The UTTAR PRADESH PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 2016

   
 
 THE UTTAR PRADESH PROTECTION OF INTEREST OF 
DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 20161 
[ U. P. ACT No. 16 of 2016 ] 
 [As passed by the Uttar Pradesh  Legislature and assented to 
by the President on May 21, 2016  and published in the U.P. 
Gazette Extraordinary on June 8, 2016] 
 AN 
ACT 
to provide for protecting the interest of depositors in 
Financial Establishments and for matters connected therewith or 
incidental thereto. 
IT IS HEREBY  enacted in the Sixty -seventh Year of the 
Republic of India as follows :–   
Short title, 
extent and 
commencement  
1. (1) This Act may be called the Uttar Pradesh Protection of 
Interest of Depositors in Financial Establishment Act, 2016. 
 (2) It extends  to the whole of Uttar Pradesh. 
 (3)  It shall come into force on such date as  the State 
Government may, by notification in the Gazette, appoint. 
Definitions 2. In this Act, unless the context otherwise requires,— 
 (a) “Competent Authority” means the Competent Authority 
appointed under section 5;  
 (b) “Designated Court” means a Designated Court 
constituted under section 7; 
 (c) “Deposit” includes any receipt of money or acceptance of 
any valuable commodity whether before, on or after the 
commencement of this Act, by any Financial Establishment 
returnable after a specified 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 instruments covered  under 
the guidelines given and regulations made by the Securities 
and Exchange Board of India, established under the 
Securities and Exchange Board of India Act, 1992; 
 (ii) any amount contributed as capital by pa rtners of a 
firm; 
 (iii) any amount 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; 
1. For SOR see at the end of this Act. 
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]   
 (iv) any amount received from,– 
 (1) a State Financial Corporation ; 
 (2) any other institution that may be specified by 
notification issued by the State Government in this 
behalf;  
 (v) any amount received in the  ordinary course of 
business by way of security deposit, dealership deposit, 
earnest money or advance against order for goods or 
services;  
 (vi) any amount received from an individual  or a firm 
or an association of individuals not being a body corporate, 
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 (Act no. 40 of 
1982). 
 Explanation II–Any credit given by a seller to a buyer on 
the sale of any property (whether movable or immovable) sha ll not 
be deemed to be a deposit for the purposes of this clause. 
 Explanation III-Any amount collected by builders/real 
estate companies or any person for sale of plot or flat or house or 
any such arrangement within the State of Uttar Pradesh shall be 
deemed to be a deposit for the purposes of this clause.  
 (viii) Amount raised by unlisted companies by way of 
share capital or debenture/bonds in compliance with 
provisions of Chapters III and IV of the Companies Act, 
2013; 
 (ix) Deposits raised by compan ies in  compliance  with  
provisions of sections 73,74,75 & 76 of the Companies Act, 
2013.  
 (d) “Financial Establishment” means any person accepting 
deposit under any scheme or arrangement or in any other 
manner and shall include a company or association  or body of 
individuals, whether incorporated or not but does not include a 
corporation or a co-operative society owned or controlled by any 
State Government or the Central Government  or banking 
company as defined under clause (c) or section 5 of the Bank ing 
Regulation Act, 1949. 
Fraudulent 
default by 
Financial 
Establishment 
3.  Any Financial Establishment, which defaults any repayment 
of deposit on maturity along with any benefit in the form of interest, 
bonus, profit or in any other form as promised or fails to render service 
as assured against the deposit, every person including the promoter, 
partner,   director,   manager   or   any   other   person  or  an  employee  
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]  
 responsible for the management of or conducting of the business or 
affairs of such Financial Establishment shall, on conviction be 
punished with imprisonment for a term which may extend to ten years 
or with fine which may extend to ten lakh rupees or with both. 
 Explanation:– for the purposes of this section, a Financial 
Establishment, which commits default in repayment of such deposit 
with such benefits in the form of interest, bonus, profit or in any other 
form as promised or fails  to render any specified 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 i ts inability arising out of impracticable or commercially not viable 
promises made while accepting such deposits or arising out of 
deployment of money or assets acquired out of the deposits in such a 
manner as it involves inherent risk in recovering the sa me when 
needed, shall be deemed to have committed a defaults or failed to 
render the specific service, fraudulently.  
Attachment of 
properties on 
default of 
return of 
deposits 
4. (1) Notwithstanding anything contained in any other law for 
the time being in force ,– 
(a) Where upon complaints received from the depositors or 
otherwise the State Government is satisfied that any Financial 
Establishment has failed,– 
 (i) to return the deposit after maturity or on demand 
by the depositors; or 
 (ii) to pay interest or other assured  benefit; or 
 (iii) to provide the service promised against such 
deposit; or 
 (b) Where the State Government has reason to believe that 
any Financial Establishment is acting in a calculated manner 
detrimental to the interest of the d epositors with an intention to 
defraud them and if the State Government is satisfied that such 
Financial Establishment is not likely to return the deposits or 
make payment of interest or other benefits  assured or to 
provide the services against which the deposit is received. The  
State  Government may, after recording reasons in writing, 
issued an order by publishing it in the Gazette attaching the 
money or other property believed to have been acquired by such, 
Financial Establishment either in its own nam
e of any other 
person from and out of the deposits collected by Financial 
Establishment.   
 (2) On the publication of the Order under clause (b) of sub -
section (1), all the properties and assets of the Financial Establishment 
shall forthwith vest in the C ompetent Authority appointed by the State 
Government, such vesting shall remain vested as such unless the 
Designated Court orders otherwise.  
 
 
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]  
 (3) The Collector of the District concerned shall be competent to 
receive the complaints under sub-section (1) and shall forward the same 
together with his report to the State Government as the earliest and 
shall send a copy of the complaint also to the concerned Police 
Superintendent of the district for investigation. 
Appointment of 
Competent 
Authority 
5. (1) The State Government may while issuing the order under 
sub-section (1) of section 4 appoint any of its officer not below the rank 
of the Deputy Collector as the Competent Authority to exercise control 
over the money and the properties attached under section 4. 
 (2) The Competent Authority  shall have such other powers as 
may be necessary for carrying out the purposes of this Act.  
 (3) The Competent Authority shall, apply within thirty days from 
the date of the publication of the order referred to in sub- section (1) to 
the Designated Court, accompanied by one  or more affidavits stating 
the grounds on which the S tate Government has issued the order 
referred to in section 4 and the amount of money or other property 
believed to have been acquired 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 other property attached under section 4, for 
such further orders as found necessary.  
Report and 
return by 
Financial 
Establishment 
6. (1) Every Financial Establishment which carries on its 
business as such in the State of Uttar Pradesh on  or after the 
commencement of this Act shall make a report to the Director General, 
Institutional Finance and forward a copy thereof to the Collector and the 
Superintendents of Police of the district, mentioning the details about its 
authority to carry on such business, the location of the Financial 
Establishment in the State and its main Branch Office, if any, and 
permanent address of every person responsible for the management of, 
or conducting of the business or affairs of the Financial Establishment 
in the State with such particulars as may be prescribed.  
 (2) The report referred to in sub -section (1) shall be made by the 
new Financial Establishment within seven days from the date of start of 
their business in the State and such Financial Establishment  as have 
been carrying on its business as such prior to the commencement of 
this Act shall make such report within seven days from the date of 
commencement of this Act.  
 (3) Every Financial Establishment shall furnish a quarterly 
return within one month of the expiry of each quarter of a financial year 
to the Director General, Institutional Finance in respect of its business 
and financial position, the area of its investment and the location of 
investments of moneys made it within and outside the State, i f any, and 
such other particulars as may be prescribed.  
 (4) Whoever fails to submit report required under sub -section (2) 
or fails to furnish return under sub- section (3) shall be punishable with 
fine which may extend to fifty thousand rupees.  
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]  
 (5) The Director General, Instituti onal Finance shall be 
responsible for enquiring into the business and financial position, 
details of investment and other particulars of Financial Establishment 
and ensure that appropriate action is taken against unreported or 
clandestine activities of Fin ancial Establishment which are brought to 
light.  
Designed Court 7. (1) For the purposes of this Act the State Government may 
with the concurrence of the Chief Justice of the Allahabad High Court, 
by notification, in the Gazette, constitute one or more De signated Court 
in the cadre of the District and Sessions Judge for such area or areas or 
for such case or class or group of cases, as may be specified in the 
notification. 
 (2) No court including the Court constituted under the Provincial 
Insolvency Act, 1920 other than the Designated Court shall have 
jurisdiction in respect of any matter to which the provisions of this Act 
apply.  
 (3) Any pending case in any other court to which the provisions 
of this Act apply from the date of commencement of this Act,  stand 
transferred to the Designated Court.  
Powers of 
Designed Court 
regarding 
attachment 
8. (1) Upon receipt of an application under section 5, the 
Designed Court shall issue to the Financial Establishment or to any 
other person whose property is attach ed and vested in the Competent 
Authority by the State Government under section 4, a notice 
accompanied by the application and affidavits and of the evidence, if 
any, recorded calling upon the said Established and the said person to 
show cause on or before a date to be specified in the notice, as to why 
the order of attachment should not be made absolute. 
 (2) The Designated Court shall also issue such notice, to all 
other persons represented to it as having or being likely to claim, any 
interest or to titl e in the property of the Financial Establishment or the 
person to whom the notice is issued under sub -section (1), calling upon 
all such persons to appear on the same date as specified in the notice 
and make objection if they so desire to the attachment of  the property or 
any portion thereof, on the ground that they have interest in such 
property or portion thereof.  
 (3) Any person claiming an interest in the property attached or 
any portion thereof may, notwithstanding that no notice has been 
served upon him under this section, make an objection as aforesaid to 
the Designated Court at any time on or before the specified date before 
an order is passed under sub-section (4) or sub-section (6).  
 (4) The Designated Court shall if no cause is shown and no 
objections are made on or before the specified date, under sub -section 
(3), forthwith pass an order making the order of attachment absolute, 
and issue such directions as may be necessary for realization of the 
assets attached and for the equitable distributi on amongst the 
depositors of the money realized from and out of the property attached.  
 
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]  
 (5) If caus e 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 Code of Civil 
Procedure, 1908 and exercise all the powers of a court in hearing a suit 
under the said Code  and any person making an objections shall be 
required to adduce evidence to show that at the date of the attachment 
he had some interest in the property attached.  
 (6) After investigation under sub -section (5), the Designated 
Court shall pass an 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 canceling the order of attachment : 
 Provided that the Designated Court shall not release from 
attachment any interest, which it is satisfied that the Financial 
Establishment or the person referred to in sub- section (1) has in the 
property, unless it is also satisfied that there will remain under 
attachment an amount or property of value not less than the value that 
is required for re -payment to the depositors of such Financial 
Establishment. 
Attachment of 
property of 
malafide 
transferees 
9. (1) Where the assets available for attachment of a Financial 
Establishment or other person referred to in section 4 are found to be 
less than the amount or value which such Financial Establishment is 
required to repay to the depositors and where the Designated Court is 
satisfied by affidavit or otherwise that there is reasonable cause for 
believing that the said Financial Establishment has transferred (whether 
before or after the commencement of this Act) any of  
the property 
otherwise than in good faith for consideration, the Designated Court 
may, by notice, require any transferee of such property (Whether or not 
he received the property directly from the said Financial Establishment) 
to appear on a date to be sp ecified in the notice and show cause why so 
much of the transferee’s property as is equivalent to the proper value of 
the property transferred should not be attached. 
 (2) Where the said transferee does not appear and show cause on 
the specified date, or where after investigation in the manner provided in 
sub-section (5) of section 8, the Designated Court is satisfied that the 
transfer of the property to the said transferee was not in  good faith or 
for proper consideration,  the Designated Court  shall  o rder  the  
attachment of so much of the said transferee’s property as is in the 
opinion of the Designated Court equivalent to the proper value of the 
property transferred. 
Security in lieu 
of attachment 
10. Any Financial Establishment or person whose prope rty has 
been or is about to be attached under this Act may, at any time, apply 
to the Designated Court for permission to give security in lieu of  such 
attachment and where the security offered and given is, in the opinion 
of the Designated Court, satisfact ory and sufficient, it may cancel the 
order of attachment or as the case may be refrain from passing the 
order of attachment. 
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]  
 
Administration 
of property 
attached 
11. The Designated Court may, on the application of any person 
interested in any property attached and vested in the Competent 
Authority under this Act and after giving the Competent Authority an 
opportunity of being heard,  make such order as the Designated Court 
considers just and reasonable for,– 
 (a) providing from such of the property attached and vested 
in the Competent Authority as the applicant claims an interest 
in, such sums as may be reasonably necessary for the 
maintenance of the applicant and of his family, and for 
expenses connected with the defense of the applicant where 
criminal proceedings have been instituted against him in the 
Designated Court under section 3; 
 (b) safeguarding so far as may be practicable  the interest of 
any business affected by the attachment and in particular, the 
interest of any partners in such business. 
Appeal 12. Any person including the Competent Authority, if aggrieved 
by an order of the Designated Court, may prefer an appeal to the High 
Court within sixty days from the date of the order. 
Special Public 
Prosecutor 
13. The State Government may, by order appoint one or more 
Advocates of not less than ten years standing as a Special Public 
Prosecutor in consultation with the District  and Session Judge of the 
concerned District for the purpose of conducting the cases in the 
Designated Court. 
Procedure and 
powers of 
Designated 
Court regarding 
offences 
14. (1) The Designated Court may take cognizance of the offence 
without the accused b eing committed to it for trial and, in trying the 
accused persons, shall follow the procedure prescribed in the Code of 
Criminal Procedure, 1973 for the trial of warrant cases by Magistrates. 
 (2) The provisions of the Code of Criminal Procedure, 1973 sha ll 
so far as may be, apply to the proceedings before a Designated Court 
and for the purposes of the said provisions, a Designated Court shall be 
deemed to be a Magistrates. 
 (3) No anticipatory bail shall be gra nted to any person 
responsible for managing/ operating the defaulting Financial 
Establishment by the Court. 
Act to override 
other laws 
15. Save as otherwise provided in this Act the provisions of this 
Act shall have effect in addition to, and not in derogation of, any other 
law for the time being in force. 
Protection of 
action taken in 
good faith 
16. No suit or other proceedings shall lie against the State 
Government or the Competent Authority or an officer or employee of the 
State Government for anything which is in good faith done or intended 
to be done under this Act. 
Power to make 
rules 
17. The State Government may, by notification in the Gazette, 
make rules to carry out the purposes of this Act. 
Power to 
remove 
difficulties 
18. (1) If any difficulty arises in giving effect to the provisions of  
this Act the State Government may, as occasion may arise, by order, do 
anything, not inconsistent with provisions of this Act, which appears it 
to be necessary to remove the difficulties: 
 
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[The Uttar Pradesh Protection of Interest of Depositors in Financial Establishments Act, 2016]  
 Provided that no order shall be made under this sub -section 
after the period of two years from the date of commencement of this 
Act. 
 (2) Every order made under sub -section (1) shall be laid before 
each House of the State Legislature. 
 
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STATEMENT OF OBJECTS AND REASONS 
It has been brought to the notice of the State Government that there have been 
numerous cases of fraudulent defaults by Financial Establishments in the State  and  
such Financial Establishments have been receiving money by promising impracticable 
and unviable returns due to which  persons of middle and poor classes are being 
cheated by such Financial Est ablishments. In majority of such cases Financial 
Establishments have intentionally failed to return the deposit on maturity or to pay 
interest or to render any specified service agreed against such deposits. The Reserve 
Bank of India has suggested to the S tate Government to make a law to protect the 
interests of such depositors. 
It has therefore been decided to make a law to provide for protecting the 
depositors who have deposited their money in such Financial Establishments.  
The Uttar Pradesh Protection o f Interest of Depositors in Financial 
Establishments Bill, 2016 is introduced accordingly. 
 
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