Prohibition of Acceptance of Deposits by Unincorporated Bodies

(Reserve Bank of India Act, 1934)

1. Deposits not to be accepted
   By Individual/Firm/Unincorporated association of individuals if:
   1. Business wholly or partly includes any of the activities specified in section 45I(c) or
   2. Principal business is of receiving deposits under any scheme/arrangement/ any manner or lending in any manner. However, this sub-section does not apply to receipt of money by relatives of individual or from relatives of partners of firm.
      Person is relative of another if
      1. They are members of an HUF or
      2. They are husband and wife
      3. They are related as follows –
         1. Father
         2. Mother including step-mother
         3. Father's parents
         4. Mother's parents
         5. Brother including step brother
         6. Brother's wife
         7. Sister including step sister
         8. Sister's husband
         9. Son including step son.
         10. Son's wife
         11. Son's children and their spouses
         12. Daughter including step daughter
         13. Daughter's husband
         14. Daughter's children and their spouses.
2. Deposit is defined to include any receipt of money by way of deposit or loan or in any other form, but excludes amounts:

3. On and from 1-4-1997, no person referred to in (1) shall issue or cause to be issued any advertisement in any form for soliciting deposit.
4. Activities contained in S. 45I(c) are Financing (Loans etc.); Investment (Shares, debentures, etc.); Hire Purchase; Insurance, Chit- fund or Kuries; Collecting and disbursing moneys in any manner under any scheme/arrangement.

But does not include if principal business is that of agricultural operations, industrial activities, purchase/sale of goods (not securities) or providing services, purchase, construction/sale of immovable property.

The Banning of Unregulated Deposit Schemes Bill, 2018

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given approval to introduce the banning of Unregulated Deposit Schemes Bill, 2018 in Parliament. The bill is aimed at tackling the menace of illicit deposit taking activities in the country.

The salient features of the Bill are as follows:

• The Bill contains a substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offence ex-ante, rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags.
• The Bill creates three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.
• The Bill provides for severe punishment and heavy pecuniary fines to act as deterrent.
• The Bill has adequate provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
• The Bill provides for attachment of properties/assets by the Competent Authority, and subsequent realisation of assets for repayment to depositors.
• Clear-cut time lines have been provided for attachment of property and restitution to depositors.
• The Bill enables creation of an online central database, for collection and sharing of information on deposit taking activities in the country.
• The Bill defines "Deposit Taker" and "Deposit" comprehensively.
• "Deposit Takers" include all possible entities (including individuals) receiving or soliciting deposits, except specific entities such as those incorporated by legislation.
• "Deposit" is defined in such a manner that deposit takers are restricted from camouflaging public deposits as receipts, and at the same time not to curb or hinder acceptance of money by an establishment in the ordinary course of its business.
• Being a comprehensive Union law, the Bill adopts best practices from State laws, while entrusting the primary responsibility of implementing the provisions of the legislation to the State Governments.