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Government Bans Unregulated Deposits


In recent years, the Government of India has taken strict measures to guarantee fair and ethical conduct in the corporate scenario. A portion of the on going corporate changes of Indian government are as per the following-

  • So as to counteract illegal transactions, the Benami Transactions (Prohibition) Amendment Act was passed in 2016.
  • Similarly, the Real Estate (Regulation and Development) Act, 2016 (RERA) was passed to guarantee greater transparency in Real Estate division.

So as to ban the illegal deposit schemes and other fraudulent schemes, the Banning of Unregulated Deposit Schemes (BUDS) Ordinance, 2019 (BUDS 2019) has been finally passed by the Government of India on 21st February 2019. BUDS 2019 has been immediately brought into impact from 21st February 2019 itself. This will apply to all the business entities, including those entities that have recently gone through Company formation.

#1. What is the target behind BUDS 2019?

The main target behind BUDS 2019 is to save the depositors from being defrauded by the fraudulent financial schemes.

  • Since the past couple of years, there have been many cases where individuals across the country have been tricked because of some unlawful deposit schemes. The most infamous instance of such schemes is the Sharda Chitfund Scam.
  • The most affected casualties of such schemes were poor people and financially illiterate individuals who got attracted to the lucrative financial schemes. Such individuals are often prompted to put resources into uncertain schemes that guarantee colossal returns and other such advantages.
  • Regardless of a detailed regulatory framework, schemes including an unauthorized collection of cash and deposits are as yet operating in the country.
  • There was a need for a strict law to ban such alluring financial schemes. Thus, the BUDS 2019 has been passed in the parliament.

#2. How did BUDS 2019 come into being?

In perspective on addressing the grievances of the general open, the Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interests Bill, was proposed in 2015.

  • The main goal behind it was the identification of provisos in the existing regulatory framework for deposit-taking activities and to propose administrative actions to control them.
  • This had emphasized on the formulation of another law for controlling of all the key aspects of ‘deposit-taking’.
  • Finally, on 21st February 2019, the Banning of Unregulated Deposit Schemes Ordinance 2019 was brought into impact.

#3. How does BUDS 2019 check unlawful transactions?

The Banning of Unregulated Deposit Schemes Ordinance 2019 is a one-stop answer for anticipating unauthorized financial schemes.

  • It will guarantee a strict ban on unregulated deposit taking activities.
  • It aims at counteractive action of all unregulated deposit schemes.
  • Plus, according to this ordinance, requesting, welcoming or accepting deposits concerning unregulated deposit conspire is from this time forward a punishable offense.
  • Under BUDS 2019, there is a mechanism wherein the depositors can now be discounted immediately. Presently, there will be no need of attaching the assets of the defaulting party.
  • Under the BUDS 2019, the meaning of “deposits” has reframed, which is explained beneath for better understanding of the general open.

#4. What is the meaning of deposits according to BUDS 2019?

According to BUDS 2019, deposit means an amount of cash got

  • As an advance or loan or in any other structure,
  • By any deposit taker

Here the deposit taker is a person-

  1. Individual,
  2. Group of individuals,
  3. The sole proprietary firm,
  4. Partnership firm,
  5. LLP,
  6. A private limited company,
  7. An association of Persons (AOP),
  8. A Co-operative society or any other substance.

Notwithstanding, this does exclude a statutory corporation, a nationalized bank, a co-operative bank or a multi-state cooperative bank according to the Banking Regulations Act, 1949

  • Furthermore, Deposit is an amount gotten with a guarantee to return
  • After a particular term or something else
  • In cash or in kind or
  • As indicated administration
  • With/with no advantage, for example, intrigue, reward, profit and so on.

#5. What is rejected from meaning of deposits?

The BUDS 2019 deposits reject normal business deposits from the meaning of the expression “deposit”. These may incorporate

  • Loans got from banks
  • Loans/financial assistance from private finance foundations (PFIs) or NBFC
  • Financial foundations and insurance companies
  • Cash got from the government
  • Amount got from statutory authority

#6. How is this effective?

  • The penal arrangements under BUDS 2019 are really strict.
  • According to BUDS 2019 scheme means making plans, in tricky way.
  • The aim is to preclude such persons from defrauding financial specialists.
  • Here after, any finances or loans taken from an outsider party for real business motive shall not be regarded as a plan for raising deposits. This is in perspective on the rejections gave in the meaning of deposit.

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