Remarks on The Banning of Unregulated Deposit Schemes Act, 2019

Prepared By: Anand B Gogia Advocate Prepared By: Gaurav Anand Gogia Founder-cum-Publishing Editor, The Legal Vidya


Question:

  1. Whether the Multi State Co-Operative Bank can receive deposit from their non-voting member or not?

Discussion on the Various Statutory Provisions of the Banning of Unregulated Deposit Schemes Act, 2019

  1. To reply the above question, the following aspects and statutory provisions are required to be taken into consideration:

  2. That, Banning of Unregulated Deposit Schemes Act, 2019, received the assent of the President of India on 31st July, 2019. The object of the said Act is to ban unregulated deposit schemes, other than taken in ordinary course of business and to protect the interest of the depositors.

  3. That, Section 2 of the said Act provides different definitions. The relevant definitions which are required to be taken into consideration, to reply the above question, are, Section 2(4), 2(6), 2(14), 2(17) and Section 42 of the Act. Further the First Schedule and Second Schedule are also relevant for giving reply to the above question.

  4. On co-joint reading of the above statutory provisions read with the statutory schedules as mentioned above it can be gathered as under:

  5. In the definition of the Deposit Taker as above, the Multi-State Cooperative Societies are included. However, Multi-State Cooperative Banks are not included in the said definition. Thus, the restrictions of taking deposits under the said Act are relating to the Multi-State Cooperative Societies and not relating to the Multi-State Cooperative Banks. Multi-State Cooperative Society and Multi-State Cooperative Bank are treated separately and independently under the said Act. Relevant definition of Deposit Taker i.e. Section 2(6)(viii) & 2(6)(ix) is reproduced as under:

 “2(6) deposit taker – means – …

(viii) a co-operative society or a multi-State co-operative society; or

(ix) any other arrangement of whatsoever nature, receiving or soliciting deposits, but does not include

(i) a Corporation incorporated under an Act of Parliament or a State Legislature;

(ii) a banking company, a corresponding new bank, the State Bank of India, a subsidiary bank, a regional rural bank, a co-operative bank or a multi-State co-operative bank as defined in the Banking Regulation Act, 1949 (10 of 1949);

  1. In the First Schedule as specified in Section 2(15) of the said Act, at serial no. 8 of the First Schedule, it is specified that Multi-State Cooperative Societies can make an arrangement for acceptance of deposits from voting members. It is pertinent to note that, in the said Schedule or Section, the word Multi-State Cooperative Bank is not mentioned and/or excluded. The relevant extract of the First Schedule is reproduced as under:8.The Central Registrar, Multi-State Co-operative SocietiesAny scheme or an arrangement for acceptance of deposits from voting members by a Multi-State Co-operative Society registered under the Multi-State Co-operative Societies Act, 2002 (39 of 2002).

  2. Moreover, on reading of Section 42 of the said Act, deals with Second Schedule of the Said Act, it can be gathered that corresponding Amendment have been carried out/ shall be carried out in Section 67 of the Multi-State Cooperative Societies Act, 2002 as mentioned therein. Said Section 67 of the Multi-State Cooperative Societies Act, 2002 after such amendment shall be read as under:

Section 67 – Restrictions on borrowing

(1) A multi-State co-operative society may receive deposits 1[from its voting members], raise loans and receive grams from external sources to such extent and under such conditions as may be specified in the bye-laws:

Provided that the total amount of deposits and loans received during any financial year shall not exceed ten times of the sum of subscribed share capital and accumulated reserves:

Provided further that while calculating the total sum of subscribed share capital and accumulated reserves, the accumulated losses shall be deducted.

1[Explanation.– For the removal of doubts, it is hereby clarified that a multi-State co-operative society shall not be entitled to receive deposits from persons other than voting members.]

(2) Subject to the provisions of sub-section (1), a multi-State co-operative society may accept funds or borrow funds for the fulfilment of its objects on such terms and conditions as are mutually contracted upon.

(3) A multi-State co-operative society may issue non-convertible debentures or other instruments subject to the provisions of any law for the time being in force to raise resources for the fulfilment of its objects to the extent of twenty-five per cent. of its paid-up share capital.”

  1. It can be gathered from the said amended provision that, the said provision restricts the Multi-State Cooperative Society, whereby the said class of societies, are permitted only to receive deposits only from its voting members. Means said class of societies cannot receive deposits from their Non-Voting Members. Thus, the said restrictions are only relating to the Multi-State Cooperative Societies other than Multi-State Cooperative Bank.

  2. Moreover, in the Multi-State Cooperative Societies Act, the Multi-State Cooperative Societies and Multi-State Cooperative Banks are defined separately. Section 2(f) of the Multi-State Cooperative Societies Act provides the definition of Cooperative Bank, while Section 2(h) provides the definition of Cooperative Society. Thus, in the MSCS Act, the Cooperative Societies and Cooperative Banks are treated on different parity and are referred in the said act by different definitions/meanings. Therefore, the word used Multi-State Cooperative Society in Banning of the unregulated Deposit Schemes Act, does not denote the word Multi-State Cooperative Bank.

  3. Conclusion:

  4. In light of the above statutory provisions it can be concluded that the amendment carried out in Section 67 of the Multi-State Cooperative Societies Act, 2002, restricts the Multi-State Cooperative Societies from receiving deposits only from their voting members and such class of societies cannot receive deposits from their Non-Voting Member. However, such restriction/amendment does not include the Multi-State Cooperative Bank. Thus, the object behind the amendment is not to include Multi-State Cooperative Bank for such restrictions regarding receipt of deposits.

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