Sometimes our otherwise fine government comes out with such bizarre rules and regulations that we are forced to think what’s wrong with them. The blanket ban enforced on cryptocurrencies was one such regulation, and now it looks like they’ve moved one more step ahead in that direction. An ordinance has been passed by the government recently, which aim to ban the unregulated deposits. It aims to protect gullible investors from Ponzi and pyramid schemes, and in doing so it also closes the doors for ICOs in India.
The ordinance is titled “Banning of Unregulated Deposit Schemes Ordinance, 2019”. It puts a ban on the operation and promotion of unregulated deposit schemes, and disallows persons as well as entities from accepting deposits ‘in pursuance of’ any such schemes. It proposes 3 different types of offences:
- l Running unregulated deposit schemes
- l Fraudulent defaulting in regulated deposit schemes
- l Wrongful inducement in relation to any unregulated deposit schemes by making false statements, promises or forecasts.
Committing any of these offences may attract severe penalties ranging from freezing of assets to imprisonment. If put in the perspective for our crypto community, what this basically means is that starting from now it’s not going to be easy to participate in any ICO if you’re an Indian citizen, let alone be the idea of organizing an ICO. It looks almost certain that cryptocurrency regulations being drafted by the government will fall-in line with this ordinance passed yesterday.
A State of Confusion
Though the intention of ordinance is laudable, after being published it came to limelight more for the state of confusion it created than for its intentions. The language of ordinance was so sweeping that it seemed to suggest a ban on several day-to-day transactions as well. For example, the definition of deposits outlined in it said that among advances taken by individuals only those advances shall be exempt from the ordinance which are taken from relatives. Does that mean taking a small loan from your friends to meet any financial urgency is illegal now? Initially it seemed so, but as I scrolled down through the ordinance it seemed to me that this wasn’t the case. Have a look on the directive shown below:
The words “in pursuance of Unregulated Deposit Schemes” seem to address the gray area by clarifying that only those deposits which are taken under any unregulated deposit scheme shall be illegal. In essence, as long as your loan taken from the friend is not under any unregulated scheme being organized by him/her, you should not run into any problem.
Similarly, Real Estate industry, which heavily relies on token money for its deals, and small businesses which often take advances from unrelated parties, were also stunned by the ordinance. However, a clarification was later issued soon by the Department of Financial Services to clarify that they won’t be affected by it.
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. @PMOIndia @FinMinIndia @PIB_India @airnewsalerts pic.twitter.com/Qk9kUDT0Yy
— DFS (@DFS_India) February 23, 2019
Impact on P2P Deposits and Withdrawals
The things may have been clarified for small businesses, real estate industry and chit fund schemes, but a lot of gray area still exists regarding the interpretation of this ordinance. For example, it’s not clear how P2P deposits and withdrawals, which facilitate the movement of funds on Indian crypto exchanges, will be affected by this ordinance.
What is an ordinance?
An ordinance is a law made by the government that remains in force for a period of 6 months. It can be created without being passed from both houses of Parliament, which is the reason why it remains in force for a period of 6 months only. So this ordinance passed on 22nd of February will remain in force until the end of August. After that it may be put in the upper house of Parliament (Rajya Sabha) for being passed as it has already been cleared by the lower house (Lok Sabha). Only after being passed from Rajya Sabha it will turn into a full law. Let’s see whether that happens or not!