Govt Notifies Rules for Banning Ponzi Schemes, Unregulated Deposits under BUDS Act

Moneylife Digital Team 13 February 2020

Economy & Nation

The ministry of finance has notified the Banning of Unregulated Deposit Schemes (BUDS) Rules, 2020 from 12 February 2020 that provide for a comprehensive mechanism to tackle illicit deposit-taking activities and Ponzi schemes, says a report from LawStreetIndia.com, the corporate law portal of TaxSutra.com.

The Banning of Unregulated Deposit Schemes Act, 2019 was notified on 21 February 2019, for providing a comprehensive mechanism to ban unregulated deposit schemes, other than deposits taken in the ordinary course of business, and to protect the interest of depositors. The Bill was introduced in 2015 as the Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interests Bill.

The BUDS rules define the term 'competent authority' as an authority appointed by the appropriate government under Section 7 of the BUDS Act, according to which the authority has the same powers as vested in a civil court under the civil procedure code (CPC) while conducting investigation or inquiry in respect of offences under the Act.

For provisionally attaching a deposit-taker's property, the competent authority would consider any complaint against the promotion or operation of an unregulated deposit scheme, whether the complainant is a depositor in the said unregulated deposit scheme or not, the rules say.

However, to make the attachment absolute, the competent authority will have to file an application before the designated court. The rules also outline procedure to be followed by the designated court, and lay down the material to be searched by the officer-in-charge of a police station for investigating into any offence under the BUDS Act.

The rules further state that the designated authority would operate a central database to the public, containing information relating to deposit-takers, including a list of deposit-takers operating in India, the extent and areas of their operation.

Importantly, as per the rules, the government can direct any newspaper or publication to a full and fair retraction, unequivocally withdrawing any offer, promotion or inducement made earlier in any advertisement, statement or information.

"The Government shall direct the owner of any newspaper or other publication of any nature either in print or in electronic form, to publish a full and fair retraction, unequivocally withdrawing any offer, promotion or inducement made earlier in any advertisement, statement or information to any person to become a member of any Unregulated Deposit Scheme," the rules say.

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