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Recently, 21 Feb 2019 an ordinance has been passed by the government of India. The said ordinance has been named as the banning of the unregulated deposit scheme ordinance 2019. The same has been introduced to prohibit illicit deposit schemes or Ponzi schemes etc. So as to save the interest of the depositors.
Since the moment this ordinance has come out everyone has started talking that the government has banned taking up all sorts of loans or advances in India which have not been taken from
Let us understand the insights about this ordinance in respect of individuals and small borrowers.
The first question coming up in your mind must be
No liability, restriction or penalty has been imposed on the lender. Instead, this law has provided security to such lenders who by mistake deposit the money to the unregulated scheme. The laws lay down procedures of recovery for such lenders.
The complete ordinance is applicable on one taking the loan and not the provider of money.
As per Chapter II, Section 3 of Baning of Unregulated Deposits Schemes, the restrictions applies to acceptance of deposits in unregulated schemes. Further, no person shall advertise or promote or otherwise deal in the same. Which means a complete restriction has been imposed on the introduction of such schemes.
The ordinance becomes effective from the date of announcement i.e. 21 Feb 2019.
As per the plain reading of the law, an interpretation can be drawn that only the deposit acceptance from the date of announcement of this ordinance has been banned and no impact of the same shall be levied upon prior transactions. Still, before drawing any concrete conclusions it is advisable to wait for clarifications to be issued by the government in this respect.
As per our opinion, the ordinance does not hold valid on prior transactions. But the government might issue some clarifications in this respect soon. But, if the contrary is not done it is advised that all the terms, conditions and timelines as per the already existing agreements shall be fulfilled to be saved form the major liabilities or penalties.
The recent ordinance imposes various restrictions under
Apart from section 3 restriction as already discussed above following restrictions have been imposed.
No person even taking deposits under the Regulated schemes shall make willful defaults or contact breach of service at the time of repayment. It also applies for deposits taken prior to this ordinance.
No false commitments or information by any person shall be conveyed to a person so as to convince him to invest in unregulated deposit schemes.
Restrictions imposed in Prize Chits and money circulation schemes shall also qualify for restrictions in Unregulated Deposit Scheme as per this ordinance.
Section 2 (17) fo the ordinance says that UDS means a scheme or arrangement as per which deposits are either accepted or solicited by any deposit taker by way of Business and which is not a Regulated Deposit Scheme.
As per the ordinance only accepting money through Unregistered Deposit scheme has been banned. The definition of Unregistered Deposit scheme or any other sections and provisions of the said law does not expressly warrant prohibiting of personal loans. Hence to our opinion, a conclusion can be made personal loans (any amount taken for personal needs and not for business purposes) taken are outside the scope of this ordinance and hence are not prohibited.
Also, as per further reading of the law an additional conclusion can also be drawn i.e. for normal trading (whether for business or personal needs) the amount can be taken only form partners and relatives etc.
Conclusion:
Since this ordinance has come recently there is a lot of ambiguity in respect of various aspects of the law. Therefore, it is advisable to wait for the clarifications to be issued by the government, so that the doubts can be resorted to.
