The Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004

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.- (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 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 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; (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 immovable) shall not be deemed to be deposit for the purposes of this clause; (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. (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); (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. (5) “Government “ means the State Government; (6)„Special Court‟ means court established under section 10. In the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (Karnataka Act 30 of 2005) (hereinafter referred to as the Principal Act) in section 2, after clause (4), the following shall be inserted, namely:- “(4a) “Market intelligence” means and includes the process of gathering information from all available sources about a financial establishment regarding its financial position and market trends and analysis for the purpose of accurate and confident decision making in determining the fraudulent activities, if any” In the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (Karnataka Act 30 of 2005) (hereinafter referred to as the principal Act), after section 9, the following section shall be inserted, namely:- “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 stations 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 section 173 of Code of Criminal Procedure, 1973 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.” (2) for clause (4a), the following shall be substituted, namely:- “(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.”

(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 establishment, 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 report 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. (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, 1908 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 section 229 and section 267 of the Bharatiya Nyaya Sanhita, 2023 (Central Act 45 of 2023). (2) Not withstanding anything contained in any other law for the time being in force,- (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; (ii) Where the Government has reason to believe that any Financial Establishment is acting in and detrimental to the interest of the depositors with an intention to defraud them; or (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 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. the Government may, 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 sufficient 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 publication 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. In section 10 of the principal Act, after sub-section (3), the following shall be inserted, namely:- “(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 the Code of Criminal Procedure, 1973, be charged at the same trial.”

(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 assets 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 to 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 of 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

(h) do all and every acts which would be necessary for the speedy realization of the assets of the Financial Establishment.

(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 Judge 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:

Explanation 2: For the purpose of this section "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 section 3.

(3) The Government shall empanel or adopt and notify the list of,-

(a) agencies for valuation of assets and to assist selling of assets 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 Reconstruction 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: In section 6 of the principal Act, after sub-section (2), the following shall be inserted, namely:- "(3) The Government shall empanel or adopt and notify the list of,- (c) agencies for valuation of assets and to assist selling of assets to prospective buyers; and (d) 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 utilize the services of the Valuers approved by the Nationalised Bank for valuation of assets under the Securitisation and Reconstruction 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: 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." In section 6 of the principal Act, in sub-section (2,) (1) After clause (h), the following shall be inserted, namely:- “(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 Judge 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) For the existing Explanation to the following shall be substituted, namely:- “Explanation 2: For the purpose of this section "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 section 3.”

(1) Within 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 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 individually 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 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 financial transactions if any; and (c) Judicial decree. (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. 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 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. (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. (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. In principal Act, in section 7,- (1) after sub-section (2), the following shall be inserted, namely,- “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 financial transactions if any; and (c) Judicial decree.” (2) after sub-section (4), the following shall be inserted, namely,- “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 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.” (3) After sub-section (5), the following shall be inserted namely,- “(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”

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 shall 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. (1) (i) for the words “along with any benefit”, the words “or on demand or otherwise by the depositor or his successor along with or without benefit”, shall be substituted; and (ii) after the words “promoter, director, partner, manager”, the words “former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office”, shall be inserted. (2) in sub-section (3), in clause (iii), in sub-clause (b), after the words “any negligence on the part of any”, the words “such current or former”, shall be inserted.

(1) Any Financial Establishment, which fraudulently defaults any repayment of deposit on maturity or on demand or otherwise by the depositor or his successor along with or without benefit 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, former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office 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. Explanation.- For the purpose 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 failed 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 such current or former 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. In section 10 of the Principal Act, after sub-section (1), the following proviso, shall be inserted, namely:- “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 concurrence 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.” In the Principal Act, in section 9.- (1) in sub-section (1),- In section 9A of the principal Act, in sub-section (2), for the words and figures “section 173 of the Code of Criminal Procedure,1973”, the words, figures and brackets, “section 193 of the Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023)”, shall be substituted.

(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 stations 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 section 193 of the Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023) 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) 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. 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 concurrence 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. (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). (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 the Bharatiya Nagarika Suraksha Sanhita, 2023 be charged at the same trial. In section 11 of the principal Act, in sub-section (2),- (a) in clause (e) , the words “in the events of the money so realized is not sufficient to meet the entire deposit liability,” shall be omitted; (b) after clause (f), before Explanation, the following shall be inserted, namely:- “(g) depending upon the magnitude of the fraud wherever the Special Courts feel the need for a committee to be set up for the sake realisation of proceeds and payment to depositors, the special court may constitute such committees, on a case to case basis; (h) to utilize the e-auction platform for auction of the assets attached under this Act wherever felt necessary; (i) Utilise the services of empanelled agencies notified by the State Government under section 6 for valuation of assets and selling of assets for prospective buyers, forensic auditors and digital auditor for forensic audit of money trails; (j) to utilize the services of official liquidator appointed by the Central Government under section 359 of the Companies Act, 2013(Central Act 18 of 2013) and attached to High Courts wherever felt necessary; (k) to utilize the services of agencies empanelled by Security 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; (l) to utilize the services of the valuers approved by any Nationalised Bank for valuation of assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Central Act 54 of 2002) for valuation of the assets; and (m) pass an order expeditiously for sale of the depreciable movable assets provisionally attached to realise maximum value without allowing such assets to lose their value." In section 10 of the principal Act, in sub-section (4), for the words and figures, “the Code of Criminal Procedure, 1973”, the words, figures and brackets, “The Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023)”, shall be substituted.

(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 effective 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 deems 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 receipt of an application under section 8, order for payment to the depositors by the Competent Authority or order for proportionate payment to the depositors; and (f) pass any order which the Special Court deems fit for realization of the assets of the company and repayment to the depositors of the Financial Establishment or on any matter or issue incidental thereto. (g) depending upon the magnitude of the fraud wherever the Special Courts feel the need for a committee to be set up for the sake realisation of proceeds and payment to depositors, the special court may constitute such committees, on a case to case basis; (h) to utilize the e-auction platform for auction of the assets attached under this Act wherever felt necessary; (i) Utilise the services of empanelled agencies notified by the State Government under section 6 for valuation of assets and selling of assets for prospective buyers, forensic auditors and digital auditor for forensic audit of money trails; (j) to utilize the services of official liquidator appointed by the Central Government under section 359 of the Companies Act, 2013(Central Act 18 of 2013) and attached to High Courts wherever felt necessary; (k) to utilize the services of agencies empanelled by Security 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; (l) to utilize the services of the valuers approved by any Nationalised Bank for valuation of assets under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (Central Act 54 of 2002) for valuation of the assets; and (m) pass an order expeditiously for sale of the depreciable movable assets provisionally attached to realise maximum value without allowing such assets to lose their value. Explanation.- For the purpose of this section, the expression “Financial Establishment” includes the directors, partners. Promoters, managers or member of said establishment and former directors, partners, promoters, who have demitted or resigned from establishment provided their liability is limited to the period of office or any other person whose property or assets have been attached under section 3. In section 12 of the principal Act, for sub-section (6), the following shall be substituted, namely:- “(6) After investigation under sub-section (5), the Special Court shall pass an order as far as may be within one hundred and eighty days from the date of receipt of application under sub-section (2) of section 5 either making the ad-interim order of attachment absolute or varying it by releasing a portion of the property from attachment or cancelling the ad-interim order of attachment. Provided that, Special 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 repayment to the depositors of such financial establishment. Provided further that, the special court while according permission to deposit the fair value of the property in lieu of the attachment under section 3 may obtain valuation reports from at least two empanelled valuers while releasing properties.” In the Principal Act, in section 11, in Explanation, after the words “member of said establishment”, the words “and former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office”, and shall be inserted.

(1) Upon receipt of an application under section 5, the Special Court shall issue to the Financial Establishment and to any other person if any, whose property is attached by the designated authority under section 3, a notice accompanied by the copies of the application and affidavits and of the record of evidence, if any, calling upon them to show cause on or before a date to be specified in the notice why the order of attachment should not be made absolute.

(2) The Special Court shall also issue such notice, to all other persons represented to it as having or being likely to claim, any interest or title 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 that 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 Special Court at any time before an order is passed under sub-section (4) or sub-section (6).

(4) The Special Court shall if no cause is shown and no objections are made 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 realization of the assets attached and for the equitable distribution among the depositors of the money realized from out of the property attached.

(5) If cause is shown or any objection is made as aforesaid, the Special court shall proceed to investigate the same and in so doing, as regards the examination of parties and in all other respects, the Special 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 attachment he had some interest in the property attached. (6) After investigation under sub-section (5), the Special Court shall pass an order as far as may be within one hundred and eighty days from the date of receipt of application under sub-section (2) of section 5 either making the ad-interim order of attachment absolute or varying it by releasing a portion of the property from attachment or cancelling the ad-interim order of attachment. Provided that, Special 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 repayment to the depositors of such financial establishment. Provided further that, the special court while according permission to deposit the fair value of the property in lieu of the attachment under section 3 may obtain valuation reports from at least two empanelled valuers while releasing properties.

(7) Where the Special Court passes an order under sub-section (6), making the order of attachment absolute or varying the order of attachment by releasing a portion of the property from attachment it may, issue such direction as may be necessary for realisation of the assets attached and for the equitable distribution amongst the depositors of the money realised from and out of the assets so attached.

(8) Where an application is made by any person duly authorised or constituted or specified by any other State Government under similar enactment empowering him to exercise control over any money or property or assets attached by that State Government, the Special Court shall exercise all its powers, as if, such an application were made under this Act and pass appropriate order or direction on such application so as to give effect to the provisions of such enactment. In the Principal Act, in section 13 after sub-section (2), the following shall be inserted, namely:- "(3) Where any Director, Promoter, Office Bearer, Accountant, Agent or Partner of the Financial Establishment or former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office has,- (i) within the relevant period; and (a) Wilfully concealed any property or part of such property of the Financial Establishment or concealed any debt due to, or from, the Financial Establishment, or (b) fraudulently removed any part of the property of the Financial Establishment; or (c) Wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the Financial Establishment or its affairs, or (d) Wilfully made any false entry in any book or paper affecting or relating to the property of the Financial Establishment or its affairs; or (e) fraudulently parted with, altered or made any omission in any document affecting or relating to the property of the Financial Establishment or its affairs; or (f) wilfully created any security interest over, transferred or disposed of any property of the Financial Establishment which has been obtained on credit and has not been paid for unless such creation, transfer or disposal was in the ordinary course of the business of the Financial Establishment; or (g) Wilfully concealed the knowledge of the doing by others of any of the acts mentioned in clauses (c), (d) or (e); or (ii) at any time after the commencement date of inquiry or investigation, committed any of the acts mentioned in sub-clause (a) to (f) of clause (i) or has the knowledge of the doing by others of any of the things mentioned in sub-clauses (c) to (e) of clause (i); or (iii) at any time after attachment commencement date under section 3 of this Act, taken in pawn or pledge, or otherwise received the property knowing it to be so attached, transferred or disposed, such person shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years, or with fine, which shall not be less than Rs. one lakh, but may extend to rupees ten lakh, or with both: Provided that, nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to defraud or to conceal the state of affairs of the Financial Establishment. (4) Where any Director, Promoter, Office Bearer, Accountant, Agent or Partner of the Financial Establishment or former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office,- (a) Makes a gift to a person; or (b) enters into a transaction with a person which involves the transfer of one or more assets by the Financial Establishment for a consideration the value of which is significantly less than the value of the consideration provided by the Financial Establishment, and such transaction has not taken place in the ordinary course of business of the Financial Establishment, -Where the Financial Establishment has entered into an undervalued transaction and the Special Court on application filed by the Competent Authority or any other authority nominated for this purpose, is satisfied that such transaction was deliberately entered into by such Financial Establishment, - (a) for keeping assets of the Financial Establishment beyond the reach of any person who is entitled to make a claim against the Financial Establishment; or (b) in order to adversely affect the interests of such a person in relation to the claim, the Special Court shall make an order- (i) restoring the position as it existed before such transaction as if the transaction had not been entered into; and (ii) protecting the interests of persons who are victims of such transactions: Provided that, an order under this section - (a) shall not affect any interest in property which was acquired from a person other than the Financial Establishment and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest; and (b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction. (5) Where the Competent Authority or any other authority notified for this purpose on an examination of the transactions of the Financial Establishment determines that certain transactions were made during the relevant period which were undervalued or made against the provisions of this section he shall make an application to the Special Court to declare such transactions as void and reverse the effect of such transaction. The Special Court if satisfied prima facie on such application by the Competent Authority shall dispose of the matter through enquiry including examination of parties. If the Special Court chooses to reject such application, it shall assign specific reasons for such rejection. Explanation- for purposes of this section,- (i) „Relevant period‟ shall mean the period of time between registration or commencement of the activities of the Financial Establishment, whichever was earlier and the dates of the attachment of property under section 3. (ii) a person shall be deemed to have sufficient information or opportunity to avail such information if a public notice regarding the attachment process has been made under section 3. (iii) With reference to this section specifically and the Act in general, "Transfer", shall be construed to mean transfer by any instrument or agreement, gift or assignment, whether registered or not."

(1) Where the assets available for attachment of a Financial Establishment or other person referred to in section 3 are found to be less than the amount or value which such Financial establishment is required to repay to the depositors and where the Special 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 or for proper consideration, the Special 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 specified 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 12 the Special Court is satisfied that the transfer of the property to the said transferee was not in good faith or for proper consideration, the Special court shall order attachment of so much of the said transferee's property as is in the opinion of the Special Court equivalent to the proper value of the property transferred. (3) Where any Director, Promoter, Office Bearer, Accountant, Agent or Partner of the Financial Establishment or former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office has,- (i) within the relevant period; and (a) wilfully concealed any property or part of such property of the Financial Establishment or concealed any debt due to, or from, the Financial Establishment, or (b) fraudulently removed any part of the property of the Financial Establishment; or (c) wilfully concealed, destroyed, mutilated or falsified any book or paper affecting or relating to the property of the Financial Establishment or its affairs, or (d) wilfully made any false entry in any book or paper affecting or relating to the property of the Financial Establishment or its affairs; or (e) fraudulently parted with, altered or made any omission in any document affecting or relating to the property of the Financial Establishment or its affairs; or (f) wilfully created any security interest over, transferred or disposed of any property of the Financial Establishment which has been obtained on credit and has not been paid for unless such creation, transfer or disposal was in the ordinary course of the business of the Financial Establishment; or (g) wilfully concealed the knowledge of the doing by others of any of the acts mentioned in clauses (c), (d) or (e); or (ii) at any time after the commencement date of inquiry or investigation, committed any of the acts mentioned in sub-clause (a) to (f) of clause (i) or has the knowledge of the doing by others of any of the things mentioned in sub-clauses (c) to (e) of clause (i); or (iii) at any time after attachment commencement date under section 3 of this Act, taken in pawn or pledge, or otherwise received the property knowing it to be so attached, transferred or disposed, such person shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years, or with fine, which shall not be less than Rs. 1,00,000, but may extend to rupees ten lakh, or with both: Provided that, nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to defraud or to conceal the state of affairs of the Financial Establishment. (4) Where any Director, Promoter, Office Bearer, Accountant, Agent or Partner of the Financial Establishment or former directors, partners, promoters who have demitted or resigned from establishment provided their liability is limited to the period of office,- (a) Makes a gift to a person; or (b) enters into a transaction with a person which involves the transfer of one or more assets by the Financial Establishment for a consideration the value of which is significantly less than the value of the consideration provided by the Financial Establishment, and such transaction has not taken place in the ordinary course of business of the Financial Establishment, -Where the Financial Establishment has entered into an undervalued transaction and the Special Court on application filed by the Competent Authority or any other authority nominated for this purpose, is satisfied that such transaction was deliberately entered into by such Financial Establishment, - (a) for keeping assets of the Financial Establishment beyond the reach of any person who is entitled to make a claim against the Financial Establishment; or (b) in order to adversely affect the interests of such a person in relation to the claim, the Special Court shall make an order- (i) restoring the position as it existed before such transaction as if the transaction had not been entered into; and (ii) protecting the interests of persons who are victims of such transactions: Provided that, an order under this section - (a) shall not affect any interest in property which was acquired from a person other than the Financial Establishment and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest; and (b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction. (5) Where the Competent Authority or any other authority notified for this purpose on an examination of the transactions of the Financial Establishment determines that certain transactions were made during the relevant period which were undervalued or made against the provisions of this section he shall make an application to the Special Court to declare such transactions as void and reverse the effect of such transaction. The Special Court if satisfied prima facie on such application by the Competent Authority shall dispose of the matter through enquiry including examination of parties. If the Special Court chooses to reject such application, it shall assign specific reasons for such rejection. Explanation- for purposes of this section,- (i) \"Relevant period\" shall mean the period of time between registration or commencement of the activities of the Financial Establishment, whichever was earlier and the dates of the attachment of property under section 3. (ii) a person shall be deemed to have sufficient information or opportunity to avail such information if a public notice regarding the attachment process has been made under section 3. (iii) With reference to this section specifically and the Act in general, \"Transfer\", shall be construed to mean transfer by any instrument or agreement, gift or assignment, whether registered or not. In section 18 of the principal Act,- (i) in sub-section (1), for the words, figures and brackets “the Code of Criminal Procedure, 1973 (Central Act II of 1974)”,the words, figures and brackets “The Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023)”, shall be substituted; (ii) in subsection (2), for the words, figures and brackets “the Code of Criminal Procedure, 1973 (Central Act II of 1974) except the provisions of section 438”,the words, figures and brackets “the Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023) except the provisions of section 482”, shall be substituted.

Any Financial Establishment or person whose property has been or is about to be attached under this Act may, at any time, apply to the Special Court for permission to give security in lieu of such attachment and where the security offered and given is, in the opinion of the Special court, satisfactory and sufficient, it may cancel the ad-interim order of attachment or, as the case may be, refrain from passing the order of attachment.

The Special 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 orders as the special 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 defence of the applicant where criminal proceedings have been instituted against him in the Special Court. (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. (c) discharging in the prescribed manner, out of the property so attached, any liability, statutory or otherwise, accruing to a financial establishment or a person emanating out of the proceeding before the Special Court,

Any person including the competent authority, if aggrieved by an order of the Special Court, may appeal to the High Court within thirty days from the date of the order.

The Government shall, by notification, appoint an Advocate of not less than fifteen years standing as a Special Public Prosecutor for the purpose of conducting the cases in the Special Court.

(1) The Special 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 specified in the Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023), for the trial of warrant cases by Magistrates. (2) The provisions of the Bharatiya Nagarika Suraksha Sanhita, 2023 (Central Act 46 of 2023) except the provisions of section 482 shall, so for as may be, apply to the proceedings before a Special Court and for the purpose of the said provisions, Special Court shall be deemed to be a Court of Judicial Magistrate, First class or Metropolitan Magistrate as the case may be.

Save as otherwise provided in this Act, the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any custom or usage or any instrument having effect by virtue of any such law.

No suit or other proceedings shall lie against the Government or the Competent Authority or an officer or employee of the Government for anything which is in good faith done or intended to be done under this Act.

(1) The Government may, by notification after previous publication make rules for carrying out the purposes of this Act. (2) Every rule made under this Act, shall be laid as soon as may be after it is made before each House of the State Legislature while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions and if before the expiry of session in which it is so laid or the session immediately following both Houses agree in making any modification in any such rule or both Houses agrees that the rule should not be made, the rule shall, thereafter have effect only in such modified form or be of no effect, as the case may be, so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

If any difficulty arises in giving affect to the provisions of this Act, the Government may, as occasion arise, by order, do anything, not inconsistent with the provisions of this Act, which appears to it to be necessary to remove the difficulty.