Contact Your Financial Adviser Money Making MC
17
February 2017
 |
Finance (The Total Investment & Insurance
Solutions)
India is a
country where business is largely carried on in the form of proprietary
concerns and partnership firms, and not in the form of companies and Limited
Liability Partnerships (LLP). The way of doing business is quite informal,
including modes of raising funds for business.
While a few
companies (Saradha, Sahara, Sumangal, and Sanchayita) were responsible for the
scams in the past, all those doing business will have to bear the brunt of
their acts. When the deposit rules under the Companies Act, 2013 became
stricter, it was obvious for people to think of LLPs. Most people would prefer
not to do business in a highly regulated environment, especially when the
business model itself is fairly simple. Fund requirement is a perennial issue
and, depending on the size of business and capacity of the businessman, the
source varies. So, one may not necessarily go to a bank or a non-banking
finance corporation (NBFC) or one’s relatives to raise funds for a business,
and instead may go to ‘Khanna uncle’ or ‘Balbirbhai’. However, the
enforcement of Banning of Unregulated Deposit Schemes and Protection of
Depositors’ Interests Act, 2016 (the Bill 2016) will curb this practice.
Looking at the penal provisions, businessmen would prefer to suffer losses
rather than to go to jail.
Section 45S
of the Reserve Bank of India (RBI) Act also prohibits acceptance of deposits by
unincorporated bodies. The intent of this bill is also to spread the net on all
deposit-takers who accept or solicit deposits to defraud investors, and not to
meet the fund requirement in the ordinary course of business. However, the
exclusion carved out does not adequately consider options like borrowings from
‘Khanna uncle’, unless they are obtained as advance for supplying goods, or
rendering service, or received as credit. Similarly, raising money through
issue of bonds, debentures by LLP or trust has not been included, unless these
entities are Alternative Investment Funds (AIF) or mutual funds.
In September
2015, SEBI in an informal guidance
given to Vijay Suraksha Realty LLP, conveyed that while the
definition of ‘debt securities’ under SEBI (ILDS) Regulations 2008 covers securities
issued by a LLP (a body corporate), the definition of ‘issuer’ talks
specifically about company, public sector undertaking or statutory corporation.
Further, the option for LLPs to raise funds from other sources, not partners or
relatives of partners, gets prohibited under this Bill.
Every Ponzi
scheme is followed by a new law and such reactive law-making adds to the woes
of genuine entrepreneurs. The penal provisions under such law are equally
scary. ‘Scheme’ means to make plans, especially in a devious way or with intent
to do something illegal or wrong. The intention is to prohibit such persons
from defrauding investors. However, funds raised from third person for genuine
business purpose cannot be regarded as a scheme for raising deposits in a
country where a large part of business is run in an unorganised manner. The Total Investment & Insurance
Solutions
So each time
an unincorporated body or LLP requires funds, it will have to look at the
Central Government and plead ‘Prabhu path pradarshitkariye’ to wait for the
Central Government to notify deposit schemes that shall not be treated as
Unregulated Deposit Schemes for the purposes of this Act. Instead of specifying
what schemes can be excluded, a litmus test must be provided such that meeting
of any of those conditions would regard the loan as unregulated deposit.
Considering
the above mentioned points and keeping in view the small businesses, this Bill
may be made lenient for particular cases. Protection should be given to those
who intend to be protected, therefore, the known investors (other than
relatives) should also be able to lend to such businesses.The Total Investment & Insurance
Solutions
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