With the recent crackdown on Sahara, PACL etc. by SEBI and closure of their business after the Saradha scam have collapsed the trust of small investors and proven to be the tip of the iceberg for deposit taking companies such as Nidhi Companies, Multi-state Credit Co-operative Societies, NBFCs etc. engaged in collection of public deposit. Shall our government ban all these kinds of deposit taking companies from our financial system? What should be the business structure of the deposit taking companies? What are the different aspects which deposit taking companies should be aware before commencing their venture? Does failure to comply with legal compliance can make your business as a ponzi scheme? What are different types of deposit taking companies and their respective regulators along with their licenses/approvals and registration?

1. EquiCorp Associates
Advocates & Solicitors
www.equicorplegal.com
Deposit Taking Companies in India-
Nidhi Company, REITs, CIS, Multistate Credit Co-operative,
NBFCs, Microfinance, Chit Funds, Banks, Insurance……..
www.equicorplegal.com

2. Present…….
 With the recent crackdown on
Sahara, PACL etc. by SEBI
and closure of their business
after the Saradha scam which
had duped 14 lakh investors
of INR 4,000 crore, have
collapsed the trust of small
investors and proven to be the
tip of the iceberg for deposit
taking companies such as
Nidhi Companies, Multi-state
Credit Co-operative Societies,
NBFCs etc. engaged in
collection of public deposit.
 With the recent crackdown on
Sahara, PACL etc. by SEBI
and closure of their business
after the Saradha scam which
had duped 14 lakh investors
of INR 4,000 crore, have
collapsed the trust of small
investors and proven to be the
tip of the iceberg for deposit
taking companies such as
Nidhi Companies, Multi-state
Credit Co-operative Societies,
NBFCs etc. engaged in
collection of public deposit. www.equicorplegal.com

3.  Today driven by the lack of legitimate savings scheme for the rural
poor, inadequate regulations and political patronage, hundreds of
illegal ponzi-schemes masquerading as collective investment
schemes or chit funds have sprung up across India. Many
companies are engaged in a dangerous “money chain” where one
investor’s principal and interest is paid off with money from new
investors. Such schemes collapse when no new investors come in or
when suspicious investors demand their money back in one go.
These companies take money from investors in the name of tour
packages, investment in agriculture, solar farm or purchase of plots
or homes in prime locations over a specified period of time, with a
money back option added at the end of the maturity period.
Investors are encouraged to cancel their bookings and re-invest the
money in new projects, since in most cases, there are hardly any
projects on the ground, or they fall way below the value of the
investment garnered. The money thus raised goes into the pockets
of the promoters of such groups.
 Today driven by the lack of legitimate savings scheme for the rural
poor, inadequate regulations and political patronage, hundreds of
illegal ponzi-schemes masquerading as collective investment
schemes or chit funds have sprung up across India. Many
companies are engaged in a dangerous “money chain” where one
investor’s principal and interest is paid off with money from new
investors. Such schemes collapse when no new investors come in or
when suspicious investors demand their money back in one go.
These companies take money from investors in the name of tour
packages, investment in agriculture, solar farm or purchase of plots
or homes in prime locations over a specified period of time, with a
money back option added at the end of the maturity period.
Investors are encouraged to cancel their bookings and re-invest the
money in new projects, since in most cases, there are hardly any
projects on the ground, or they fall way below the value of the
investment garnered. The money thus raised goes into the pockets
of the promoters of such groups.
www.equicorplegal.com

4. Confusion Compound
 Chit funds are legal under Chit
Funds Act, 1982 which is a
Central Act but administered by
State Governments. Chit funds
can raise money from their
members.RBI barred these
entities from accepting deposits
from public in 2009 and can
prosecute them in case they
violate the law. Violation of
deposit accepting rules is a
criminal offence. If
unincorporated entities are found
accepting public deposits, they
are liable for criminal action.
 Chit funds are legal under Chit
Funds Act, 1982 which is a
Central Act but administered by
State Governments. Chit funds
can raise money from their
members.RBI barred these
entities from accepting deposits
from public in 2009 and can
prosecute them in case they
violate the law. Violation of
deposit accepting rules is a
criminal offence. If
unincorporated entities are found
accepting public deposits, they
are liable for criminal action.
www.equicorplegal.com

5.  With the lack of awareness & our complex legal system, where
there are parallel regulators or none. The RBI acknowledges the
menace of collective investment schemes in the name of chit
funds but says the onus of regulating them is on states as State
Government monitors chit funds. On backdrop of unveil of recent
scams, many people are advocating for complete ban on all
companies engaged in public deposit except of banks. Will this
solve the problem? Even after six decades of our independence,
more than 50% of our population does not have access to banking
services ( as been quoted by our hon’ble Prime Minister, Shri
Narendra Modi before initiation of Jan-Dhan Yojna Scheme).
 Banning these public deposit taking companies such as chit
funds, Nidhi companies, multi-state credit cooperative society
etc. is like calling for the amputation of the left leg when the right
one is infected.
 With the lack of awareness & our complex legal system, where
there are parallel regulators or none. The RBI acknowledges the
menace of collective investment schemes in the name of chit
funds but says the onus of regulating them is on states as State
Government monitors chit funds. On backdrop of unveil of recent
scams, many people are advocating for complete ban on all
companies engaged in public deposit except of banks. Will this
solve the problem? Even after six decades of our independence,
more than 50% of our population does not have access to banking
services ( as been quoted by our hon’ble Prime Minister, Shri
Narendra Modi before initiation of Jan-Dhan Yojna Scheme).
 Banning these public deposit taking companies such as chit
funds, Nidhi companies, multi-state credit cooperative society
etc. is like calling for the amputation of the left leg when the right
one is infected.
www.equicorplegal.com

6.  A ban on all deposit taking companies except banks would cause
havoc since there are millions invested in these safe funds. Any
general ban will cause harm on such a scale that even our nationalized
banks will feel the heat.
 If we critically analyzed the SEBI crackdown on PACL, it was not
because of complaint filed by some aggrieved investors, rather it was
suo-moto action taken by SEBI because of non-compliance under
SEBI (Collective Investment Schemes) Regulations,1999 and with
recent amendment which has given wider power to SEBI, in near
future we can expect further crackdown on other companies engaged
in similar activities like PACL, Sahara etc.
 A ban on all deposit taking companies except banks would cause
havoc since there are millions invested in these safe funds. Any
general ban will cause harm on such a scale that even our nationalized
banks will feel the heat.
 If we critically analyzed the SEBI crackdown on PACL, it was not
because of complaint filed by some aggrieved investors, rather it was
suo-moto action taken by SEBI because of non-compliance under
SEBI (Collective Investment Schemes) Regulations,1999 and with
recent amendment which has given wider power to SEBI, in near
future we can expect further crackdown on other companies engaged
in similar activities like PACL, Sahara etc.
www.equicorplegal.com

7. Is there any wayout for safe
funds?
 Recently several changes has been made
in the financial sector w.r.t. legal
compliances for deposit taking
companies like Nidhi Companies, Multi-
state Credit Co-operative Societies,
Micro-Finance Institutions, Regulated
Collective Investment Schemes, etc.
with revised norms to operate under
prescribed regulatory framework such as
amendment in SEBI (Collective
Investment Schemes) Regulations; Nidhi
Company Rules, 2014 etc. and several
such changes are on way. Henceforth,
these safe funds and legitimate finance
business had to keep themselves abreast
with new norms and adhere to the
revised compliances.
 Recently several changes has been made
in the financial sector w.r.t. legal
compliances for deposit taking
companies like Nidhi Companies, Multi-
state Credit Co-operative Societies,
Micro-Finance Institutions, Regulated
Collective Investment Schemes, etc.
with revised norms to operate under
prescribed regulatory framework such as
amendment in SEBI (Collective
Investment Schemes) Regulations; Nidhi
Company Rules, 2014 etc. and several
such changes are on way. Henceforth,
these safe funds and legitimate finance
business had to keep themselves abreast
with new norms and adhere to the
revised compliances.
www.equicorplegal.com

8. Analyze your Business Model
Apply the following questions on your present business structure/model and if answer is
YES, then it’s time to take the help of legal expert and to restructure your business model
i. You hadn’t applied nor aware of licenses, registrations and/or approvals requisite for
your business?
ii. Are you been harass or been instructed by local authorities having vested interest to
close down your business, where as only RBI or SEBI or some other sector specific
regulator has the power to interfere in your business operations?
iii. Are you puzzled with the structure and nature of business such as whether you should
operate as registered Collective Investment Scheme or Real Estate Investment Trusts or
rather register your business as Nidhi Company?
iv. You are not filing your application for registration/license/approval with the sector
specific regulator as you do not fall within the ambit of threshold limit and you are
operating with a belief that you can continue with your business without
registration/license/approval till you reach threshold limit?
v. You want to operate a legally compliant and legitimate business and not to face any kind
of legal issues or closure down of your business on account of non-compliance after
accomplishment of your business at a stature.
Apply the following questions on your present business structure/model and if answer is
YES, then it’s time to take the help of legal expert and to restructure your business model
i. You hadn’t applied nor aware of licenses, registrations and/or approvals requisite for
your business?
ii. Are you been harass or been instructed by local authorities having vested interest to
close down your business, where as only RBI or SEBI or some other sector specific
regulator has the power to interfere in your business operations?
iii. Are you puzzled with the structure and nature of business such as whether you should
operate as registered Collective Investment Scheme or Real Estate Investment Trusts or
rather register your business as Nidhi Company?
iv. You are not filing your application for registration/license/approval with the sector
specific regulator as you do not fall within the ambit of threshold limit and you are
operating with a belief that you can continue with your business without
registration/license/approval till you reach threshold limit?
v. You want to operate a legally compliant and legitimate business and not to face any kind
of legal issues or closure down of your business on account of non-compliance after
accomplishment of your business at a stature.
www.equicorplegal.com

9.  If your answer to any of the above question is yes, you will be enthusiastic to know the different
kinds of deposit taking companies authorize to operate and their regulators as summarise below in
the table:
Sl.No. Regulator Entity
1. Reserve Bank of India (RBI) Category A NBFC, Residuary Non-Banking
Company, Schedules Commercial Banks,State &
District Co-operative Banks, Primary ( Urban) Co-
operative Banks
Category A NBFC, Residuary Non-Banking
Company, Schedules Commercial Banks,State &
District Co-operative Banks, Primary ( Urban) Co-
operative Banks
2. National Housing Board (NHB) Housing Finance Companies
3. Securities Exchange Board of India (SEBI) Collective Investment Management Companies,
Real Estate Investment Trusts, Infrastructure
Investment Trusts, Alternative Investment Fund
4. Ministry of Corporate Affairs Nidhi Companies
5. State Government Chit Funds
6. Insurance regulation Development Authority
(IRDA)
Insurance Companies
7. Ministry of Agriculture, Department of Co- Multi-State Credit Co-operative Societies

10.  For different types of deposit taking companies, you may click on the following
links-
 Collective Investment Scheme & SEBI-
http://www.equicorplegal.com/Pdfs/ECA%20Collective%20Investment%20Scheme.
pdf
 Micro Finance Institutions-
http://www.equicorplegal.com/Pdfs/Micro%20Finance%20Institutions%20in%20Indi
a.pdf
 Nidhi Company Registration-
http://www.equicorplegal.com/Pdfs/ECA-
%20Nidhi%20Company%20Registration.pdf
 Real Estate Investment Trusts-
http://www.equicorplegal.com/Pdfs/ECA-%20REITs-
%20A%20new%20KICK%20for%20Real%20Estate.pdf
 For different types of deposit taking companies, you may click on the following
links-
 Collective Investment Scheme & SEBI-
http://www.equicorplegal.com/Pdfs/ECA%20Collective%20Investment%20Scheme.
pdf
 Micro Finance Institutions-
http://www.equicorplegal.com/Pdfs/Micro%20Finance%20Institutions%20in%20Indi
a.pdf
 Nidhi Company Registration-
http://www.equicorplegal.com/Pdfs/ECA-
%20Nidhi%20Company%20Registration.pdf
 Real Estate Investment Trusts-
http://www.equicorplegal.com/Pdfs/ECA-%20REITs-
%20A%20new%20KICK%20for%20Real%20Estate.pdf www.equicorplegal.com

11. www.equicorplegal.com

12. Consult the Experts-ECA
Complete assistance for making the necessary filings,
applications etc. to RBI/SEBI or other sector specific
regulator for approval.
Informal discussion with contact personnel within
RBI/SEBI/ MCA or other sector specific regulator so as to
perfect the application before the same is submitted.
Follow up support at various points in time during and
after the pendency of the application so as to ensure that
any additional documents/records requested by regulator
are submitted in a systematic and timely manner.
 Updating on a regular basis as to the status of the
pending application
Complete assistance for making the necessary filings,
applications etc. to RBI/SEBI or other sector specific
regulator for approval.
Informal discussion with contact personnel within
RBI/SEBI/ MCA or other sector specific regulator so as to
perfect the application before the same is submitted.
Follow up support at various points in time during and
after the pendency of the application so as to ensure that
any additional documents/records requested by regulator
are submitted in a systematic and timely manner.
 Updating on a regular basis as to the status of the
pending application
www.equicorplegal.com

13. www.equicorplegal.com

15. www.equicorplegal.com