Scheme of the Act: s.2(c) & s. 2(d)

Podcast on Scheme of the Act: s.2(c) & s. 2(d)

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Before analyzing the provisions of the MPID Act, it is utmost important to understand what, when and how does the MPID Act come into existence in a given case.

In order to understand what, when and how provisions of the MPID Act are invoked, let us take a pilot case. For example: If ‘X’ accepted deposits from various persons being A, B & C for the sale of their respective units on the assurance of delivery of flats on time, and failed to do so in spite of repeated reminders and follow-ups from the flat purchasers- would the provisions of MPID Act apply? The answer is a: Yes. 

In another example: If ‘X’ floated a scheme with attractive rates of interest in order to lure various persons to deposit monies with him and he failed to keep his assurance and thus return the money with interest as promised, the provisions of the MPID Act are attracted. In order to attract the provisions of MPID Act, section 2(c) and s. 2(d) of the said Act must be satisfied first. The two sections form the foundation to apply the thrust of MPID Act into any act or offence. 

Section 2(c) of the MPID Act defines the term ‘deposit’. On the other hand section is section 2(d) defines the term ‘Financial Establishment’. Section 2(d) of the MPID Act is the 2nd Foundational Pillar of the MPID Act.  Section 2(c) and Section 2(d) of the MPID Act are the laying foundation for application of the provisions of MPID Act. If section 2(c) and/or Section 2(d) are not fulfilled, the provisions of MPID Act would not be applicable. 

Section 2(c) of MPID Act: Deposit

The term ‘deposit’ under section 2(c) has been defined exhaustively by the Act. In order to understand it, it is trite to break it down into various parts to simplify the scope of the section. 

The first opening part of Section 2 (c) of MPID Act is reproduced herein below: 

s. 2(c) “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 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 from of interest, bonus, profit or in any other form, but does not include-- 

The first part of section 2(c) of MPID Act throws a light into the type of transaction to be included and categorized as a ‘deposit’. As per the definition, ‘deposit’ includes any receipt of money or any valuable commodity. The term ‘valuable commodity’ has not been defined under the Statute. ‘Valuable commodity’ can be in the nature of any goods or other moveable or immoveable item, which is typically capable of being valued. Therefore, acceptance of any valuable commodity or any money is the first criteria to attract the ingredients of s. 2(c) of the Act. 

The use of the term ‘any’ expands the horizon of the application of the term ‘deposit’ and hence application of the Act itself. The opening words of section 2(c) also mention that terms ‘shall be deemed always’. The term ‘shall be deemed always’ connotes the mandatory or binding nature of the ingredients of the definition. It denotes that the ingredients of the definition of the term ‘deposit’ is mandatory and binding and further that it is final. Thus, the exhaustive ingredients of the term ‘deposit’ are in the nature of finality and binding. 

The acceptance of such commodity or money must be by a Financial Establishment. The meaning of Financial Establishment is specified under section 2(d) of the Act, which will be inspected at a later stage. 

The next ingredient of the term ‘deposit’ is that such money or commodity must be returned after a specified period as an understanding or assurance or terms of the contract between the two parties. As per the definition, the return of such commodity or money can be in the form of a service too. For example- if ‘X’ accepts monies after making an assurance that he will invest in the Financial Commodity Market and return the money with two times profit, the act of ‘X’ would come under the ambit of the term ‘deposit’. 

The definition of the term ‘deposit’ provides that such deposit includes (i) acceptance of money and (ii) return of the same after any specified period, which may be (iii) in cash, kind or (iv) any other service as assured. This is the genesis of the definition of the term ‘deposit’ as per section 2(c) of the Act. 

The section provides that there should be an obligation upon the Financial Establishment to ‘return’ the money or commodity. The first part of the section itself expands the application of section 2(c) of MPID Act to various categories and types of transactions, which will be seen through the lens of various judgments. 

In the second part, the section goes onto describe the type of transactions excluded from the realm of the term ‘deposit’. The type of transactions excluded from the purview of the term ‘deposit’ is self-explanatory and does not require an elaborate analysis. The first part of the section is utmost important to ascertain whether a particular type of transaction would fall under the lens of the term ‘deposit’ keeping in mind the exceptions specifically laid down in the section itself. 

Coming back to the example highlighted with regards to a Builder X accepting monies from flat purchaser A, B and C amongst others- the money accepted by Builder X would fall under the domain of the term ‘deposit’. 

The reason that the monies accepted by the Builder would fall under the realm of deposit is that the Builder either must have assured a fully-furnished flat [specified service] or offered return of money if the flat is not available on the date assured for the delivery thereof. In either of the case-scenario, the acceptance of money by the Builder X from Flat purchaser A, B, or C would fall under the scope of the term ‘deposit’ [as per section 2(c) of the Act] if unpaid or unreturned in service or otherwise. Thus the failure to return in service, i.e. promised flat or cash, upon failure to return the service, attracts the latter part of opening words of section 2(c) of the said Act. 

Section 2(c) also mentions the type of return. The section mentions that it can be in the form of service, cash or kind or any service. The various forms of failure to return expands the application of the section and in turn of the Act itself. 

Section 2(d) of MPID Act: Financial Establishment

Section 2(c) of the Act mentions the term ‘Financial Establishment’. The term ‘Financial Establishment’ is defined briefly under sub-clause (d) of section 2 of the said Act. 

The term Financial Establishment is one of the pillars of the MPID Act. The short definition of the term is highlighted below. 

(d) "Financial Establishment" means any person 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;

The important criteria for any person or Entity to be termed, as Financial Establishment is acceptance of ‘deposit’. As per the definition under sub-section (d) of Section 2 of the said Act,  there must be acceptance of ‘deposit’ by any Person or Entity. That is the first criterion.  The definition lays down that such deposit ought to be accepted by any person/Entity under any ‘scheme’. Acceptance of deposit under any scheme is one of the key ingredients as per the definition. 

The definition of Financial Establishment is quite wide and its scope has been enlarged by the Legislature. By inserting the term ‘in any other manner’, the application of the section has been widened so as to include acceptance of deposit ‘in any manner’. ‘In any other manner’ can include acceptance of deposit in any mode other than the one highlighted in present section [s. 2(d)] or section governing the term deposit [s. 2(c)]. This widens the scope and application of section 2(d). Even an individual can be termed as a Financial Establishment. The definition does not envisage that any person is a part of a company or not in order to be termed as a ‘Financial Establishment’. 

On a personal analysis and note, sub-section (c) and sub-section (d) of Section 2 of the said Act are harmoniously inter-linked and give Object to the reason the said Act was originally promulgated. Both the sub-sections have been kept open and wide so as to longer reach in terms of it’s application. There is no other Penal State Act, which recognizes the acts of Financial Establishment by virtue of acceptance of deposits. MPID Act is the only State Act which gives a clear definition the term “deposit” so as to protect the interest of gullible depositors.

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FAQ: Scheme of the Act

What is the purpose of the MPID Act?

The Maharashtra Protection of Interest of Depositors (MPID) Act is a state-level law designed to safeguard the interests of individuals who make deposits with financial establishments. It aims to prevent fraudulent schemes and ensure that depositors receive their invested money back along with any promised returns.

When does the MPID Act apply?

What is the definition of a "deposit" under the MPID Act?

What are some examples of transactions covered under the definition of a "deposit"?

What types of transactions are excluded from the definition of "deposit"?

What is a "Financial Establishment" under the MPID Act?

Does the definition of "Financial Establishment" exclude any entities?

What is the significance of the broad definitions of "deposit" and "Financial Establishment"?