‘The Banning of Unregulated Deposit Schemes Ordinance, 2019’ has brought in regulations that will make it difficult for you to borrow or lend money to your friends, or even acquaintances in times of crisis. Apart from these charitable institution funding students and the needy is also prohibited.

The new scheme is aimed at preventing normal transactions like these and suspicious deals by cooperative societies and chit funds to finance political parties prior to elections.

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‘The Banning of Unregulated Deposit Schemes Ordinance, 2019’ came into existence last week in order to protect susceptible investors from uncertain outfits retailing Ponzi schemes. What has come as a surprise is the timing of its enforcement? Its consequences have made everyone and especially the experts take a deep look into the policy now. Some have even associated it with demonetization, the purpose of which was to curb black money but it was announced at very immediate notice, just three months prior to the 2017 UP elections. 

As per the law, you can incur deposits from banks, ‘relatives’, property buyers, financial institutions, customers and for other chosen purposes. Likewise, a proprietor is eligible to borrow from a non-relative but only for business purposes. 

Speaking on the issue senior chartered accountant Dilip Lakhani said, “The ability to supplement resources for meeting personal and social commitments, medical and educational urgencies will lessen as no money can be borrowed from individuals other than relatives as written under the Companies Act. The definition is limited to only immediate family members.”

No Threshold Amount 

Dilip Lakhani further added, “The real estate sector will receive a hard blow as deposits can be accepted only for a chosen transaction and can be adjusted against the future sale consideration. Even if the intention of the ordinance is credible, the language could pose difficulties to small traders doing business as a partnership, proprietor firm or LLP. Students taking loans from charitable trusts would also be in great distress.”

The law does not allow deposits by non-voting associates in multi-state cooperative societies. The reason for this change was that several societies and chit funds — concealed their identity and projected as quasi-banks —have raised large sums that are later lent to entities that help in political funding. The ordinance has amended certain clause in the Reserve Bank of India Act, 1934, and Multi-State Cooperative Society Act, 2002, to openly state that “...a multi-state cooperative society will not be able to accept deposits from people apart from voting members”. 

Jayesh H, co-founder of law firm Juris Corp. said, “It’s unclear what’s the government is trying to deal with. Many transactions, mainly for SMEs, would be jammed due to the comprehensive nature of the provisions.”