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Rules for implementing the Banning of Unregulated Deposit Scheme Ordinance may include a ‘retrospective’ clause for disgorgement. If it happens, then depositors affected by illegal schemes such as Saradha, Narda or Rose Valley will have better prospects of getting their money back.
The Ordinance was promulgated on February 21. An Ordinance normally comes into effect from the date of notification. However, in the draft Frequently Asked Questions (FAQ) for the Ordinance, to a question on whether it will have a retrospective effect on funds that individuals and firms have on their book, the answer was that rules for giving effect to the Ordinance are yet to be notified.
A senior Finance Ministry official said this could lead the way for making provision for disgorgement in old cases pending in courts. The Ministry is likely to come out with detailed FAQ on the Ordinance soon.
Disgorgement refers to seizing of illicit profit and distributing it to affected people. This was used for the first time by market regulator SEBI in the DEMAT scam, and gave relief to thousands of investors. Taking cue from this, the Ordinance recognises that time is of the essence in cases involving illicit deposit-taking schemes, especially where attachment of assets of illicit deposit takers and subsequent disgorgement of money is concerned.
Accordingly, the Ordinance provides for provisional attachment of properties/ assets of deposit takers by the Competent Authority, confirmation of provisional attachment by the Designated Court by making the provisional attachment absolute and subsequent realisation of assets for repayment to depositors. Also, clear-cut time lines have been provided for attachment of property and restitution to depositors.
In the past four years, 146 cases of illegal deposits had been investigated by the Central Bureau of Investigation, 56 by the Enforcement Directorate, 32 cases involving 223 companies by the Ministry of Corporate Affairs and the Serious Fraud Investigation Office and 978 cases were referred to various investigating enforcement agencies by the State Coordination Committees. SEBI alone has passed 64 orders against unauthorised collective investment schemes in the last three years. Though there is no official estimate of money involved in all these cases, rough estimates put the figure at over ₹4 lakh crore.
No worry for businesses
There have been lot of speculations that the Ordinance might cause worry for small businesses and traders, but the official said the fear had no base. According to him, Section 2 of the Ordinance clearly says that there is no ban on any amount received in the course of or for the purpose of business. The same will be applicable for loans to Micro, Small and Medium Enterprises (MSMEs).
“Banning of Unregulated Deposit Ordinance-2019,exempts individual, firm, companies & LLP etc. for taking any loan and deposit for their course of business as per section 2(4) e,f ,l and other provisions,” the Ministry had said earlier.
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