Banning of Unregulated Deposit Schemes Act, 2019
(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
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;
(iii) the Union territory of Delhi, the Government of that Union territory; and
(iv) the State, the State Government;
(2) "compan
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.
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.
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.
(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.
(3) Where the Competent Authority or officers appointed under sub-section (2), for the purposes of
this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of
such information and particulars as may be prescribed, that any deposit taker is soliciting deposits in
contravention of section 3, he may, by an order in writing, provisionally attach the deposits held by
the deposit taker and the money or other prop
(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 Designated Court shall have jurisdiction in respect of any matter to
which the provisions of this Act apply.
(3) When trying an offence under this Act, the Designated Court may also try an offence, other
than an offence under this Act, with which the accused may, under the Code of Criminal Procedure,
1973 (2 of 1974), be charged at the same trial.
(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.
(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 deposit taker to furnish such
statements, information or particulars, as it considers necessary, relating to or connected with the
deposits received by such deposit taker.
Explanation.---For the removal of doubts, it is hereby clarified that---
(a) the requi
(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 Bureau of Investigation, shall share all such information or documents with
the police or the Central Bureau of Investigation.
(3) Where the principal officer of any banking company, a corresponding new bank, the State Bank
of India, a subsidiary bank, a regional rural bank, a co-operative bank or a multi-State co-operative
bank has reason to believe that any client is a deposit taker and is acting in
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.
(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 appropriate Government or the local authority.
(2) Where an order of provisional attachment has been passed by the Competent Authority—
(a) such attachment shall continue until an order is passed under sub-section (3) or sub-section (5) of section 15 by the Designated Court;
(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 where the money or property has been attached on the permission granted by a
Designated Court in another State or Union territory, the application for confirmation of such
attachment shall be filed in that Court.
(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,
to show cause, within a period of thirty days from the date of issue of notice, as to why the order of
attachment should not be made absolute and the properties so attached be sold.
(2) The Designated Court shall also issue notice to all other persons represented to it as having or
being likely to claim any interest or title in the property, to appear on the same date as persons referred
to in sub-section (1) to raise objections, if they so desire, to the attachment of the property.
(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 should not be
attached.
(2) Where the said transferee does not appear and show cause on the specified date or where the
Designated Court is satisfied that the transfer of the property to the said transferee was not a bona fide
transfer and not for commensurate consideration, it shall order the attachment of so much of the said
transferee’s property as in its opinion is equivalen
(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 referred to in sub-section (1) to make
the deposit under sub-section (1), the Designated Court may order such deposit taker or person or
transferee to pay any sum towards costs as may be applicable.
(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;
(c) power to direct the Competent Authority to take possession of any assets belonging to or in
the control of the deposit taker and to sell, transfer or realise the attached assets, either by public
auction or by private sale as it deems fit depending upon the nature of assets and credit the sale
proceeds thereof to its bank account;
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.
Explanation.—The expression "High Court" means the High Court of a State or Union territory
where the Designated Court is situated.
(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 than two years but which may extend to seven years
and with fine which shall not be less than three lakh rupees but which may extend to ten lakh rupees.
(3) Any deposit taker who accepts deposits in contravention of section 3 and fraudulently defaults
in repayment of such deposits or in rendering any specified service, shall be punishable with
imprisonment for a term which shall not be less than t
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.
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.
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.
(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 render any such person liable to any punishment
provided in this Act, if he proves that the offence was committed without his knowledge or that he
exercised all due diligence to prevent the commission of such offence.
(3) Notwithstanding anything contained in sub-section (1), where an offence under this Act has
been committed by a deposit taker other than an individual, and it is proved that the
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.
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.
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.
The police officer shall, on recording
information about the commission of an offence under this Act, inform the same to the Competent
Authority.
(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 amount involved is of such magnitude as to significantly affect the
public interest,
the Competent Authority shall refer the matter to the Central Government for investigation by the
Central Bureau of Investigation.
(2) The reference made by the Competent Authority under sub-section (1) shall be deemed to be
with the consent of
(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 is to be made and subject to the
rules made in this behalf, authorise any officer subordinate to him,---
(a) to enter and search any building, conveyance or place, between sunrise and sunset, which he
has reason to suspect is being used for purposes connected with the promotion or conduct of any
deposit taking scheme or arrangement in c
(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 arrests, searches and seizures made under this Act;
(b) to the proceedings under this Act and for the purposes of the said provisions, the Designated
Court shall be deemed to be a Court of Session and the persons conducting the prosecution before
the Designated Court, shall be deemed to be Public Prosecutors.
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.
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.
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.
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.
(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,
and the manner of attachment, under sub-section (3) of section 7;
(b) the information to be shared under sub-section (2) of section 9;
(c) the form and manner in which and the time within which the intimation shall be given under
s
(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) ceiling for self-help groups under clause (j) of sub-section (4) of section 2;
(b) purpose and ceiling under clause (k) of sub-section (4) of section 2;
(c) the manner of provisional attachment of property by the Competen
(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 thereafter have effect only in such modified form or be
of no effect, as the case may be; so, however, that any such modification or annulment shall be
without prejudice to the validity of anything previously done under that rule.
(2) Every rule made by a State Government or the Union territory Government, as the case may be,
shall be laid, as soon as may be after it is made,
(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 after it has been
issued, be laid before each House of Parliament.
The provisions of this Act shall not apply to deposits
taken in the ordinary course of business.
The enactments specified in the Second Schedule shall
be amended in the manner specified therein.
(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.
(2) Every order made under this section shall be laid, as soon as may be after it is made, before
each House of Parliament.
(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.
On and from the date of commencement of this
Act,— Section 3 of the Banning of Unregulated Deposit Schemes (BUDS) Act, 2019, embodies the core prohibition against unregulated deposit schemes, aiming to curb illegal deposit-taking activities that threaten investor interests and financial stability. It establishes a blanket ban on such schemes, with severe penal provisions for violations, reflecting the legislative intent to protect depositors from fraudulent schemes and to regulate the financial market effectively. Section 3 explicitly states that from the date of commencement of the Act:- All Unregulated Deposit Schemes shall be banned.- No deposit taker shall, directly or indirectly, promote, operate, issue advertisements, solicit participation, or accept deposits in pursuance of such schemes. It creates a comprehensive prohibition on any form of solicitation or acceptance of deposits under unregulated schemes, effectively criminalizing the conduct. "Blanket Ban" - Section 3 establishes a comprehensive prohibition on all unregulated deposit schemes, leaving no room for legal exceptions or exemptions. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", "Sindhu V Nair, Sindhu V. Nair, W/o. Gopalakrishnan Nair vs State Of Kerala, Represented By Public Prosecutor, High Court Of Kerala", para 11] "Broad Scope" - The section covers both direct and indirect acts, including promotion, operation, advertisement, and acceptance of deposits, ensuring wide-ranging enforcement. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Effective from Commencement" - The ban is effective immediately from the date of the Act’s commencement (21.02.2019), making any ongoing schemes post that date illegal. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Criminal Offense" - Violations are criminal in nature, attracting imprisonment and fines, emphasizing the serious legislative intent to deter illicit schemes. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 12; ""*, para on punishment for contravention] "No Distinction" - The section does not distinguish between schemes based on size, promoter status, or scheme complexity; all unregulated schemes are equally banned. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Indirect Acts Covered" - The inclusion of acts like issuing advertisements and solicitations ensures that schemes using indirect methods are also criminalized. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Legislative Intent" - The wording reflects a legislative intent to eliminate all unregulated deposit schemes to protect depositors and maintain financial discipline. [Sources: "Sindhu V Nair, Sindhu V. Nair, W/o. Gopalakrishnan Nair vs State Of Kerala, Represented By Public Prosecutor, High Court Of Kerala", para 9] "Penalties for Fraudulent Defaults" - The section, coupled with penal provisions, targets not only the act of accepting deposits but also fraudulent defaults in repayment. [Sources: "", para on punishment] "Preventive and Punitive" - The law aims at both prevention (ban) and punishment (penalties) for violations, indicating a comprehensive approach. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 12] "Wide-ranging Enforcement" - The section empowers authorities to take stringent actions, including search, seizure, and attachment, to enforce the ban. [Sources: "", para on search and seizure powers] "Deterrent Effect" - Heavy penalties serve as a deterrent against illegal deposit schemes, which are often exploitative and fraudulent. [Sources: "", para on imprisonment and fines] "Legal Coverage" - Section 3 forms the core legal basis for prosecuting and penalizing violations, supported by subsequent provisions on penalties and procedures. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 12] "Complementary Provisions" - The section works in tandem with other sections like 4, 5, and 18, which specify offences, penalties, and enforcement mechanisms. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 12] "Scope of Criminal Liability" - Both the act of soliciting deposits and defaulting in repayment are criminalized, ensuring comprehensive liability. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 12] "Protection of Depositors" - The primary objective is to safeguard depositors from fraudulent schemes that promise high returns but default or siphon off funds. [Sources: "Sindhu V Nair, Sindhu V. Nair, W/o. Gopalakrishnan Nair vs State Of Kerala, Represented By Public Prosecutor, High Court Of Kerala", para 9] "No Exemptions" - The law does not provide exemptions for schemes registered or otherwise, reflecting its absolute stance against unregulated schemes. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Legislative Clarity" - The language of Section 3 leaves no ambiguity about the illegality of unregulated deposit schemes, facilitating enforcement. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Legal Foundation" - Section 3 underpins the entire legal framework of the BUDS Act, enabling authorities to act decisively against illicit schemes. [Sources: "Mohammed Abdul Jabbar VS State of Kerala", para 11] "Summary" - Overall, Section 3 is the linchpin of the Act, creating a robust statutory prohibition that aims to eliminate illegal deposit activities through strict enforcement and severe penalties. In conclusion, Section 3 of the Banning of Unregulated Deposit Schemes Act, 2019, embodies a comprehensive, strict, and enforceable prohibition against unregulated deposit schemes, with severe penalties to deter illegal activities, thereby safeguarding depositors' interests and maintaining financial order.
(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.
Legal Commentary on Section 3 of the Banning of Unregulated Deposit Schemes Act, 2019
Introduction
What does Section 3 Say?
Essential Ingredients
Scope of Section
Punishment for Violations
Legal Comments
(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. Section 20 of the Banning of Unregulated Deposit Schemes Act, 2019 (hereinafter referred to as "the Act") confers the Supreme Court with the power to transfer cases related to violations of the Act to appropriate forums or authorities, ensuring effective enforcement and adjudication of offences under the Act. This provision aims to centralize jurisdiction and streamline proceedings in cases involving unregulated deposit schemes, especially those with cross-jurisdictional implications or complex factual backgrounds. Section 20 grants the Supreme Court the authority to transfer cases involving default or violations of the Act to any competent court or authority. It states that whenever it appears to the Supreme Court that there is a default in any deposit scheme or schemes of the nature specified in the Act, the Court can direct the transfer of such cases to designated courts or authorities for proper adjudication, including the possibility of transferring cases from one jurisdiction to another or from one court to another. While Section 20 itself does not prescribe punishment, violations of the Act attract penal provisions under other sections, such as:- Imprisonment ranging from 3 to 10 years.- Fine ranging from Rs. 5 lakh to twice the amount collected.- Severe penalties for defaulting deposit takers, fraudulent schemes, or non-compliance with directions of authorities. In conclusion, Section 20 of the Banning of Unregulated Deposit Schemes Act, 2019, provides a vital mechanism for the Supreme Court to transfer cases involving violations of the Act to appropriate forums, ensuring justice, effective enforcement, and safeguarding depositors’ interests across jurisdictions. Its exercise must be judicious, balancing the interests of all parties, and aligned with principles of justice and administrative efficiency. Note: The references are based on the general understanding of judicial principles and the provisions of the Act, as no specific case law is cited in the provided sources regarding Section 20.
(2) The Supreme Court may act under this section only on an application filed by the Competent
Authority or any interested party, and every such application shall be supported by an affidavit.
(3) Where an application for the exercise of the powers conferred by this section is dismissed, the
Supreme Court may, if it is of opinion that the application was frivolous or vexatious, order the
applicant to pay by way of compensation to any person who has opposed the application such sum not
exceeding fifty thousand rupees as it may considerLegal Commentary on Section 20 of the Banning of Unregulated Deposit Schemes Act, 2019
Introduction
What does Section 20 Say?
Essential Ingredients
Scope of Section 20
Punishment for Violations
Legal Comments (Summary with References)
Elevate your legal practice with advanced AI-driven research and drafting solutions. Experience unmatched efficiency, precision, and security, tailored exclusively for legal professionals.
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
AI Assistant
