LexThe KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 2004
Karnataka · state statute
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KARNATAKA ACT NO. 30 OF 2005
THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL
ESTABLISHMENTS ACT, 2004
STATEMENT OF OBJECTS AND REASONS
Arrangement Sections
Sections:
CHAPTER-1
1. Short title and commencement
2. Definitions
CHAPTER-II
3. Attachment of properties on default of return of deposits
4. Power to enter premises and inspect certain documents
5. Competent Authority
6. Duties and powers of Competent Authority
7. Assessment of assets and deposit liabilities
8. Report by the Competent Authority
CHAPTER-III
9. Fraudulent default by Financial Establishment
9A. Cognizance of offence and power to club cases
CHAPTER-IV
10. Special Court
11. Powers of the Special Court regarding realization of assets and payment to
depositors
12. Powers of Special Court regarding attachment
13. Attachment of property of malafide transferees
14. Security in lieu of attachment
15. Administration of property attached
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16. Appeal
17. Special Public Prosecutor
18. Procedure and powers of Special Court regarding offences
CHAPTER-V
19. Act to override other laws
20. Protection of action taken in good faith
21. Power to make rules
22. Power to remove difficulties
21A. Power to make scheme
STATEMENT OF OBJECTS AND REASONS
There has been a rapid growth of Financial establishments, not covered by the
Reserve Bank of India Act, 1934 (Central Act II of 1934) in the State. These financial
establishments are receiving deposits from the public, mostly middle class and poor
classes on the promise of high rates of interest and easy gains, Many of the financial
establishments have defaulted to return to the public, the deposits on maturity and thereby
cheating the depositors of their legitimative due. There have been representations f rom
Depositors Associations and public to have a legal mechanism to protect the interests of
depositors. The Reserve Bank of India has also suggested that the State Government
should enact a law in order to protect the interests of the depositors. Therefor e it was
considered necessary to bring a suitable legislation to regulate the activities of such
financial establishments, other than those covered by the Reserve Bank of India Act, 1934.
Accordingly, the Karnataka (Protection of Interest of Depositors in Financial
Establishments) Bill, 2000 (L. A. Bill No. 36 of 2000) was introduced in the State Legislature
and both the Houses approved the same. The Bill was then sent to the Government of
India to obtain assent of the President. However, the President of India withheld his assent
to the Bill on the ground that the amendments suggested by the Ministry of Finance
Company Affairs (Banking Division) could not be carried out as the Bill had already been
passed by the State Legislature.
The Bill among other things provides for the following:-
(i) Defining the term "Default" to include fraudulent failure to return the deposit
or pay interest, bonus, and profit or perform service promised.
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(ii) Attachment of property of financial establishment and that of the Promoter,
Director, Partner, Manager or Member of the Financial Establishment, in
case of default of return of deposit.
(iii) Attachment of property of malafide transferees where it is transferred by the
Financial Establishment otherwise than in good faith and for consideration.
(iv) Appointment of competent authority to exercise control over the said
property and the powers and duties of the competent authority
(v) Constitution of Special Court for dealing with all the cases
(vi) Institution of Criminal Proceedings against the Promoter, Partner, Director,
Manager or any other person responsible for management of the Financial
Establishment for contravention of the provisions of the law which is
punishable up to ten years of imprisonment and up to one lakh rupees of
fine.
Certain other consequential and incidental provisions are also made.
Hence the Bill.
[ L.A. BILL No. 2 OF 2004 ]
[Entry 64, 65 of list II and entry 2, 11A, 13 and 46 of list III of the Seventh Schedule
to the Constitution of India]
I
Act 06 of 2021.- It is considered necessary to amend the Karnataka Protection of
Depositors in Financial Establishments Act, 2004 (Karnataka Act 30 of 2005),-
(1) to authorise the Government or the District Magistrate or Police Authorities to
cause investigation of a complaint or fraudulent transaction and to empower
the Secretary to Government, Revenue Department or any authority
nominated by the Government to conduct investi gation or enquiry and also to
empower the Secretary to Government or Competent Authority with powers
of a Civil Court summon persons and documents as per Code of Civil
Procedure, 1908;
(2) to appoint one competent authority where cases pertaining to any one
financial establishment, which is spread over more than one district;
(3) to empower the secretary to Government Revenue Department, to extend the
time limit for making application to the special court for orders to attach
absolutely;
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(4) to empanel or adopt and notify the list of agencies for valuation of assets to
assist selling of assets to prospective buyers;
(5) to enhance the term of imprisonment and penalty for fraudulent default by the
Financial Establishments on par with the Banning of unregulated depo sits
schemes Act, 2019 (Central Act 21 of 2019);
(6) to transfer cases pending in different courts pertaining to any one financial
establishments spread over different districts to one special court;
(7) to utilize the services of the e-auction plat form, empanelled agencies, official
liquidators and the valuers approved by any Nationalised Bank for valuation of
assets;
(8) to empower the special courts to assess the value of attached assets and for
facilitating their sale expeditiously;
(9) to ensure more transparency and fair assessment of the value of property to
be released; and
(10) Certain consequential amendments are also proposed.
Hence the Bill
[L.A. Bill No. 01 of 2021, File No. Samvyashae 84 Shasana 2020]
[Entry 01 and 30 of List II and Entry 08 of List III of the Seventh Schedule to the
Constitution of India.]
[Published in Karnataka Gazette Extra-ordinary No.196 in part-IVA dated: 19.02.2021]
II
Amending Act 24 of 2022 .- It is considered necessary to amend the Karnataka
Protection of Interest of Depositors in Financial Establishments Act, 2004 (Karnataka Act
30 of 2005) to,-
(1) treat offence under this Act as cognizable and non – bailable;
(2) provide for clubbing of all First Information Reports and a single case to be filed
against the same accused or the same financial establishment, as discussed in
the SLCC Meeting in the RBI; and
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(3) empower the special courts to try an offence, other than offence under this Act,
with which the accused may under the Code of Criminal Procedure, 1973 be
charged at the same trial.
As the matter was urgent and both Houses of the State Legislature were no t in a
session, the Karnataka Protection of Interest of Depositors in Financial Establishments
(Amendment) Ordinance, 2022 (Karnataka Ordinance 01 of 2022) was promulgated to
achieve the above object.
This Bill seeks to replace the said Ordinance.
Hence, the Bill.
[L.A. Bill No. 14 of 2022, File No. SAMVYASHAE 12 SHASANA 2022]
[Entry 1 and 30 of List II and entry 8 of List III of the Seventh Schedule to the Constitution
of India..]
[Published in Karnataka Gazette Extra-ordinary No. 490 in part-IVA dated: 28.09.2022]
III
Amendment Act 09 of 2025: - As discussed in the meeting of the State Level Co -
ordination Committee (SLCC), for Karnataka held at Reserve Bank of India, it is considered
necessary further to amend the Karnataka Protection of Interest of Depositors in Financial
Establishment Act, 2004 (Karnataka Act 30 of 2005) to,-
(1) re-define the words “Depositor” and “Market Intelligence”, in view of the current trends
by inducing the depositor for investing; and
(2) empower the Government or the nodal officer notified by the Government or the District
Magistrate, to investigate a complaint or fraudulent transaction by suo -moto or based on
Market Intelligence Report or Police Authority; and
(3) empower the Government or any Authority notified by th e Government, to direct any
news paper or publication agency to desist from issuing advertisement in favour of any
scheme of any financial establishment which is under investigation or enquiry; and
(4) make provisions for proclamation for person absconding; and
(5) empower any special court or any competent authority to issue summons to produce
document or things in who‟s procession or power such documents or thing is believe to be,
requiring him to attend and produce such document; and
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(6) give explainati on for the words “certain documents”, “document or thing”, “effective
media publication”, “proper proof to established claim”, “unfunded exposures” and
“Relevant period”; and
(7) establish the liability of any Director, Promoter, Office Bearer, Accountant , Agent or
Partner of the establishment or former Directors, Partners, Promoters who have resign from
establishment; and
(8) Empower the Government to make schemes.
Hence, the Bill.
[L.A. Bill No.51 of 2024, File No. SAMVYASHAE 64 SHASANA 2024]
[Entries 1 and 30 of List II and 8 of List III of the Seventh Schedule to the Constitution of
India.]
[Published in Karnataka Gazette Extra-ordinary No.21 in part-IVA dated:10.01.2025]
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KARNATAKA ACT NO. 30 OF 2005
(First Published in the Karnataka Gazette Extra-ordinary on the Twenty Second Day of
December, 2005)
THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL
ESTABLISHMENTS ACT, 2004
(Received the assent of the President of India on the Fourteenth Day of December, 2005)
(Amended by Acts 06 of 2021, 24 of 2022 and 09 of 2025)
An Act to provide for protection of Interest of depositors in Financial Establishments
and matters relating thereto:
Whereas it is expedient to provide for protection of interest of the depositors in
Financial Establishments and the matters relating thereto and for the purposes hereinafter
appearing;
Be it enacted by the Karnataka State Legislature in the fifty fourth year of the
Republic of India, as follows:-
CHAPTER-1
1. Short title and commencement. - (1) This Act may be called the Karnataka
Protection of Interest of Depositors in Financial Establishments Act, 2004.
(2) It shall come into force on such date as the Government may, by notification,
appoint and different dates may be appointed for different provisions of the Act.
This Act has came into force w.e.f. 17th day may 2006. by Notification No.FD 44 TAR 2006 Dated:17.05.2006.
(See the text of the notification at the end of the Act)
2. Definitions.- In this Act unless the context otherwise requires,-
(1) “Competent Authority” means the authority appointed under Section 5;
(2) “Deposit” includes and shall be deemed always to have included any receipt of
money or acceptance of any valuable commodity by any Financial Establishment to be
returned after a speci fied period or otherwise, either in cash or in 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, but does not include,-
(i) amount raised by way of share capital or by way of debenture, bond or any other
instrument covered under the guidelines given and regulations made, by the
Security Board of India, established under the Securities and Exchange Board
of India Act, 1992;
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(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 the Banking Regulation
Act, 1949 (Central Act 15 of 1992) ;
(iv) any amount received from,-
(a) the Industrial Development Bank of India,
(b) a State Financial Corporation,
(c) any financial institution specified in or under section 4A of the Companies
Act, 1956(Central Act 1 of 1956) or
(d) any other institution that may be specified by the Government in this behalf;
(v) amounts received in the ordinary course of business by way of,-
(a) security deposit,
(b) dealership deposit,
(c) earnest money,
(d) advanced against order for goods or services;
(vi) any amount received from an individual or a firm or an association of
individuals, registered under any enactment relating to money lending which is
for the time being in force in the State: and
(vii) any amount received by way of subscriptions in respect of a Chit.
Explanation I.- “Chit” has the meaning as assigned to it in clause (b) of section 2 of
the Chit Funds Act, 1982 (Central Act 40 of 1982);
Explanation II. - Any credit given by a seller to a buyer on the sale of any
property (whether movable or immo vable) shall not be deemed to be deposit for the
purposes of this clause;
1[(3) "Depositor" means a person who has made deposits with Financial
Establishment hereinafter defined but excludes any former or present promoter, owner,
partner in any form, Director, manager, member, administrator, accountant or
collaborator, employee or any other person with the said establishment or its subsidiaries,
whose complicity in the fraudulent activity is proved.]1
1. Substituted by Act 09 of 2025 w.e.f. 10.01.2025.
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(4) “Financial Establishment” means any person or a group of individuals
accepting deposit under any scheme or arrangement or in any other manner but does not
include a corporation or a co -operative society owned or controlled by any State
Government or the Central Government or a banking company as defined under clause
(c) of section 5 of the Banking Regulation Act, 1949 (Central Act X of 1949);
1[2[(4-a) "Market intelligence" means and includes the process of gathering
actionable information from all available sources, but not restricted to resources on the
internet, regulatory departments, media publications, advertisements whether in print or
electronic media or inducing another person to invest in, or become a member or
participant of any scheme, social media, surveys and polls, complaints and grievances
submitted online manually or orally, or representations from advocates or associations
authorized by depositors, about a financial establishment regarding its qualitative and
Performance Indicators, financial position and market quantitative Key trends, current and
former owners, directors, promoters, partners, agents etc, schemes, regulatory
compliances, promotional activities and analysis using suitable tools for the purpose of
accurate and confident decision making in determining and regulating fraudulent activities,
if any with an objective of protecting the interest of depositors under this Act.]2]1
1. Inserted by Act 06 of 2021 w.e.f. 19.02.2021
2. Substituted by Act 09 of 2025 w.e.f. 10.01.2025
(5)“Government “ means the State Government;
(6)„Special Court‟ means court established under section 10.
CHAPTER-II
3. Attachment of properties on default of return of deposits. - 1[2[(1) The
Government or the nodal officer notified by the Government or the District Magistrates in
their respective jurisdiction, suo moto or based on the market intelligence reports or Police
Authority on receipt of any complaint, may investigate or cause investigation of a complaint
or fraudulent transaction through its functionaries, collect the information regarding the
properties and money believed to have been acquired by any financial establishm ent, from
public or organizations or other institutions as deemed appropriate. The district magistrate
shall forward his report together with the complaints and market intelligence reports, if any,
received by him along with the investigation or inquiry re port from the Authorized Authority
under section 4 including Police Authorities or Investigation Agencies at District level or
State level, to the Government (Revenue Department) or the nodal officer notified by the
Government.]2
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(1a) The Secretary to Government, Revenue Department, the competent Authority
or any authority nominated by the Government shall, for the purposes of this section, also
have the same powers as vested in a civil court under the Code of Civil Procedure, 190 8
while conducting investigation or inquiry in respect of the following matters, namely:-
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a
reporting entity and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents;
and
(f) any other matter which as may be prescribed.
(1b) All the persons so summoned shall be bound to attend in person or through
authorised agents, as such officer may direct, and shall be bound to state the truth upon
any subject respecting which they are examined or make statements, and produce such
documents as may be required.
(1c) Every proceeding under this section shall be deemed to be a judicial
proceeding within the meaning of 2[section 229 and section 267 of the Bharatiya Nyaya
Sanhita, 2023 (Central Act 45 of 2023)]2]1
(2) Not withstanding anything contained in any other law for the time being in
force,-
1[(i) where, suo moto or based on the market intelligence reports or upon
complaint received from any depositors or otherwise, the Secretary to
Government, Revenue Department is satisfied that any financial establishment
has failed,-
(a) to return the deposit after maturity or on demand by depositor; or
(b) to pay interest or other assured benefit; or
(c) to provide the service against such deposit; or;]1
(ii) Where the Government has reason to believe that any Financial Establishmen t
is acting in and detrimental to the interest of the depositors with an intention to
defraud them; or
2[(iii) The Government or any authority notified by the Government, in order to
protect the interests of the depositors of such Financial Establishment, after
recording reasons in writing, issue an order directing any newspaper or publication
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agency to desist from issuing advertisement promoting, soliciting deposits for, or
inducing any person to become a member of any scheme of any Financial
Establishment under investigation or enquiry and also issue directing or barring the
Financial Establishment from issuance of any further advertisement or publication or
operation of any scheme of such nature and in case of any violation of such
notification, direct the concerned Police Authorities to proceed against such person
or agency as per concerned law.
Explanation.- for the purpose of this section,-
(i) "Financial Establishment" includes the directors, partners, promoters, managers
or members and former directors, partners, promoters who have demitted or
resigned from establishment provided their liability is limited to the period of
office of said establishment or any other person whose property or assets have
been attached under this section.
(ii) “Publication agency” shall include newspapers, periodicals, pamphlets, posters,
hoardings, visual media, social media, radio and podcast.]2
the Government ma y, in order to protect the interests of the depositors of such
Financial Establishments, after recording reasons in writing, issue an order by publishing it
in the official gazette, attaching the money or property believed to have been acquired by
such financial establishment either in its own name or in the name of any other person from
and out of the deposits collected by the financial establishments, and where it transpires
that such money or other property is not available for attachment or not sufficie nt for the
repayment of the deposits, such other property of the said financial establishments, or the
personal assets of the promoters, partners, directors, managers or members or any other
person of the said Financial Establishments.
(3) The Government shall also notify the ad -interim order made under sub -section
(2) in the Official Gazette and two newspapers having wide circulation and shall also cause
to be affixed a copy of such order on some conspicuous place of the property so attached.
(4) On the p ublication of the order made under sub -section (2), all the properties
and assets of the Financial Establishment and the persons mentioned therein shall
forthwith vest in the Competent Authority appointed by the Government, pending further
order from the Special Court.
1. Substituted by Act 06 of 2021 w.e.f. 19.02.2021
2. Substituted by Act 09 of 2025 w.e.f. 10.01.2025
4. Power to enter premises and inspect certain documents. -1[(1) The
Competent Authority or Police Authority or any other authority authorised by the
Government or the District Magistrate or the Competent Authority in order to carry out the
purposes of this Act shall have power to enter and search any premises, seize moveable
properties and freeze bank accounts and attach the money or property believed to have
been acquired by such financial establishment either in its own name or in the name of any
other person from and out of the deposits collected by the financial establishment where it
has reason to believe that any register, book, record, paper, application, information in
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electronic storage and retrieval device or medium, instrument or proceedings are kept and
to inspect them and to take such notes and extracts as it may deem necessary.]1
(2) Every person having in his custody or maintaining such register, book, record,
paper, application, instrument or proceedings shall at all reasonable times produce or
permit the 1[Competent Authority or Police Authority or any other authority authoris ed by
the Government or the District Magistrate or the Competent Authority ]1 to inspect them and
to take notes and extracts as it may deem necessary and if necessary seize and impound
them:
Provided that no residential accommodation (not being a place of business cum
residence) shall be so entered into and searched except on the authority of a search
warrant issued by a Magistrate having jurisdiction over the area, and all searches under
this section shall, so far as may be made in accordance with the prov isions of 2[the
Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023)]2.
3[Explanation- For the purpose of this section “Certain Documents” shall include
electronic form or records within the meaning of sub -clause (r) of clause (1) of sections 2
and 4 of the information Technology Act, 2000 (central Act, 21 of 2000).]3
1. Substituted by Act 06 of 2021 w.e.f. 19.02.2021
2. Substituted by Act 09 of 2025 w.e.f. 10.01.2025
3. Inserted by Act 09 of 2025 w.e.f. 10.01.2025
1[(3) Proclamation for person absconding,-
(i) If the Special Court has reason to believe (whether after taking evidence or not)
that any person against whom a notice or summons or warrant has been issued who has
absconded or is concealing himself so that such notice or summons or warrant shall not be
executed, such Special Court may publish a written proclamation requiring him to appear at
a specified place and at a specified time not less than thirty days from the date of
publishing such proclamation.
(ii) The proclamation shall be published in the following manner, namely:-
(a) it shall be publicly read in some conspicuous place of the town or village in
which such person ordinarily resides;
(b) it shall be affixed to some conspicuous part of the house or homestead in
which such person ordinarily resides or to some conspicuous place of such
town or village;
(c) a copy of the proclamation sha ll be affixed to some conspicuous part of the
Special Court-house;
(d) the Special Court may also, if it thinks fit, direct a copy of the proclamation to
be published in two daily newspaper (at least one kannada news paper)
circulating in the place in which such person ordinarily resides.
(e) A statement in writing by the Special Court issuing the proclamation to the
effect that the proclamation was duly published on a specified day, in the
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manner specified in clause (i) shall be conclusive evidence that the
requirements of this section have been complied with, and that the
proclamation was published on such day. If such person fails to appear at the
specified place and time required by the proclamation, the Special Court may,
after making such inquiry as it t hinks fit, pronounce him a proclaimed offender
and make a declaration to that effect.]1
1. Inserted by Act 09 of 2025 w.e.f. 10.01.2025
5. Competent Authority. - (1) The Government shall, by notification, appoint an
officer not below the rank of an Assistant Commissioner to be the Competent Authority for
the purpose of this Act.
1[Provided that, where cases pertaining to any one financial establishment is spread
over more than one district, the State Government may appoint one Competent Authority to
handle all such cases.]1
1[(1A) The Government may by notification appoint any officer not below the rank of
Assistant Commissioner to assist the Competent Authority, if he is of and above the rank of
Deputy Commissioner in discharging his function under this Act and also to file affidavit on
his behalf in the designated court.]1
(2) The Competent Authority shall within thirty days from the date of receipt of the
order made under section 3, apply to the special Court for further order of attachment
absolute.
1[Provided that, the Secretary to Government, Revenue Department, may on the
request of the Competent Authority, extend this period by another 2[thirty days]2 in cases
having valid reasons and based on the merits of the case.]1
1. Inserted by Act 06 of 2021 w.e.f. 19.02.2021
2. Substituted by Act 09 of 2025 w.e.f. 10.01.2025
(3) An application made under sub -section (2) shall be accompanied by one or
more affidavits, stating the grounds on which the order is made under section 3 and the
amount of money or other property believed to have been acquired from out of the deposits
and the details, if any, of persons in whose name such property is believed to have been
invested or acquired or any property attached under Section 3.
(4) The competent authority may also make an application to any Special Court or
Designated Court or an y other judicial forum established or constituted or entrusted with
the powers by any other State Government under any similar enactment for adjudicating
any issue or subject matter pertaining to money or property or assets belonging to or
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ostensibly belon ging to a Financial Establishment or any person notified under this Act
situated within the territorial jurisdiction of that Special Court or Designated Court or any
judicial forum, as the case may be, for passing appropriate orders to give effect to the
provisions of this Act.
6. Duties and powers of Competent Authority. - (1) On receipt of order of
appointment, the Competent Authority shall take such necessary actions as it is necessary
or expedient for taking physical possession of all the monies and ass ets of the concerned
financial establishment expeditiously and the Competent Authority shall have all the powers
which are necessary for the aforesaid purpose.
(2) Without prejudice to the generality of the powers vested under sub -section (1),
the Competent Authority may carry out the purposes of this Act and shall be entitled to,-
(a) require assistance of any police authority or any other authority or person and
on such requisition it shall be the duty of the police authority or such other
authority or person to extend necessary assistance;
(b) open bank accounts in any scheduled commercial bank and credit all monies
realized and operate the bank accounts while dealing with the money received
in his capacity as Competent Authority;
(c) require any person believed t o be in possession of control over any money or
assets of the financial establishment, to furnish necessary information, and to
hand over possession of such assets to the Competent Authority and such
person shall comply with the requisition without any loss of time;
(d) appoint legal practitioner or chartered accountant or any other person whose
services are necessary for taking possession of assets and realization of the
assets of the Financial Establishment;
(e) sell, receive, transfer, endorse, negotiate, or otherwise deal with any marketable
security or negotiable instrument belonging to or in the control of the Financial
Establishment and give proper discharge for the same;
(f) sell, transfer or otherwise realise any movable or immovable property belonging
to or in the control of the Financial Establishment or sell the property belonging
to or in the control of the Financial Establishment, by public auction or with the
prior approval of the Special Court by private arrangements;
Provided that the perishable items o f assets shall be sold by public auction as
soon as the Competent Authority deems fit.
(g) make payment as per the orders passed by the Special Court from out of the
bank accounts, and
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(h) do all and every acts which would be necessary for the speedy realization of
the assets of the Financial Establishment.
2[(i) summon to produce document or other thing. Whenever any Special Court or
any Competent Authority considers that the production of any document or other thing is
necessary or desirable for the purposes of any investigation, inquiry, trial or other
proceeding under this Act by or before such Special Court or Authority, such Special
Court or Authority may issue a summons, to the person in whose possession or power
such document or thing is believed to be, requiring him to attend and produce it, or to
produce it, at the time and place specified in the summons or order:
Provided that, the order of Special Court or Competent Authority as the case may be
to be construed, to be order made by a Court or a Judg e for a special cause in the
application of sections 5, 6 and 7 of the Bankers' Books Evidence Act, 1891 (Central Act
13 of 1891), to any investigation or inquiry.
Explanation 1 : for the purpose of this section, “document or thing” shall include
electronic record within the meaning of sub clause (r) of the clause (1) of section 2 and
section 4 of the Information Technology Act, 2000 (Central Act 21 of 2000).
(j) Nothing in this section shall be deemed,-
(a) to affect sections 129 and 130 of the Bharathiya Sakshya Adhiniyam, 2023
(Central Act 47 of 2023); or
(b) to apply to a letter, postcard, telegram or other document or any parcel or
thing in the custody of the postal or telegraph authority:]2
3[Explanation 2: For the purpose of this section "Fina ncial Establishment"
includes the Directors, Partners, Promoters, Managers or Members and Former
Directors, Partners, Promoters who have demitted or resigned from establishment
provided their liability is limited to t he period of office of said establishment or any
other person whose property or assets have been attached under section 3.]3
1[(3) The Government shall empanel or adopt and notify the list of,-
(a) agencies for valuation of assets and to assist selling of ass ets to
prospective buyers; and
(b) forensic auditors and digital auditor for forensic audit of money trail.
The competent Authority shall utilise the services of such agencies for valuation of
assets for selling of assets and for forensic and digital audit of money trail:
Provided that, the Competent Authority may also utilize the services of agencies
empanelled by the Securities Exchange Board of India to assist the Court for assessing the
value of assets and selling the assets to the prospective buyers in accordance with law, till
the Government empanels such agencies:
Provided further that, the Competent Authority may also utilise the services of the
Valuers approved by the Nationalised Bank for valuation of assets under the Securitisation
and Reconstruc tion of Financial Assets and Enforcement of Security Interests Act, 2002
(Central Act 54 of 2002) for Valuation of the assets, till the State empanels such agencies:
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Provided also that, the Competent Authority may also utilize the services of
Forensic Auditor or Digital Auditor empanelled by Indian Bankers' Association for Forensic
Audit of Money trail till the State empanels such agencies, wherever felt required.]1
1. Inserted by Act 06 of 2021 w.e.f. 19.02.2021.
2. Inserted by Act 09 of 2025 w.e.f. 10.01.2025
3. Substituted by Act 09 of 2025 w.e.f. 10.01.2025.
7. Assessment of assets and deposit liabilities: - (1) Within 1[sixty days from the
date of appointment or within sixty days from the date of permission received from the
Government under section 3 whichever is later] 1 the Competent Authority shall assess the
deposit liabilities and the assets of the Financial Establishment and submit a report thereof
to the Special Court.
(2) The Competent Authority thereafter shall issue notice either indiv idually or by
means of effective media publication, inviting the claims by secured creditors, if any, and
also the depositors of the Financial Establishments to submit their claims with proper proof
to establish the same
2[Explanation- for the purpose of this section,-
(i) “Effective media publication” shall mean Publication in the public media, with
State wide or multi State wide circulation as the case may be, including social media, and
providing option of both online and offline submission of claims.
(ii) for the purpose of this sections “Proper proof to establish claim” shall include,-
(a) suitable proof of identity and right to payment;
(b) suitable proof of security, deposit contract, bond or agreement and financi al
transactions if any; and
(c) Judicial decree.]2
(3) Every notice under sub section (2) sent to or deemed to have been effected to
claimants shall state that if the statement or claim is not sent to the Competent Authority
before the expiry of the period of one month from the date of notice, the claims shall not be
treated as claim entitled to be paid under the provision of this Act.
(4) Every notice sent to a secured creditor shall require him to value the security
before the expiry of the period of one month from the date of the notice and such notice
shall also state that if the statement of the claim together with the valuation of the security
is not sent to the Competent Authority, the Competent Authority itself shall value the
security and its valuation shall be binding on such secured creditors.
2[Provided that, in respect of claims filed by secured creditors with respect to
Unfunded Exposures, the valuation thereof after due assessment shall be admitted as
contingent claims as and when, the Unfunded Exposures expire or no longer payable by
17
the financial establishments, the amount thereof shall be reduced from such Unfunded
Exposures
Explanation- For the purpose of this sub -section “Unfunded Exposures” shall mean
bank guarantees, letter of credit or other financial commitments made through a registered
document where exposures do not involve any current outlay of funds and there is no
immediate but only contingent obligation to disburse.]2
(5) If the claimant fails to comply with the notice as per sub section (4), such
security shall be valued by the Competent Authority to the best of its judgment.
2[(6) In case of periodical payments like Rent, Lease Charges and other payments,
a claimant may claim only for any amount due and unpaid up to a period of one month from
the date of provisional attachment.]2
1. Substituted by Act 06 of 2021 w.e.f. 19.02.2021.
2. Inserted by Act 09 of 2025 w.e.f. 10.01.2025
8. Report by the Competent Authority.- After making a report under section 7, the
Competent Authority shall make an application to the Special Court seeking permission to
make payment to the depositors from out of the money realized. While making such
application, the Competent Authority shal l assess the liability to the depositors and other
liabilities and in case the money realized or realizable is not sufficient to meet the entire
liability, seek permission of the Special Court for making payment to the depositors and
disburse the money as per the orders of the Special Court.
CHAPTER-III
1[9. Fraudulent default by Financial Establishment. - (1) Any Financial
Establishment, which fraudulently defaults any repayment of deposit on maturity 2[or on
demand or otherwise by the depositor or his su ccessor along with or without
benefit]2 in the form of interest, bonus, profit or in any other form as promised or
fraudulently fails to render service as assured against the deposit, every person including
the promoter, director, partner, manager , 3[former directors, partners, promoters who
have demitted or resigned from establishment provided their liability is limited to the
period of office] 3 or any other person or an employee responsible for the management or
conducting of the business or affairs of such Financial Establishment, shall on conviction,
be punished with imprisonment for a term not less than three years and which may extend
to seven years and with fine which may extend to ten lakh rupees and such Financial
Establishment also shall be liable for a fine which may extend to an amount equivalent to
five lakh rupees or where such deposits is quantifiable in terms of money twice the amount
of aggregate funds collected from subscriber or member whichever is more.
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Explanation.- For the purpo se of this section a Financial Establishment, which
commits default in repayment of such deposit with such benefits in form of interest, bonus,
profit or in any other form as promised or fails to render any specific service promised
against such deposit, or fails to render any specific service agreed against the deposit with
an intention of causing wrongful gain to one person or wrongful loss to another person or
commits such defaults due to its inability arising out of impracticable or commercially not
viable promises made while accepting such deposit or arising out of deployment of money
or assets acquired out of the deposits in such manner as it involves inherent risk in
recovering the same when needed shall, be deemed to have committed a default or faile d
to render the specific service, fraudulently.
(2) Whoever having been previously convicted of an offence punishable under
this Act, is subsequently convicted of an offence punishable under this Act, shall be
punished with imprisonment for a term of not less than five years which may extend to
seven years and a fine which shall not be less than ten lakh rupees and which may extend
to fifty crore rupees.
(3) (i) Where an offence under this Act has been committed by a financial
establishment other than an individual, every person who, at the time the offence was
committed, was in conduct of its business, as well as the financial establishment, shall be
deemed to be guilty of the offence and shall be liable to be proceeded against and
punished accordingly.
(ii) Nothing contained in clause (i) above, shall render any such person liable to any
punishment provided in this Act, if he proves that the offence was committed without his
knowledge or that he exercised all due diligence to prevent the commission of such offence.
(iii) Notwithstanding anything contained in clause (i) above, where an offence under
this Act has been committed by a financial establishment other than an individual, and it is
proved that the offence,-
(a) has been committed with the consent or connivance: or
(b) is attributable to any negligence on the part of any 3[such current or former]3
Director, Manager, Secretary, Promoter, Partner, Employee or other Officer of
the financial establishment;
such persons shall also be deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.]1
1. Substituted by Act 06 of 2021 w.e.f. 19.02.2021.
2. Substituted by Act 09 of 2025 w.e.f 10.01.2025.
3. Inserted by Act 09 of 2025 w.e.f 10.01.2025
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1[9A Cognizance of offence and power to club cases.- (1) Offence under this Act
are cognizable and Non bailable.
(2) Notwithstanding anything contained in any other law for time being in force, if
multiple First Information Reports are registered either in one Police station or in various
police stations of the District or Commissionerate or in various police station s of the State
against the same accused person or Financial Establishment relating to fraudulent default,
then such an officer as may be prescribed may order for clubbing of subsequent registered
First Information Reports into the earliest case and order to carry on common investigation.
Further the common Final Report be filed under 2[section 193 of the Bharatiya Nagarika
Suraksha Sanhita, 2023 (Central Act 46 of 2023)] 2 before the Special Court, within which
jurisdiction the earliest First Information report was registered and that Special Court or any
other Special Court designated for trial of such offence shall try the same.]1
1. Inserted by Act 24 of 2022 w.e.f. 04.05.2022.
2. Substituted by Act 09 of 2025 w.e.f. 10.01.2025.
CHAPTER-IV
10. Special Court.- (1) For the purposes of this Act, the Government may, with the
concurrence of the Chief Justice of the High Court of Karnataka, by notification, constitute
one or more Special Court consisting of a single judge not below the rank of a District and
Sessions Judge for such area or areas or for such class or classes of cases.
1[Provided that, if the Government is of the opinion that where cases pertaining to
any financial establishment are spread over more than one District, the Government may,
with concurr ence of the Chief Justice of the High Court of Karnataka, by notification
designate one Court of District or Sessions Judge as special Court to deal with all such
cases pertaining to such financial establishment.]1
(2) No Court including the Court constituted under the Presidency Towns Insolvency
Act, 1909 [Act 3 of 1909] and the Provincial Insolvency Act, 1920, [Act 5 of 1920] other than
the Special Court shall have jurisdiction in respect of any matter to which the provisions of
this Act is invoked.
(3) Any pending case in any other court in respect of which the provisions of this
Act is invoked, shall stand transferred to the Designated Courts from the date of notification
issued under sub-section (1).
2[(4) When trying an offence under this Act, the Special Court may also try an
offence, other than an offence under this Act, with which the accused may, under 3[the
20
Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023)] 3, be charged at the
same trial.]2
1. Inserted by Act 06 of 2021 w.e.f. 19.02.2021.
2. Inserted by Act 24 of 2022 w.e.f. 04.05.2022.
3. Substituted by Act 09 of 2025 w.e.f. 10.01.2025.
11. Powers of the Special Court regarding realization of assets and payment
to depositors.- (1) The Special Court shall have all the powers for giving effect to the
provisions of this Act.
(2) Without prejudice to the generality of sub section (1), the Special Court may
(a) give any direction to the Competent Authority as it deems fit, for effectiv e
implementation of the provisions of this Act.
(b) approve the statement of dues of the Financial Establishment due from various
debtors, assessment of the value of the assets of the Financial Establishment,
finalise the list of the depositors and their respective dues;
(c) direct the Competent Authority to take possession of any assets belonging to
or in the control of the Financial Establishment and transfer or realize the
attached assets or sell the attached assets by public auction or by private sale
as it de ems fit or depending upon the nature of assets and credit the sale
proceeds thereof to the bank accounts;
(d) approve the necessary expenditure to be incurred by the Competent Authority
for taking possession and realization of the assets of the financial
establishment;
(e) on receExcerpt shown. Open the full act in Lexace.