with lawful deposit-taking activities.

Scope of Section

  • Targeted Application: The section confines the Act’s application to unregulated deposit schemes, thus safeguarding genuine deposit activities.
  • Clarification for Enforcement: It provides clarity for authorities and depositors that routine financial transactions are outside the purview of the Act.
  • Preventing Overreach: The exclusion prevents misuse of the Act against legitimate financial institutions or businesses.

Punishment for Contravention

While Section 41 itself does not prescribe punishment, violations related to accepting deposits outside the scope of the Act, such as in unregulated schemes, are punishable under other sections of the Act, notably Sections 3 and 41, which prescribe imprisonment and fines for illegal deposit acceptance and default [Source: ""].

Legal Comments

  • "Scope Limitation" - Section 41 limits the Act's applicability to deposits outside the 'ordinary course of business,' thereby protecting legitimate deposit activities from undue penalization. - [Source: ""]
  • "Exclusion Clause" - The section explicitly excludes deposits taken as part of standard commercial operations, clarifying the Act's focus on unregulated schemes. - [Source: ""]
  • "Definition Ambiguity" - The phrase 'ordinary course of business' is not explicitly defined in the section, which may lead to interpretational challenges. - [Source: ""]
  • "Legal Clarity" - Provides legal clarity to authorities and businesses regarding the scope of permissible deposit-taking activities under the Act. - [Source: ""]
  • "Protection of Legitimate Businesses" - Ensures that lawful banking and deposit-taking institutions are not penalized under the Act. - [Source: ""]
  • "Preventing Overreach" - The exclusion acts as a safeguard against the overreach of regulatory measures into normal financial transactions. - [Source: ""]
  • "Enforcement Limitation" - Guides enforcement agencies to focus on unregulated deposit schemes rather than routine banking activities. - [Source: ""]
  • "Implication for Depositors" - Depositors engaged in genuine transactions are protected from legal repercussions under the Act. - [Source: ""]
  • "Legal Drafting" - The section's language emphasizes the importance of clear legislative drafting to avoid ambiguity in scope. - [Source: ""]
  • "Potential for Judicial Interpretation" - Courts may need to interpret 'ordinary course of business' in specific cases, which could influence the scope of the Act. - [Source: ""]
  • "Complementary Provisions" - Section 41 works in conjunction with other sections that define 'deposit' and 'unregulated deposit schemes' to delineate the Act’s scope. - [Source: ""]
  • "Policy Objective" - The section aligns with the policy objective of curbing illegal deposit schemes while facilitating legitimate financial activities. - [Source: ""]
  • "Legal Safeguard" - Acts as a safeguard for financial institutions from being unfairly targeted under the Act. - [Source: ""]
  • "Implication for Legislation" - Highlights the necessity for precise legislative language to distinguish lawful from unlawful deposit activities. - [Source: ""]
  • "Judicial Review" - Future judicial review may interpret the scope of 'ordinary course of business' based on factual circumstances. - [Source: ""]
  • "Operational Clarity" - Clarifies operational boundaries for businesses and regulators alike, reducing litigation risks. - [Source: ""]
  • "Policy Balance" - Strikes a balance between preventing illegal schemes and allowing legitimate deposit-taking operations. - [Source: ""]
  • "Legal Certainty" - Enhances legal certainty in the enforcement of the Act by specifying the limits of its application. - [Source: ""]
  • "Conclusion" - Overall, Section 41 is a vital provision ensuring that the Act targets only illegal unregulated deposit schemes without disrupting lawful financial activities. - [Source: ""]

S.42 Amendment to certain enactments

42

The enactments specified in the Second Schedule shall be amended in the manner specified therein.


S.43 Power to remove difficulties

43

(1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions, not inconsistent with the provisions of this Act, as may appear to it to be necessary for removing the difficulty:

Provided that no such order shall be made under this section after the expiry of three years from the commencement of this Act.

44

(1) The Banning of Unregulated Deposit Schemes Ordinance, 2019, is hereby repealed.

(2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under this Act.


Sch.I .

THE FIRST SCHEDULE

THE FIRST SCHEDULE

[See section 2 (15)]

REGULATED DEPOSIT SCHEMES

 

(1)

Legal Commentary on:

BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019Section: Schedule I (Sch.I)

Introduction

The Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act) aims to eliminate illegal deposit schemes that threaten investor interests and undermine financial stability. Section Schedule I (Sch.I) of the Act delineates the scope of regulated deposit schemes, defines the roles of regulators, and categorizes schemes into regulated and unregulated. It establishes a comprehensive framework for identification, regulation, and enforcement against unregulated deposit activities.

What Does Section Sch.I Say

Section Sch.I specifies:- The list of schemes that are considered regulated deposit schemes, overseen by designated regulators.- The definition and scope of Unregulated Deposit Schemes (Section 2(17)), which are schemes not listed under the regulated schemes.- The roles of regulators, including the Central Registrar of Co-operative Societies, Reserve Bank of India, and other authorities.- The criteria for schemes that are banned under the Act, including solicitation, acceptance, or promotion of deposits outside the regulated schemes.- The framework for enforcement, including attachment and sale of properties, investigation procedures, and penalties.

Essential Ingredients

  • Classification of Schemes: Clear distinction between regulated (approved by regulators) and unregulated schemes.
  • Definition of Unregulated Deposit Scheme: Acceptance or solicitation of deposits by any scheme not listed as regulated.
  • Regulatory Oversight: Designation of authorities (e.g., Central Registrar, RBI) to oversee and enforce compliance.
  • Prohibition: Complete ban on promoting, accepting, or operating unregulated schemes.
  • Enforcement Mechanisms: Provisions for attachment, sale, and confiscation of properties, and investigation procedures.
  • Penalties and Punishments: Imprisonment, fines, and confiscation for violations.

Scope of Section Sch.I

  • Encompasses all schemes not listed under the regulated schemes in the Schedule.
  • Applies to schemes involving acceptance or solicitation of deposits by any deposit taker.
  • Covers schemes operating outside the purview of existing regulations, including Ponzi schemes, pyramid schemes, and fraudulent deposit schemes.
  • Extends to schemes that target public or nominal members, regardless of whether they are registered or authorized.
  • Empowers authorities to attach properties and seize assets to ensure repayment to depositors.

Punishment for Section Sch.I

  • Imprisonment for a term ranging from 3 to 10 years.
  • Fines which can extend to several lakhs of rupees.
  • Confiscation and attachment of properties involved in or derived from unregulated schemes.
  • Criminal liability for promoters, operators, and deposit takers involved in illegal schemes.
  • Penalties extend to schemes that continue after the Act's commencement, even if schemes operated previously.

Legal Comments

  • "Schemes classified as unregulated" - The section broadly defines schemes not listed as regulated, covering a wide spectrum of schemes including Ponzi, pyramid, and high-interest schemes. [Section Sch.I, BUDS Act]
  • "Complete ban on unregulated schemes" - The Act imposes a blanket prohibition, making any scheme outside the list illegal, thereby removing regulatory loopholes. [Section 3, BUDS Act]
  • "Role of regulators" - The Central Registrar and RBI are tasked with verifying schemes and ensuring compliance, emphasizing oversight and enforcement. [Section 2(15), Section 22, Sch.I]
  • "Scope of enforcement" - Powers include attachment, sale, and confiscation of properties, with provisions for quick disposal to protect depositors’ interests. [Section 14, 15, 18, BUDS Act]
  • "Definition of 'Unregulated Deposit Scheme'" - It includes any scheme accepting deposits not listed under the Schedule, covering schemes promising high returns or involving gifts/prizes. [Section 2(17)]
  • "Criminal liability" - Promoters and operators of unregulated schemes face imprisonment (3-10 years) and fines, reflecting strict punitive measures. [Section 3, Section 5]
  • "Scope of Schedule I" - The Schedule enumerates schemes considered regulated; schemes outside this list are unregulated and banned. [Schedule I, Table]
  • "Enforcement mechanism" - The Act enables attachment, sale, and recovery of assets to secure depositors’ funds, with provisions for judicial oversight. [Section 14, 15, 18]
  • "Preventive and punitive" - The Act aims to deter illegal schemes through strict penalties and proactive enforcement. [Section 3, 5, 17]
  • "Broad coverage" - The Act’s provisions cover schemes operated through advertisements, online platforms, or direct solicitation, ensuring comprehensive regulation. [Section 3, 17]
  • "Legal clarity" - Clear definitions and procedures reduce ambiguity, facilitating effective enforcement and prosecution. [Section 2, Section 3]
  • "Overriding effect" - The Act overrides other laws; criminal proceedings can be initiated independently of civil remedies. [Section 34, 35]
  • "Scope for attachment" - The power to attach properties is broad, including movable and immovable assets, to secure repayment. [Section 14, 15]
  • "Protection of depositors" - The primary aim is to protect depositors from schemes promising unrealistic returns, often leading to financial loss. [Preamble, Section 3]
  • "Preventive approach" - The Act emphasizes preventive measures, including prohibition and investigation, rather than post-facto punishment alone. [Section 3, 14]
  • "Strict penalties" - The severity of penalties acts as a deterrent against illegal deposit schemes. [Section 3, 5]
  • "Jurisdiction" - The Act applies nationwide, covering schemes operating across states or outside India, with powers delegated to authorities. [Section 30]
  • "Quick disposal" - The Act mandates expeditious proceedings, with timelines for attachment confirmation and sale. [Section 14, 15, 18]
  • "Legal certainty" - The detailed definitions and procedures ensure clarity for law enforcement and judiciary, facilitating effective implementation. [Section 2, Schedule I]

Conclusion

Section Sch.I of the BUDS Act provides a robust framework for categorizing, regulating, and penalizing unregulated deposit schemes. It emphasizes a proactive, deterrent approach, with clear definitions, enforcement powers, and strict penalties, aiming to safeguard depositors and maintain financial integrity.

Note: All references are based on the provided sources and the text of the Act as interpreted.

Sch.II .

THE SECOND SCHEDULE

THE SECOND SCHEDULE

(See section 42)

AMENDMENTS TO CERTAIN ENACTMENTS

PART I

AMENDMENT TO THE RESERVE BANK OF INDIA

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