Allaying concerns in some quarters, the finance ministry on Tuesday said borrowing of money by individuals from their relatives or friends for marriage, medical emergency, business needs or any other personal reasons, won’t attract the penal provisions of the recently promulgated Banning of Unregulated Deposit Schemes ordinance, 2019.
Similarly, the new law won’t affect students getting funds from trusts (as donations are not treated as deposits as defined under Section 2 (4) of the ordinance). Businessmen can also take unsecured loans from unrelated parties and enterprises under Section 2 (4) (l) without attracting the Ordinance’s penal provisions.
Concerns in this regard surfaced after the Centre promulgated the ordinance on February 21 to give effect to the the Banning of Unregulated Deposit Schemes Bill, which was approved by Lok Sabha but pending in the Rajya Sabha.
Some experts said the misunderstanding could be due to wording related to exclusions from unregulated deposit scheme in Section 4 (f), which says: “Amounts received by an individual by way of loan from his relatives or amounts received by any firm by way of loan from the relatives of any of its partners.”
Under Companies Act, the term ‘relative’ included only immediate family members such as parents, siblings, children but does not include people like brother-in-law etc. This makes it ambiguous if loans taken by individuals from relatives other than defined under the Companies Act and acquaintances/friends are under the ambit of the ordinance.
“Individuals, who may be borrowing or taking loans or money from their relatives or friends, whether it be for marriage or medical emergency, or business needs, or any other personal reasons, have nothing to fear. Such transactions are not Unregulated Deposit Schemes, which are defined in Section 2 (17),” the ministry clarified.
Section 2(17) reads that ‘Unregulated Deposit Scheme’ means a scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme.
“The intention of the ordinance is clearly not to ban loans/advances by individuals but are being construed as getting covered because of the language used in Section 4(f),” said Abhishek A Rastogi, Partner, Khaitan & Co. One-off transaction by an individual can’t be treated as akin to soliciting for deposit schemes.
To protect the savings of gullible investors, the ordinance has stringent provisions to clamp down on ponzi schemes, including imprisonment up to 10 years for wrongdoers and confiscation of assets of firms found to have accepted deposits without authorisation.
