A brief summary of the act for PROTECTION OF DEPOSITORS OF INTEREST

ACT
By- LUCKY TANDON,
(B.A.LLB hons.).
Hidayatullah National Law University, Chhattisgarh.
Under the able guidance of Shri -SUDARSHAN MAHALWAR,(Special Public
Prosecutor)Dist. Court Durg.

THE CHHATTISGARH PROTECTION OF DEPOSITORS INTEREST ACT, 2005.

A brief insight into the formation of the act,

After almost a decade of formulating the draft for the Chhattisgarh Protection of Depositors Interest
(in Financial Establishment) Act 2005, the government has finally framed and notified rules to protect
depositors' interests from ponzi money collection schemes by various Financial Establishments.

These financial establishments deceit general population by attracting unsuspecting depositors by

making impracticable or commercially unviable(unfulfillable) promises or by offering highly
attractive rates of interest or rewards, with the intention of not fulfilling the obligation or of refunding
the deposits upon maturity or with intention of not rendering proper services assured, to the investors
at the time of accepting the deposits.

Extent of Damage.
There have been, in the Chhattisgarh State, itself some 3000 cases of fraud by various Financial
Establishments amounting to approximately Rs 124 crore between the period of 2009 to 2013, the
parliament had passed the bill in 2005 but it received the President's assent only in July 2015 due to
various clarifications and references sought by the union government. About 174 accused in these
cases had been arrested and in 73 cases challans had been put up in the court of law.
Following the President's assent, the state government appointed all District magistrates as
"competent authority" within their respective districts for the purposes of the Act.

Effect of The Act

Act, 2005 was enforced in the State of Chhattisgarh on 23 rd July, 2015. The relevant Rules under this
Act have already been notified. Moreover, through notifications, the District Magistrate of every
district i.e. the Collector and Session Court has been respectively designated as Competent
Authority and Special Court under this Act. The District Magistrate under this Act has been given the
power to attach the property of the financial establishment which has fraudulently defaulted in
repayment of the deposit money or of any services promised, assured against such deposits.
Thereafter, the Competent Authority shall forward the matter to the Special Court. The Special Court,
after hearing, may pass an order for finalizing the attachment and sale of attached property and from
the proceeds of the sold property, repayment shall be made to the depositors as per their respective
dues.
The Hon’ble President of India while communicating the Presidential assent to the Bill, informed that
the assent has been given on the condition that the State shall adopt the proposed amendment of the
Central Government in the Act within six months from the date of assent. Therefore, for complying
with the suggestion of the Hon’ble President and for making the Act more effective,

Proposed amendments provide the Competent Authority with the power to seize the property if there
the competent authority is of the view that there is apprehension that such financial establishment is
going to siphon off the deposit money. Further, for the purpose of making the procedure of repayment
of money to depositors more convenient, the Competent Authority has been given the power to assess
the deposit liabilities and assets of the financial establishment, require the police to investigate the
matter, appoint chartered accountant and other professionals, require or call for information from the
concerned financial establishment and other authorities which will in turn will help the Competent
Authority to present a strong case before the Special Court. Furthermore, commencement of business
without prior intimation to the Competent Authority is now an offence under this Act.

For ensuring that the deposit money is repaid to the depositors as early as possible, the Special Court
now must pass an order within 240 days i.e. 8 months. Moreover, for the purposes of curbing the
transfer of attached property, such transfer if done will be void ab initio. The process of taking
deposits from the public starts with issuing of misleading advertisement; therefore, issuing of such
misleading advertisement shall now be punishable offence.

The Competent Authority will now have discretionary powers to attach the property of the concerned
financial establishment where he has reason to believe that such financial establishment is not likely
to repay the deposits or provide the services as promised, assured against such deposits.

The offences under this Act have been made cognizable and non-bailable. Further, apart from
increasing the fine amount, the intimation of wrong or misleading information, statement to the
Competent Authority will now be punishable with fine or imprisonment or with both. Legal entities
such as Limited liability partnership, partnership firms, association of persons etc have now been
brought under the scope of this Act.

Therefore, the amendments shall increase the effectiveness of the Chhattisgarh protection of investors
deposits Act.

Taking note of mushrooming of financial establishments in the state in the recent past, the
Act says it is observed that such establishments have been gaining wrongfully by receiving
money as deposits from the public, particularly of the middle class and poorer sections of the
society. With the Act getting implemented in the state, all working of hitherto unregulated
financial bodies like multi-level marketing companies, proprietorship, partnership firms can
be regulated by the state government by appointing regulators for financial institutions which
it feels is indulging in fraudulent activities.
The Chhattisgarh Protection of Depositors Interest Act is an act for the protection of the
deposits made by the public in the financial establishment or matters connected therewith of
incidental thereto.
Be it enacted by the Chhattisgarh legislature in the Fifty sixth year of the Republic of India as
follows :-
Section.1.Short title and commencement.
(a) This Act may be called the Chhattisgarh Protection of Depositors' Interest Act,2005.
(b) It shall come into force from the date of its publication in the Official Gazette.
( which at the instant case is on 23rd July, 2015)
Section.2. Definitions.
In this Act, unless the context otherwise requires,-
(a)"Chief Justice" means Chief Justice of the High Court of Chhattisgarh.
(b) "State" means State of Chhattisgarh
(c) "State Government" means State Government of Chhattisgarh.
(d) "Competent authority" means the authority appointed under Section 5 of the Act
(Section 5 of the act reads- The State Government may, by notification, appoint any authority not
below the rank District Magistrate as competent authority.)
(e) "Deposit" means "deposit" as defined in Section 45-l (bb) Reserve Bank of India Act, 1934 Q,,lo.2
of 1934)
[(section 45-I (bb) of the Reserve Bank of India Act, 1934 reads as-
“deposit” includes and shall be deemed always to have include any receipt of money by way of
deposit or loan or in any other form,
but does not include,—
(i) amounts raised by way of share capital;
(ii) amounts contributed as capital by partners of a firm;
(iii) amounts received from a scheduled bank or a co-operative bank or any other banking company as
defined in clause (c) of section 5 of a Banking Regulation Act, 1949 (10 of 1949);(where the section 5
reads-  "banking" means the accepting, for the purpose of lending or investment, of deposits of
money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order
or otherwise.
(iv) any amount received from :-
 a. (omitted by act 53 of 2003)
b. a state financial corporation
c. any financial institution specified in, or under section 6A of the industrial development bank of
India act 1964
d. any other institution that may be specified by the bank in this behalf
(v) Amounts received in ordinary course of business by way of :-
a. security deposit
b. dealership deposit
c. earnest money.
d. Advance against order for goods, property, services
(vi) Any amount received from individual or a firm or an association of individuals not being a
body corporate, registered under any enactment relating to moneylending which is for the time being
in force in any state.
(vii) Any amount received by way of subscriptions in respect of a chit.]]
(f) "Depositor" means person who makes deposit with company; and includes heir, legal
representative, administrator or assignee of the depositor.
(g) "District Magistrate" means person appointed as district magistrate under Section 20 of The
Code of Criminal Procedure, 1973 (No. 2 of 1974).
(h) "Financial establishment" means an individual, an association of individuals, a firm or a
company incorporated under the Companies Act, 1956 (l of l956) receiving deposits under any
scheme or arrangement or in any other manner,
But does not include-, Corporation or Co-operative Society owned or controlled by the State
Government or the Central Government, or Banking Company as defined under Section 5 of the
Banking Regulation Act, 1949 (No. l0 of 1949).
(i) "Fraudulent default" means any financial establishment, which fraudulently defaults any
repayment of deposits on maturity and/or any benefit in the form of interest, bonus, profit or dues in
any other form as promised or on maturity or fraudulently fails to render services as assured against
the deposit"
(j) "Special Court" means the special court constituted under Section 4 of the Act.
Section.3. Act not in derogation of any Law. The provisions of the Act shall be in addition to and
not in derogation of any other law for the time being in force.
Section.4. Special courts
(i) State Government in consultation with the Chief Justice may be notification in special Court. the
official gazette notify as many special courts as may be necessary for such area or areas for trial of
cases under the Act.
(ii) A person shall not be qualified to act as judge in special court unless he is a sessions judge or
additional session's judge under Code of the Criminal Procedure, I973 (No.2 of 1974).
Section.5. Competent authority
The state government may, by notification, appoint any authority not below the rank of a District
Magistrate as competent authority
Section.6. Intimation of Business
(1) Every financial establishment already carrying on its business in the area of jurisdiction of the
competent authority, shall intimate the competent authority about its business within two months from
the commencement of the Act.
(2) No financial establishment shall commence its business in the area of jurisdiction of the competent
authority without prior intimation.
(3) The financial establishment shall file all such copies of periodical statements to the competent
authority, which are required to be filed under the law to supervisory authorities including Securities
and Exchange Board of India (SEBI) and Reserve Bank of lndia (RBI).
(4) The competent authority at his discretion may at any time direct any financial establishment
carrying on business in the area of jurisdiction of the competent authority to furnish in such form, at
such intervals and within such time, such statements, information or particulars relating to or
connected with deposits received by the establishment, as may be specified in general or special order
(5) Who ever contravenes the provisions of this section shall be punished with imprisonment, which
may extend to three months or with fine, which may extend to five thousand rupees or with both and
financial establishment shall also be liable to pay fine, which shall not be less than twenty five
thousand rupees but may extend to fifty thousand rupees.
Section.7. Attachment of properties of default of return of deposits & power of special court
regarding the attachment.
(1) Where the competent authority is satisfied,
(i) Upon complaints received from depositors or otherwise, that any financial establishment has
fraudulently defaulted.
(ii) That any financial establishment is acting in a calculated manner with an intention to defraud the
depositors and such financial establishment is not likely to return the deposits, the competent
authority may, in order to protect the interests of the depositors of such financial establishment, pass
an ad-interim order attaching the money or other property alleged to have been procured either in the
name of the financial establishment or in the name of any other person or establishment, or if it
appears that such money or other property is not available for attachment or not sufficient for
repayment of the deposits, such other property of the said financial establishment or the promoter,
partner, director, manager or member of the said financial establishment, as the competent authority
may think fit and publish the order in local newspaper of the area.
(2) The competent authority shall apply within fifteen days from the date of the order to the special
court for making the ad-interim order or attachment absolute.
(3) The competent authority may also make an application to any special court or designated court or
any other judicial forum established or constituted or entrusted with the powers by any other State
Government for adjudicating any issue or subject pertaining to any money or assets of a financial
establishment under any similar enactment in respect of money or property or assets belonging to or
ostensibly belonging to a financial establishment or any person notified under the Act situated within
the territorial jurisdiction of that special court or designated court or any other judicial forum as the
case may be, for passing appropriate orders to give effect to the provisions of the Act.
(4) Upon receipt of an application under subsection (2) of section (7), the special court shall issue
show cause notice accompanied by copy of application filed by the competent authority 10 the
financial establishment or any other person whose property is attached that why the order of
attachment should not be made absolute
(5) Any person having any interest or claim in the property attached under sub-section ( I ) may apply
to the special court within 45 days of the order of attachment for their claim. after receiving the
application/objection the special court shall, after giving an opportunity of being heard to the
applicants and the competent authority, may make such order as deem fit.
(6) For hearing of application/objection provision of the Code of Civil Procedure, 1908, shall be
applicable.
(7) If no cause is shown and no objections are made on or before the specified date, the special court
shall for with pass an order making the ad-interim order of attachment absolute.
(8) The special court may at the time of passing the fina1 order pass an order of attachment absolute
or in part. In making such order the special court shall not release such part of property so attached as
is necessary for repayment to depositors.

(9) The special court may, on application by the competent authority, pass such order or issue such
direction as may necessary for sale of property attached and for distribution among the depositors of
the money realised from such sale.
(10) Where an application is made by any person duly authorised or specified by any other State
Government under similar enactment empowering him to exercise control over any money or property
or assets attached by that State Government, the special court shall exercise all its powers, as if such
an application were made under the Act and pass appropriate order or direction on such application,
so as to give effect to the provisions of such enactment.
Section.8. Attachment of property of mala-fide transfers
(1) Where the assets available for attachment of a financial establishment or other person referred to
in section 7 is insufficient for repayment to depositors and where the special court is satisfied by
affidavit or otherwise that there is reasonable cause for believing that the said financial establishment
has transferred before or after the commencement of the Act any property otherwise than in good faith
not for consideration the special court may, by notice, require any transferee of such property whether
or not he has received the property directly from the said financial establishment, to show cause why
so much of the transferees property, as is equivalent to the proper value of the property transferred
should not be attached.
(2) Where the said transferee fails to appear or show cause on the specified date, or where after
investigation in the manner provided in sub-section (5) to (9) of section (7), the special court is
satisfied that the transfer of the property to the said transferee was not in good faith and not for
consideration, the special court shall order the attachment of so much of the said property of the
transferee, as is in the opinion of the special court, equivalent to the proper value of the property
transferred.
Section.9. Special court may on application on behalf of a financial establishment or any person
referred to in sub-section (1) of section (7) pass an order in writing to permit furnishing attachment' of
security in lieu of attachment in appropriate case.
Section.10. Punishments for defaults by Financial Establishments
Where any financial establishment fraudulently defaults or any financial establishment acts in a
calculated manner with an intention to defraud the depositors; every person including the promoter,
partner, director, manager or any other person or an employee responsible for the management of or
conducting of the business or affairs or of such financial establishment shall be punished with
imprisonment for a term which shall not be less than 3 years but may extend to ten years and with fine
which not be less than one lakh rupees but may extend to five lakh rupees and such financial
establishment shall also be liable to fine not less than three lakhs rupees but may extend to ten lakh
rupees .
Section.11. Factors to be considered for Imposing Fine.
The court in fixing the amount of fine shall take into consideration the amount required for repayment
to depositors.
Section.12. Awarding of compensation
When a court imposes a sentence of fine, the court shall, when passing the judgment, order the whole
or part of the fine recovered be awarded as compensation to the depositors in lieu of their claim in full
or part as an equitable distribution.
Section.13. Procedure and powers of Special Court regarding offences.
For trial of the offence the procedure prescribed for the warrant trial in the Code of Criminal
Procedure, I 973 (No.2 of 1974) shall be applicable and special court may take cognizance of the
offence without being committed the case to it.
Section.14.Special Public Prosecutor
The State Government shall appoint a special public prosecutor, having nor less than ten years of
practice as an advocate. for conducting cases before the special court.
Section.15. Anticipatory bail not to be granted
Notwithstanding anything contained in section 438 of the Code of Procedure. 1973 (No. 2 of 1974) no
application for anticipatory bail shall Iie for an offence punishable under the Act.
Section.16. Appeal.
(1) An appeal against the order passed by the special court shall lie to the High. Court within thirty
days from the date of order.
(2) No appeal shall be entertained unless it is accompanied by satisfactory proof of seventy five
percent deposit of liability with competent authority.
Section.17. Power to make rules
(1) The state Government may make rules for carrying out the provisions of this act.
(2) Every rule made under this Act, shall as soon as possible be laid on the table of the Legislative
Assembly.
Section.18.Protection of action taken in good faith. No suit or other proceedings shall lie against
the State Government or the competent Protection of action authority or an officer or employee of the
State Government for anything, which done in good faith or intended to be done under the Act.
Section.19. Power to remove to Difficulty. If any difficulty arises in giving effect to the provisions
of the Act, the State Government may by order do anything not inconsistent with the provisions of the
Act (any act ultra vires of the parent act.