MPID Act: Beyond Just a Criminal Statute

The Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 ¹ (MPID Act) as the name suggests is an Act enacted to protect the interest of depositors in the financial establishments and matters relating thereto. Owing to the mushroom growth of financial establishment in the State wherein the sole object of these establishments is of grabbing money received as deposits from public on promises of high attractive rates on maturity and default in returning the deposits on maturity. The scheme of the Act provides for both civil remedies for recovery and criminal action against the perpetrator, a complete package to protect the rights of the innocent depositors so that they do not have to approach various forums to get their rightful money back. This article demonstrates the dual procedure envisaged under the Act which is often mistaken to be interdependent, which in my view is not.

The MPID Act provides for the offence of “fraudulent default” by a financial establishment under Section 3 ² of the MPID Act and also provides for attachment of properties on “default of return” of deposits. One would assume that both these provisions are interdependent, however the submission herein is that they are independent. There are several statutes such as the Prevention of Money-Laundering Act, 2002 ³, Narcotic Drugs and Psychotropic Substances Act, 1985 ⁴, Electricity Act, 2003 ⁵, etc. wherein there is a direct correlation between the offence and the fate of the attached property, however the MPID Act does not have any such interdependency. The word “fraudulent” does not find any place in the provisions for attachment under the MPID Act, thereby making it independent of the offence which only deals with the aspect of fraud and the attachment proceedings only deals with default of return of deposits.

The power of the designated MPID Court to try an offence under Section 3 is derived from Section 13 ⁶ of the MPID Act, whereas the power of the designated Court regarding attachment under Section 4 ⁷ of the MPID Act is governed under Section 7 ⁸ of the MPID Act. Under Section 7(5) of the MPID Act, the procedure with respect of hearing objections on attachment shall be adjudicated as per Order 37⁹ of the Civil Procedure Code, 1908 ¹⁰, whereas under Section 13(1) of the MPID Act, offences shall be tried following the procedure prescribed in the Criminal Procedure Code, 1973 ¹¹. Sections 13(1) and 7(5) of the MPID Act is quoted as under:

13. Procedure and powers of designated court regarding offences.—(1) The designated court may take cognizance of the offence without the accused being committed to it for trial and, in trying the accused person, shall follow the procedure prescribed in the Criminal Procedure Code, 1973, for the trial of warrant cases by Magistrates.

7. Powers of designated court regarding attachment.—(5) If cause is shown or any objection is made as aforesaid, the designated court shall proceed to investigate the same and in so doing, as regards the examination of the parties and in all other respects, the designated court shall, subject to the provisions of this Act, follow the summary procedure as contemplated under Order 37 of the Civil Procedure Code, 1908 and exercise all the powers of a court in hearing a suit under the said Code and any person making an objection shall be required to adduce evidence to show that on the date of the attachment he had some interest in the property attached.

(emphasis added)

The scheme of the Act very obviously suggests that in attachment proceedings before a designated court, the Court has the power to make such an attachment absolute (whether by hearing objections or not) and pass directions for realisation of such assets (either fully or a portion thereof) for equitable distribution amongst investors. Sections 7(4) and (6) of the MPID Act is quoted hereunder:

7. Powers of designated court regarding attachment.—(4) The designated court shall, if no cause is shown and no objections are made under sub-section (3), on or before the specified date, forthwith pass an order making the order of attachment absolute, and issue such direction as may be necessary for realisation of the assets attached and for the equitable distribution among the depositors of the money realised from out of the property attached.

(6) After investigation under sub-section (5), the designated court shall pass an order either making the order of attachment passed under sub-section (1) of Section 4 absolute or varying it by releasing a portion of the property from attachment or cancelling the order of attachment.

(emphasis added)

The scheme of the Act itself implies that civil and criminal proceedings under the Act are independent of one another. In fact, the Act being a beneficial legislation facilitates the victims/complainants to find both civil and criminal remedies before the same Court, instead of troubling the innocent investors to run to various forums to seek reliefs. The Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 ¹² is enacted in several other States including Tamil Nadu, Andhra Pradesh, Jammu and Kashmir, etc. which have para materia provisions. It is pertinent to note that in none of these Acts is there a specific provision for return of the attached properties post acquittal and it can be inferred that it is and has been the intent of every State Legislature to keep the attachment proceedings distinct from the penal provisions. The Supreme Court is yet to divulge its view on the distinct independence of the civil and criminal proceedings in these Acts, however several High Courts have taken a view in the matters pertaining to the MPID Act, stating that the civil and criminal proceedings under the Act are independent in nature. The cases are as under:

(a) K.J. Anthony v. State of Maharashtra¹³ (Bombay High Court)

5. Our reading of Section 4 of the MPID Act does not show any offence or any punishment. Section 3 is about fraudulent default by establishment. For such default the punishment is also prescribed in said section.

6. Prima facie we find that Sections 3 and 4 are distinct and also operate independent of each other.

(emphasis added)

(b) Prabhakar Dattatraya Gune v. Vishnukant Bapurao Urankar¹⁴ (Bombay High Court)

53. … The powers of designated court regarding attachment are enumerated in Section 7 of the MPID Act. Thereafter, Section 8¹⁵ enables attachment of property of mala fide transferee. Thus, a fraudulent default by the financial establishments is a punishable offence in terms of Section 3 and there is an independent power enabling the Government to attach properties on default of return of deposits by the financial establishments after it records its satisfaction in terms of Section 4(1) of the MPID Act.

(emphasis added)

18. The next question that would arise for consideration is how the assets of the person adjudged as insolvent and facing proceedings under the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (Tnpid Act), be dealt with. To appreciate this question, we must understand the purpose of enacting the Tnpid Act. The Tnpid Act was passed to protect gullible depositors who are duped with the promise of high returns. The Act therefore confers power on the Government to attach properties of the financial establishment, provides a mechanism for making the attachment absolute and, after that selling the properties and equitably distribute the proceeds. In fact, under the Tnpid Act, the process of attachment, making it absolute under Section 7¹⁷ of the Tnpid Act by the Special Court and the process of selling and distributing the sale proceeds of the property are independent of the result of the criminal proceedings that the depositors may initiate against the offending financial establishment. This mechanism is not ordinarily provided for other offences. One may note that under the Criminal Law Amendment Ordinance, 1944, the disposal of the attached property is only after the termination of the criminal proceedings. The Tnpid Act provides exceptional procedure to give speedy remedy to the victims. Therefore, as held by the Supreme Court in K.K. Baskaran v. State¹⁸, the State is the custodian of welfare of the citizens as parens patriae. It has taken the role of safeguarding the interest of the gullible investors.

(emphasis added)

(d) P. Palanisamy v. District Revenue Officer-cum-Competent Authority¹⁹ (Madras High Court)

11. The proceedings for attachment can be initiated and proceeded with, independent of the criminal prosecution. The object of Section 3²⁰ and the other provisions relating to attachment is to repay the depositors without awaiting the result of the criminal prosecution. Therefore, the Special Court while considering the application under Section 4(3)²¹ of the Tnpid Act, is bound to consider all objections, as provided under Section 7 of the Tnpid Act. Of course, the Special Court cannot adjudicate as to whether the person whose property sought to be attached is guilty of the offence charged in the criminal case or not. However, the Special Court has to consider whether the Government had attached the property in accordance with Section 3 of the Tnpid Act and if so, whether any person who has interest in the property has objection to the attachment being made absolute. Therefore, the Special Court is bound to consider the objections and for that purpose, can exercise all the powers of a court, deciding a civil suit.

* * *

21. Thus, the powers and functions of the Special Court while considering the application for making the interim attachment absolute can be summed up as follows:

(i) …

(ii) …

(iii) If any objection is received from any person that he is not a person whose property can be attached under Section 3 of the Tnpid Act or on receipt of any other objections whatsoever, the Special Court is bound to consider the same. The Special Court cannot observe that the objections have to be decided by the criminal court, as the power to attach property is independent of the criminal proceedings and they in operate two different fields.

(iv) …

(v) There may be instances, where a person may not be an accused in the criminal case, but his property can be attached under Section 3 of the Tnpid Act. For instance, a sleeping partner in a financial establishment, which is a partnership firm, may not be an accused in the criminal case (as he would not have had any role in the crime), but his property can be attached as per Section 3 of the Tnpid Act….

(emphasis added)

(e) Braja Kishore Sumanta Pattnaik v. State of Odisha²² (Orissa High Court)

15. A reading of Section 9²³ makes it clear that the proceedings taken thereunder following the procedure of CPC results either in confirmation of the ad interim order of attachment passed by the Government or varying the same and sale of the property attached leading to equitable distribution among the depositors of money realised out of such sale or cancelling the ad interim order. It does not deal with a proceeding vis-à-vis Section 6, which contains the penal section. Section 15²⁴ deals with procedure and power of designated Court regarding taking cognizance and trial of offences under CrPC. Section 6 delineates the offence. Sub-section (3) of Section 8 also speaks of trial of any other offence along with the offence committed under Section 6²⁵ under CrPC. It is stated at the cost of repetition that while the proceedings under Section 9 are to be conducted as per the Civil Procedure Code, the one under Section 15 is to be conducted as per the Criminal Procedure Code There is thus a fundamental difference between the two proceedings noted above.

* * *

19. Evidently, there is a sea of difference between the two different procedures referred above. The idea of the same Court acting as both civil court and criminal court for two different purposes may, at first blush, seem incongruous but then, it only reflects the legislative intent that matters relating to attachment, etc. which are basically governed under civil law, and the matters relating to cognizance, trial, conviction, etc. which are basically governed under criminal law, have to be dealt with by application of the appropriate law to each. It would rather be incongruous to expect the appellate court exercising criminal jurisdiction to decide questions that may be raised regarding violation of procedure of attachment prescribed under CPC. Therefore, it must be held that the legislature in its wisdom has provided for two separate procedures for the two separate proceedings by the same Court. It is immaterial that the Court adjudicating upon such separate issues is one and the same.

(emphasis added)

There are many other statutes wherein there is a dual procedure provided, viz. provision for attachment/forfeiture being the civil proceedings and the penal offences being the criminal proceedings. However, in such Acts there is a specific provision to demonstrate the interdependence between the criminal and civil proceedings. Few of such statutes are as under:

Where criminal proceedings and civil attachment are interdependent. Acquittal in the criminal proceeding will lead to release of property and vice versa.

Sr No.	Statute	Section for attachment/forfeiture	Penal section	Section showing the interdependance
(1)	Prevention of Money-Laundering Act, 2002 ²⁶	5, 17	3	8(5), 8(6), 8(7) and 58-A²⁷ 8. Adjudication.— (5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money laundering has been committed, it shall order that such property involved in the money laundering or which has been used for commission of the offence of money laundering shall stand confiscated to the Central Government. (6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money laundering has not taken place or the property is not involved in money laundering, it shall order release of such property to the person entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of Section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offence of money laundering after having regard to the material before it.²⁸
(2)	Criminal Law Amendment Ordinance, 1944²⁹	3, 4, 6	As per Schedule	13(1), 13(2), 13(3) 13. Disposal of attached property upon termination of criminal proceedings.— (1) Upon the termination of any criminal proceedings for any scheduled offence in respect of which any order of attachment of property has been made under this Ordinance or security given in lieu thereof, the agent of the (State Government or as the case may be, the Central Government) shall without delay inform the District Judge, and shall where criminal proceedings have been taken in any Court, furnish the District Judge with a copy of the Judge or order of the trying Court and with copies of the judgment or orders, if any, of the appellate or revisional Court thereon. (Added by the Prevention of Corruption Act, 1988 ³⁰) (2) Where it is reported to the District Judge under sub-section (1) that cognizance of the alleged scheduled offence has not been taken or where the final judgment or order of the criminal courts is one of acquittal, the District Judge shall forthwith withdraw any orders of attachment of property made in connection with the offence, or where security has been given in lieu of such attachment, order such security to be returned. (3) Where the final judgment order of the criminal courts is one of conviction the District Judge shall order that from the property of the convicted person attached under this Ordinance or out of the security given in lieu of such attachment there shall be forfeited to Government such amount or value as is found in the final judgment or order of the criminal courts in pursuance of Section 12 to have been procured by the convicted person by means of the offence together with the costs of attachment as determined by the District Judge and where the final judgment or order of the criminal courts has imposed or upheld a sentence of fine on the said person (whether alone or in conjunction with any other punishment), the District Judge may order, without prejudice to any other mode of recovery, that the said fine shall be recovered from the residue of the said attached property or of the security given in lieu of attachment.³¹
(3)	Electricity Act, 2003 ³²	Section 135 to 142, 150	Section 143 r/w Sections 29, 33, 43	Section 154 154. Procedure and power of Special Court.— (5) The Special Court shall determine the civil liability against a consumer or a person in terms of money for theft of energy which shall not be less than an amount equivalent to two times of the tariff rate applicable for a period of twelve months preceding the date of detection of theft of energy or the exact period of theft if determined whichever is less and the amount of civil liability so determined shall be recovered as if it were a decree of civil court. * * * Explanation.— For the purposes of this section, “civil liability” means loss or damage incurred by the Board or licensee or the concerned person, as the case may be, due to the commission of an offence referred to in Sections 135 to 140 and Section 150.³³
(4)	Narcotic Drugs and Psychotropic Substances Act, 1985 ³⁴	Chapter V-A	Chapter IV	Section 68-Z 68-Z. Release of property in certain cases.— (1) Where the detention order of a detenu is set aside or withdrawn, properties seized or frozen under this chapter shall stand released. (2) Where any person referred to in clause (a) or clause (b) or clause (cc) of sub-section (2) of Section 68-A has been acquitted or discharged from the charges under this Act or any other corresponding law of any other country and the acquittal was not appealed against or when appealed against, the appeal was disposed of as a consequence of which such property could not be forfeited or warrant of arrest or authorisation of arrest issued against such person has been withdrawn, then, property seized or frozen under this chapter shall stand released.³⁵

Where criminal proceedings and civil attachment are independent. Acquittal or conviction in the criminal proceeding has no bearing on the attachment/forfeiture

Sr No.	Statute	Section for attachment/forfeiture	Penal section	Section showing the inter-dependance
(1)	Customs Act, 1962 ³⁶	Chapter XIII and Chapter XIV	Chapter XVI	Section 127 127. Award of confiscation or penalty by customs officers not to interfere with other punishments.— The award of any confiscation or penalty under this Act by an officer of customs shall not prevent the infliction of any punishment to which the person affected thereby is liable under the provisions of Chapter XVI of this Act or under any other law.³⁷
(2)	Copyright Act, 1957 ³⁸	Chapter XII	Chapter XIII	Section 66 66. Disposal of infringing copies or plates for purpose of making infringing copies.— The Court trying any offence under this Act may, whether the alleged offender is convicted or not, order that all copies of the work or all plates in the possession of the alleged offender, which appear to it to be infringing copies, or plates for the purpose of making infringing copies, be delivered up to the owner of the copyright (or may make such order as it may deem fit regarding the disposal of such copies or plates).³⁹
3.	Trade Marks Act, 1999 ⁴⁰	Section 135	CHAPTER XII	111. Forfeiture of goods.— (1) Where a person is convicted of an offence under Section 103 or Section 104 or Section 105 or is acquitted of an offence under Section 103 or Section 104 on proof that he acted without intent to defraud, or under Section 104 on proof of the matters specified in clauses (a), (b) or clause (c) of that section, the court convicting or acquitting him may direct the forfeiture to Government of all goods and things by means of, or in relation to, which the offence has been committed, or but for such proof as aforesaid would have been committed. (2) When a forfeiture is directed on a conviction and an appeal lies against the conviction, an appeal shall lie against the forfeiture also. (3) When a forfeiture is directed on acquittal and the goods or things to which the direction relates are of value exceeding fifty rupees, an appeal against the forfeiture may be preferred, within thirty days from the date of the direction, to the court to which in appealable cases appeals lie from sentences of the court which directed the forfeiture. (4) When a forfeiture is directed on a conviction, the court, before whom the person is convicted, may order any forfeited articles to be destroyed or otherwise disposed of as the court thinks fit.⁴¹

The upshot of the above analysis is that the scheme of the MPID Act is to provide a dual remedy to the victims/investors before a single forum. The civil proceedings of attachment and sale of property and the criminal prosecution for punishing the perpetrators are independent proceedings under the same Act. The Act is unique and operates in a different field. The MPID Act must not be confused with the scheme of the Prevention of Money-Laundering Act, 2002 as there is a separate procedure laying down a direct correlation between the result of the trial to the fate of the attached property. There is no ambiguity with respect to the same and an interpretation by the Supreme Court on this subject is much awaited to clear the air.

*Advocate. Author can be reached at: bhomeshrbellam@gmail.com.

1. Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999.

2. Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, S. 3.

3. Prevention of Money-Laundering Act, 2002.

4. Narcotic Drugs and Psychotropic Substances Act, 1985.

5. Electricity Act, 2003.

6. Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, S. 13.

7. Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, S. 4.

8. Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, S. 7.

9. Civil Procedure Code, 1908, Or. 37.

10. Civil Procedure Code, 1908.

11. Criminal Procedure Code, 1973.