Supreme Court: In an appeal arising from the Bombay High Court’s judgment dated 14 August 2025, wherein the controversy revolved around the true nature of the monetary transaction as to whether private loan transactions can constitute “deposits” under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act) and whether the statutory mechanism under the MPID Act could be invoked despite earlier unsuccessful proceedings under the Penal Code, 1860 (IPC), the Division Bench of Manoj Misra and N.V. Anjaria*, JJ., set aside the impugned order, holding that the amount advanced by the appellants to Respondents 2 to 6 constituted “deposit” within the meaning of Section 2(c), MPID Act.
The Court held that a transaction involving receipt of money with an obligation to return the same along with promised returns or interest would constitute a “deposit” under Section 2(c), MPID Act irrespective of whether it is described as a “loan”. Further, the expression “financial establishment” under Section 2(d) has wide amplitude and includes any person accepting such deposits. It was also held that failure of criminal proceedings under the IPC does not bar independent recourse under the MPID Act because both operate in separate legal spheres.
The Court observed that,
“Merely because the offences under the IPC were not established before the criminal court, it would not imply that it becomes a kind of embargo against putting into motion the provisions of the MPID Act or that the invocation of provisions of the MPID Act is barred thereby.”
Also Read: MPID Act: Beyond Just a Criminal Statute
Factual Matrix
The appellants comprised of 5 members of a family along with 2 companies. According to the appellants, Respondent 2 approached them in the year 2016 and induced them to invest money for establishment of a resort at Tadoba, Maharashtra. It was represented that the investors would receive interest at the rate of 24 per cent per annum payable quarterly in advance. Acting upon such assurances, the appellants invested an aggregate amount of Rs 2.51 crore through cheques and bank transfers in favour of Respondents 2 to 6. The total amounts were allegedly repayable by 31 December 2019. However, neither interest nor principal amount was returned.
Thereafter, the appellants initiated several proceedings. A legal notice dated 8 May 2021 was issued demanding repayment of the principal amount together with unpaid interest. The appellants also lodged a complaint before the Commissioner of Police, Nagpur on 13 May 2021. In their reply dated 22 May 2021, Respondents 2 to 6 admitted receipt of the amounts but attributed non-payment to the financial crisis caused by COVID-19. They nevertheless denied any obligation to repay the money by a specified date or to pay interest.
The cheque issued by Respondent 4 in favour of the appellants was dishonoured with the endorsement “payment stopped by drawer”. Consequently, proceedings under Section 138, Negotiable Instruments Act, 1881 (NI Act) were initiated. Respondent 4 again admitted receipt of Rs 45,00,000 from Appellant 1 but denied liability to pay interest.
Apart from civil recovery suits, the appellants also sought registration of an FIR alleging offences under Sections 420, 409 and 405 read with Section 34 IPC. The Chief Judicial Magistrate directed registration of the offence, but the revisional court set aside that order holding that no cognizable offence was disclosed. The appellants’ challenge before the High Court also failed on the ground that the transaction was merely a “loan transaction” of civil nature carrying interest at 24 per cent per annum.
Subsequently, the appellants invoked the provisions of the MPID Act by filing a complaint before the District Collector, Nagpur and the Home Department of the State Government. However, the Economic Offence Wing also held that no cognizable offence was made out.
The appellants later moved an application under Section 156(3), Criminal Procedure Code, 1976 (CrPC) seeking registration of an FIR under Section 3, MPID Act. The said application was dismissed by the Sessions Court by order dated 22 November 2023. The High Court dismissed the revision application affirming that the transaction was merely a loan, holding that the respondents were not “financial establishments” under Section 2(d), and that the issue stood covered by the earlier criminal proceedings.
Issues for Determination
Whether private transactions described as “loan transactions” could nevertheless fall within the broad statutory ambit of “deposit” as defined under Section 2(c), MPID Act?
Can the appellants to invoke Section 3, MPID Act against the respondents for fraudulent default despite failure of earlier proceeding under IPC?
Analysis
1. Scheme and Object of the MPID Act
The Court referred to the Statement of Objects and Reasons of the MPID Act and observed that the legislation was enacted to curb the growing menace of financial establishments collecting deposits from the public by offering attractive returns and thereafter defaulting in repayment. The statute was enacted in public interest to protect investors, particularly middle-class and poor depositors.
The Court noted that the MPID Act is a self-contained code containing elaborate regulatory as well as penal provisions. It creates a complete machinery for attachment of properties, appointment of competent authorities, constitution of designated courts and prosecution of financial establishments which fraudulently default in repayment of deposits. Section 3 creates a distinct offence punishable with imprisonment up to 6 years and fine.
2. Interpretation of “Deposit” and “Financial Establishment”
The Court reproduced Section 2(c) defining “deposit” and Section 2(d) defining “financial establishment”. It emphasised that the definition of “deposit” is inclusive and expansive. The definition covers “any receipt of money” by a financial establishment to be returned after a specified period or otherwise, with or without benefit of interest, bonus or profit. The Court stressed that the legislature deliberately used broad expressions such as “any receipt of money”, “any valuable commodity”, “any financial establishment” and “in any other form”.
The Court relied on State of Maharashtra v. 63 Moons Technologies Ltd., (2022) 9 SCC 457, wherein it was observed that the expression “deposit” under the MPID Act possesses a conspicuously broad width and ambit and the definition has these ingredients:
(a) “Any receipt of money or the acceptance of a valuable commodity by a financial establishment,
(b) Such acceptance ought to be subject to the money or commodity being required to be returned after a specified period or otherwise, and
(c) The return of the money or commodity may be in cash, kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form.”
The Court in 63 Moons Technologies Ltd. stated that reiterated that the repeated use of the expression “any” reflects legislative intent to cast the regulatory net widely. It also observed that the definition of “financial establishment” under Section 2(d) includes “any person accepting deposit under any scheme or arrangement or in any other manner”.
Accordingly, the Court asserted that “the import of ‘deposit’ under Section 2(c), MPID Act is wide enough so as to include the acceptance of money in any manner, whatever may be the nomenclature. Similarly, the definition of ‘Financial Establishment’ in Section 2(d) uses the group of words ‘any person accepting deposit’ and ‘in any other manner’ to spread its net or coverage.” Thus, it was held that even private individuals accepting deposits could fall within the definition if the ingredients of the provision are satisfied.
3. Application on Present Case
Applying the statutory definitions to the facts of the case, the Court held that since the appellants had admittedly advanced Rs 2.51 crore to Respondents 2 to 6 with a promise of repayment along with quarterly interest and the receipt of money was undisputed, therefore, the transaction had satisfied all 3 essential ingredients of “deposit”, i.e. receipt of money, obligation to return the same after a period, and return with benefit of interest.
The Court rejected the respondents’ attempt to characterise the transaction merely as a “loan” and categorically held that nomenclature was irrelevant and that even if the transaction was termed as a loan, it would still remain a “deposit” under Section 2(c) so long as the statutory ingredients were fulfilled.
The Court further held that Respondents 2 to 6, having accepted the deposits, assumed the character of “financial establishments” under Section 2(d). The statutory expression “any person accepting deposit” was wide enough to include them.
4. Invocation of Section 3, MPID Act
Addressing the respondents’ objection based on earlier failed IPC proceedings, the Court held that proceedings under the IPC and remedies under the MPID Act operate in entirely different fields. Failure to establish offences under Sections 420, 409 or 405 IPC could not create an embargo against invoking Section 3, MPID Act. The Court observed that the MPID Act creates an independent statutory regime with separate ingredients and remedies.
The Court also discarded the argument that the dispute was merely civil in nature. Once the transaction fulfilled the ingredients of “deposit” and the recipients answered the description of “financial establishment”, the appellants were entitled to invoke the special mechanism under the MPID Act.
Decision
The Court held that the amounts advanced by the appellants to Respondents 2 to 6 were “deposits” within the meaning of Section 2(c), MPID Act and that Respondents 2 to 6 were “financial establishments” under Section 2(d). The Court further held that the appellants were entitled to invoke Section 3, MPID Act and avail remedies thereunder. The High Court had committed a serious error in holding otherwise.
Accordingly, the Court allowed the appeal and set aside High Court’s judgment dated 14 August 2025.
Also Read: Article 142 to the Rescue: SC allows Widow to Settle Loan & Secure Release of Mortgaged Property
[Alka Agrawal v. State of Maharashtra, 2026 SCC OnLine SC 866, decided on 15-5-2026]
*Judgment by Justice N.V. Anjaria
Advocates who appeared in this case:
Mr. Naveen Hegde, AOR and Ms. Bhargavi Bhardwaj, Adv., Counsel for the Appellants
Mr. Samrat Krishnarao Shinde, Adv., Mr. Siddharth Dharmadhikari, Adv., Mr. Shrirang B. Varma, Adv., Mr. Gagan Sanghi, Adv., Mr. Aaditya Aniruddha Pande, AOR and Mr. Rameshwar Prasad Goyal, AOR, Counsel for the Respondents
