Decoding the Ordinance on unregulated deposit schemes


Contrary to initial apprehensions, individuals taking loans from family or buddies for enterprise or different personal motives will not be affected. The days-promulgated Banning of Unregulated Deposit Schemes Ordinance 2019 ruffled some feathers with news reports and legal experts expressing concerns over how the ordinance could harm folks that boost brief loans from loved ones or buddies and agencies taking loans from unrelated parties and businesses. During the remaining week, a series of tweets via the Finance Ministry and precise clarifications issued on individuals borrowing from pals and family have allayed some of the issues. We break down the various provisions and exclusions of the ordinance to provide an explanation for how it will have an effect on people and groups. The law intends to check illicit deposit/Ponzi schemes that hurt small traders.


But the phrases used to explain some exclusions, as laid down in Section 2 (4) of the ordinance, kept individuals and corporations on tenterhooks. The law states that any deposit scheme beneath which deposits are time-honored or solicited by any deposit-taker using way of commercial enterprise, which isn’t always a regulated deposit scheme, is banned. Deposit inside the ordinance has been described as “an amount of cash obtained via way of enhancing or loan in some other shape by any deposit-taker with a promise to return whether or not after a precise length or in any other case either in coins or in-kind inside the form of a targeted service with or with none benefit in the shape of interest, bonus, profit or in some other shape”.

The ordinance has numerous exclusions on what isn’t a ‘deposit.’ Varying interpretations via legal experts have led to confusion. Individuals For instance, even as amounts received by using a man or woman by the manner of a mortgage from his household are excluded, under Section 2 (four) (f), there has been ambiguity over whether or not loved ones simplest covered instant family, and now not pals and far-off members of the family. But the ministry has now clarified that “people borrowing or taking loans or cash from household or buddies for marriage, clinical emergency, commercial enterprise needs, or some other non-public reasons have nothing to fear. Such transactions are not unregulated deposit schemes as defined in Section 2 (17)”. Also, an individual can receive cash from a chum residing overseas, which is a problem with FEMA provisions. Bottom line: As individuals are worried, they can borrow money from family or buddies for any reason – business or private – per the ministry’s rationalization.

Partnerships There were numerous debates via prison specialists, who may want more clarification. Under Section 2 (four) (e), any quantity acquired by way of contributions closer to the capital with the aid of partners of any partnership firm is excluded from the definition of ‘deposit,’ implying that such quantities are allowed and do not entice penal provisions underneath the ordinance. Also, as per Section 2 (4) (f), amounts obtained through a company via a loan from relatives of any of the companions are excluded from the definition of ‘unregulated deposits’ and are consequently allowed. However, there is uncertainty over the money obtained from an associate as a ‘loan.’ Here, the authorities will issue a similar explanation.

Bottom line: As the current provisions read, there’s uncertainty over whether or not a partnership firm can get hold of money from its accomplice that is other than capital contribution. Any quantity obtained from a companion’s friend isn’t always allowed. Companies The different subject is whether organizations can take unsecured loans from unrelated entities and parties. But Section 2 (4) (l) excludes quantity received for the motive of business, which genuinely means that companies can take unsecured loans from unrelated parties and enterprises. The ministry has, however, in particular, clarified this factor by stating that “small corporations, proprietorships, partnerships, LLPs and SMEs that take unsecured loans from unrelated parties and corporations are also exempt under Section 2 (four) (I) of the law”. Bottom line: There isn’t any ban on small groups receiving loans inside the route of or for commercial enterprise purposes.

On Wednesday, the Defence Acquisition Council (DAC) permitted acquiring a defense system for about ₹2,seven-hundred crore, official sources said. The council meeting, the best decision-making frame for defense purchase, was being chaired by Defence Minister Nirmala Sitharaman. It approved the procurement of 3 cadet training ships for the Indian Navy, which could offer primary sea schooling for officer cadets, including ladies officers undertrained.