Sections 21, 22 and 23 of the Banning of Unregulated Deposit Schemes Act, 2019
Sections 21, 22 and 23 fall in Chapter VI of the Banning of Unregulated Deposit Schemes Act, 2019 ("BUDS Act") and prescribe criminal punishments for contraventions of Sections 3, 4 and 5. In brief, Section 3 bans unregulated deposit schemes, Section 4 prohibits fraudulent default in regulated deposit schemes, and Section 5 prohibits wrongful inducement into an unregulated deposit scheme.
CHAPTER VI - OFFENCES AND PUNISHMENTS
Section 21 - Punishment for contravention of Section 3
(1) Any deposit taker who solicits deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which shall not be less than two lakh rupees but which may extend to ten lakh rupees.
(2) Any deposit taker who accepts deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less than two years but which may extend to seven years and with fine which shall not be less than three lakh rupees but which may extend to ten lakh rupees.
(3) Any deposit taker who accepts deposits in contravention of section 3 and fraudulently defaults in repayment of such deposits or in rendering any specified service, shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine which shall not be less than five lakh rupees but which may extend to twice the amount of aggregate funds collected from the subscribers, members or participants in the Unregulated Deposit Scheme.
Explanation. - For the purposes of this Act, -
(i) the expression "fraudulently" shall have the same meaning as assigned to it in section 25 of the Indian Penal Code (45 of 1860);
(ii) where the terms of the Deposit Scheme are entirely impracticable or unviable, the terms shall be relevant facts showing an intention to defraud.
What Section 3 prohibits
Section 3 provides that unregulated deposit schemes are banned and prohibits a deposit taker from directly or indirectly promoting, operating or advertising such a scheme, soliciting participation or enrolment in it, or accepting deposits under it.
Section 22 - Punishment for contravention of Section 4
Any deposit taker who contravenes the provisions of section 4 shall be punishable with imprisonment for a term which may extend to seven years, or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of the fraudulent default referred to in said section, whichever is higher, or with both.
What Section 4 prohibits
Section 4 applies to a Regulated Deposit Scheme and prohibits a deposit taker from committing fraudulent default in repayment or return of a deposit on maturity, or in rendering the specified service promised against the deposit.
Section 23 - Punishment for contravention of Section 5
Any person who contravenes the provisions of section 5 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which may extend to ten lakh rupees.
What Section 5 prohibits
Section 5 prohibits any person from knowingly making a materially false, deceptive or misleading statement, promise or forecast, or deliberately concealing a material fact, in order to induce another person to invest in, become a member of, or participate in an Unregulated Deposit Scheme.
Penalty summary
| Provision | Contravention | Imprisonment | Fine |
|---|---|---|---|
| Section 21(1) | Soliciting deposits contrary to Section 3 | Minimum 1 year; up to 5 years | Minimum Rs. 2 lakh; up to Rs. 10 lakh |
| Section 21(2) | Accepting deposits contrary to Section 3 | Minimum 2 years; up to 7 years | Minimum Rs. 3 lakh; up to Rs. 10 lakh |
| Section 21(3) | Accepting deposits contrary to Section 3 and fraudulent default | Minimum 3 years; up to 10 years | Minimum Rs. 5 lakh; up to twice the aggregate funds collected |
| Section 22 | Contravention of Section 4 | Up to 7 years | Minimum Rs. 5 lakh; up to Rs. 25 crore or 3 times profits from fraudulent default, whichever is higher; or both |
| Section 23 | Contravention of Section 5 | Minimum 1 year; up to 5 years | Up to Rs. 10 lakh |
Last reviewed: 14 September 2026. For authoritative text, amendments and subordinate legislation, refer to India Code and the Department of Financial Services.