Modi government bans unregulated deposit schemes - What will be its impact?

In order to bring in an efficient and transparent flow of deposits in the system, the Indian government has passed the ordinance of banning unregulated deposit schemes. A deposit taker can be anyone either be individual, group of individuals, proprietors, partners, company, trust, institution, or an association of a person. With the new ordinance, now taking deposits in the form loan from family members, friends and even partners will be banned. Generally, when an individual is not able to bear the burden of taking loan from banks due to its interest rates, conveyance charges, tenure and EMI, they look up to personal borrowings. In taking loan from internal source, helps eliminating the need of a bank’s procedures. This now will not be a possible scenario anymore, as they have now become an illegal practice. 

In the ordinance, the Ministry of Law and Justice explains that, deposit means an amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service with or without any benefit in the form of interest, bonus, profit or any other form will be called an unregulated deposit if they are not taken from scheduled bank, co-operative bank, financial institutions, international banks, government, foreign government, etc. 

This is how the new rule will impact the way you take money from relatives, spouse, friends or family. 

The centre says, “Unregulated deposit schemes shall be banned.” If you did take deposits from personal relation, there are a host of claws you must follow, and if hampered the rules an investigation will be set up against you.

Do not do this! 

1. 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. 

2. 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.

3. 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. 

4. Money used from a prize chit is also termed as unregulated deposit scheme. 

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To make sure, the above mentioned orders are followed, the ministry has also appointed a group of officers called as Competent Authority. 

These authority have the right to inquiry and investigate you, in following situations: 

• Discovery and inspection
• Enforcing the attendance of any person including any officer of a reporting entity and examining him on oath.
• Compelling the production of records.
• Receiving evidence on affidavits.
• Issuing commissions for examination of witnesses and documents.

If suspected doing unregulated deposit schemes, this authority has a right to summon a person.