What is Maharashtra Protection of Interest of Depositors [In Financial Establishments] Act, 1999?

Podcast on what is MPID In Financial Establishments] Act, 1999?

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What is the Maharashtra Protection of Interest of Depositors [In Financial Establishments] Act, 1999? Why was it promulgated? When did it come into force? Is it still in existence? If yes, who uses it? Who is it applicable to? Do we have any mechanism to enforce the Act? Why does it refer to Depositors? Can a single Victim use the Act for the purposes of recovery of money? Or there need be group of persons to take recourse to the Act? An humble attempt is made to answer all such questions in the hope of reaching out to non-lawyers, law students and legal practitioners. 

The Maharashtra Protection of Interest of Depositors [In Financial Establishments] Act, 1999 came into force on 29th April 1999, with the sole purpose of weeding out the such Entities who falsely promise attractive rates of interest on deposits from gullible victims with an inherent intention of never fulfilling such assurances. 

Prior to Maharashtra Protection of Interest of Depositors [In Financial Establishments] Act, 1999 [for short “MPID”]¹ there was no effective Act or Statute at State-level to protect the interests of gullible public in terms of recovery of their hard-earned money, which would get swindled away by the Financial Establishments, offering attractive rates of interest in order to lure ‘deposits’ from primarily poor and middle class families.

MPID Act seeks to address the grievances of such category of persons primarily, who part with their life-savings on the assurances of high-rates of interests. A situation may arise that such a ‘Financial Establishment’ may have been floated over-night with the sole intention of duping such gullible investors. Generally, at a time when the Financial Establishment fails to return the assured benefits or promised returns, with an intention to escape their liability, the MPID Act comes into play. It is this mischief that the MPID Act seeks to address. 

It is this fraudulent act of Financial Establishment of amassing the substantial monies from public at large by offering attractive rates of interest and subsequent thereto, shutting all business by moving into another State to dupe more like persons by executing the same modus operandi in other parts of the Country- for which the MPID Act was promulgated. 

The MPID Act seeks to create a procedure for attachment of the property belonging to persons associated with such Financial Establishment². The property can be moveable as well as immoveable. Moveable property bank accounts etc. Immoveable property can be typically in the nature of Flats, Plots of Land etc.

MPID Act attempts to make the perpetrators of such economic crime answerable by way of attachment as well as punishment. Prior to establishment of the MPID Act, there were no effective Penal Laws in the State-Level, which provided for attachment of property of the accused persons. MPID Act is the first step in the right direction towards making the perpetrators of white-collar crime to be held accountable in law.  

Economic Crime is generally committed with a cool and calculated mind involving micro and macro level of management by the accused³. The accused generally runs the Financial Establishment like a Corporate Company. Typically, a Financial Establishment is run by creating fancy web-sites, glossy brochures, impressive office space etc. However, the acts of such persons are like a ticking-time bomb. 

Indian Penal Code, 1860 is the only Statute to aid the  State investigating agencies to investigate into the perpetrators of crime, without any significant section for attachment of immoveable properties of Accused persons. The result of absence of any provision for Attachment of immoveable properties has been counter-effective to the investigation itself. The Accused are investigated, arrested and eventually face trial or are released on Bail. The proceeds of crime or immoveable assets purchased out of such proceeds of crime remain untouched. 

The absence of any significant provision in Indian Penal Code, 1860 for provisional attachment of property of Accused persons⁴ to avoid siphoning of monies from the bank accounts as well as disposing off properties purchased out of criminal activity is addressed by the MPID Act. 

There have been various instances in the legal history of India, let alone Mumbai, that Businessmen, Industrialists, Corporate Companies etc. have indulged in economic crimes. The perpetrators of crime are punished, put on trial and convicted. However, there has not been any mechanism to return the monies of innocent investors, depositors etc. It is this problem that the MPID Act attempts to fix. 

Establishment of MPID Act has not been a smooth sail. The Act has undergone it’s own tides but ultimately emerged as a promising Act having the right intention at its core, i.e. to secure the hard-earned money of gullible depositors.  The Act has experienced 2 layers of legal challenge, i.e. one in the Hon’ble Bombay High Court and the second in the Hon’ble Supreme Court of India. The 1st challenge to the constitutionality of the Act was in the case of Vijay C. Puljal v. State of Maharashtra ⁵. The judgment rendered in Vijay C. Pujal’s Case was challenged before the Supreme Court of India in the case of K. K. Baskaran v. State [Represented by its Secretary, Tamil Nadu & Others] ⁶.

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¹ Governer of Maharashtra had promulgated the Maharashtra Protection of Interest of Depositors(Financial

Establishments) Ordinance 1999 on 29 th April 1999

² As per definition under s. 2(d) of the Act

³ Similar observations in the case of State of Gujarat v. Mohanlal Jitamalji Porwal and another 1987 2 SCC 364

⁴ Persons arraigned in the First Information Report are referred to as ‘Accused’.

⁵ (2005) 4 CTC 705

⁶ (2011) 3 SCC 793

FAQ: Basics of MPID Act

What is the Maharashtra Protection of Interest of Depositors (MPID) Act, 1999?

The MPID Act is a state-level law enacted to protect the interests of depositors

who invest in financial establishments. It aims to prevent and punish fraudulent

financial schemes that promise high returns but ultimately cheat investors,

particularly those from poor and middle-class backgrounds.

Why was the MPID Act enacted?

Prior to the MPID Act, there was no effective legal framework at the state level to

address the growing problem of financial scams that defrauded depositors.

Existing laws like the Indian Penal Code lacked provisions for attaching the

property of the accused, making it difficult to recover the lost money. The Act was

introduced to fill this gap and provide a mechanism for both punishing the

perpetrators and returning the funds to the victims.

What are the key features of the MPID Act?

The Act provides for:

• Attachment of property: It empowers authorities to attach both movable

and immovable properties of individuals and entities involved in financial

fraud. This can include bank accounts, flats, land, and other assets

acquired using the proceeds of the crime.

• Punishment for perpetrators: The MPID Act outlines penalties for

individuals and entities found guilty of operating fraudulent financial

schemes.

• Recovery of funds for depositors: A key objective of the Act is to facilitate

the recovery of lost funds and return them to the victims.

Who can use the MPID Act?

The Act is primarily designed to protect individual depositors who have lost their

savings in fraudulent financial schemes. While it doesn't require a group of people

to initiate action, collective action by multiple victims can strengthen the case and

increase the pressure on the authorities.

Is the MPID Act still in force?

Yes, the MPID Act is still in effect and continues to be used to prosecute financial

crimes and protect the interests of depositors in Maharashtra.

How effective has the MPID Act been?

The establishment of the MPID Act has been a significant step towards addressing

the issue of financial fraud in Maharashtra. While it may not have been a perfect

solution, it has provided a much-needed legal framework for holding perpetrators

accountable and returning funds to victims.

Where can I find more information about the MPID Act?

You can consult legal resources, government websites, and legal professionals

specializing in financial crimes to learn more about the Act and its application.

What challenges has the MPID Act faced?

The Act has faced legal challenges, including questions about its constitutionality.

However, it has been upheld by both the Bombay High Court and the Supreme

Court of India, solidifying its position as a vital tool for combating financial fraud.