"Deposit" Under MPID Act Includes Transactions Termed As “Loan”: Supreme Court
The Court held that merely describing a transaction as a “loan” would not take it outside the scope of “deposit” under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, observing that the substance and attributes of the transaction are determinative and not its nomenclature.
The Supreme Court has held that a financial transaction would not cease to be a “deposit” under Section 2(c) of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999, merely because the parties describe it as a “loan”, observing that the nomenclature assigned to a transaction is legally irrelevant where the statutory ingredients of “deposit” stand satisfied.
The Court was hearing an appeal challenging a judgment of the Bombay High Court which had dismissed criminal revision proceedings arising out of a complaint under Section 3 of the MPID Act. The appellants alleged that respondent nos.2 to 6 had induced them to invest Rs. 2.51 crore for a resort project at Tadoba, Maharashtra, promising repayment together with quarterly interest at the rate of 24% per annum.
A Bench of Justice Manoj Misra and Justice N.V. Anjaria observed: “The contention that giving of amounts to respondent Nos.2 to 6 was a transaction of ‘loan’, is a convenient suggestion. Even if the transaction is named as ‘loan’, it would not take it out of the scope of the term ‘deposit’ as defined.”
The Bench further observed: “Nomenclature of the transaction is not relevant. It is not the nomenclature but the ingredients or the basic attributes with which the transaction is informed and characterised that would make and mould the transaction to become ‘deposit’ under Section 2(c) of the MPID Act.”
Advocate Naveen Hegde, AOR, appeared for the appellants. Advocates Samrat Krishnarao Shinde and Rameshwar Prasad Goyal, AOR, appeared for the respondents.
Background
According to the appellants, respondent no.2 approached them in 2016 through an intermediary and induced them to invest money for establishing a resort business, assuring repayment along with quarterly interest at 24% per annum. The appellants claimed that they collectively advanced Rs.2.51 crore to respondent nos.2 to 6 through cheques and bank transfers between 2016 and 2019.
The respondents allegedly failed to repay the principal amount or pay the promised interest despite repeated demands. The appellants thereafter instituted civil recovery proceedings and also attempted to initiate criminal proceedings under Sections 420, 409 and 405 read with Section 34 IPC.
However, the criminal proceedings under the IPC did not succeed, with courts taking the view that the dispute was essentially civil in nature and arose from a “loan transaction”.
Subsequently, the appellants invoked the provisions of the MPID Act by filing proceedings under Section 156(3) CrPC seeking registration of an FIR under Section 3 of the Act. The Sessions Court dismissed the application, and the Bombay High Court affirmed the dismissal, holding that the amounts advanced constituted “loan transactions” and did not fall within the definition of “deposit” under Section 2(c) of the MPID Act.
Court’s Observation
The Supreme Court extensively examined the statutory scheme of the MPID Act, including its Statement of Objects and Reasons, and observed that the legislation was enacted to protect depositors from fraudulent financial establishments collecting money from the public on assurances of attractive returns.
The Court observed that the MPID Act is a “self-contained Code” containing independent regulatory and penal mechanisms to protect depositors and penalise fraudulent defaults.
The Bench then analysed the definitions of “deposit” under Section 2(c) and “financial establishment” under Section 2(d) of the Act. Referring to State of Maharashtra v. 63 Moons Technologies Ltd. (2022), the Court observed that the statutory definitions intentionally employ expansive language and repeatedly use the expression “any” to indicate broad legislative coverage.
The Court observed: “The expression ‘deposit’ is conspicuously broad in its width and ambit.”
Applying the statutory framework to the facts of the case, the Court held that all ingredients necessary to constitute a “deposit” under Section 2(c) stood satisfied, since the money had been received by the respondents with a promise of repayment together with interest.
The Bench further held that respondent nos.2 to 6 fell within the ambit of “financial establishment” under Section 2(d), which covers “any person accepting a deposit under any scheme or arrangement or in any other manner.”
Rejecting the respondents’ principal contention that the transactions were merely “loan transactions”, the Court held that substance must prevail over nomenclature in determining whether a transaction constitutes a “deposit” under the MPID Act.
The Court observed: “Therefore, even if lending of money by the appellants to respondent Nos.2 to 6 was to be treated and termed as ‘loan’, it would remain a ‘deposit’ in the nature of money received by respondent Nos.2 to 6 who have the robes of ‘financial establishment’ as contemplated under Section 2(d) of the MPID Act.”
The Supreme Court also rejected the respondents’ contention that the failure of IPC proceedings barred recourse under the MPID Act. The Bench held that proceedings under the IPC and proceedings under the MPID Act operate in entirely different statutory fields and are legally independent of each other.
Conclusion
The Supreme Court held that the amounts advanced by the appellants constituted “deposit” within the meaning of Section 2(c) of the MPID Act and that respondent nos.2 to 6 qualified as a “financial establishment” under Section 2(d) of the Act.
The Court further held that proceedings under the MPID Act operate independently of IPC offences and that failure to establish criminal offences under the IPC does not bar the invocation of remedies under the special statute.
Accordingly, the Court set aside the Bombay High Court judgment and held that the appellants were entitled to invoke Section 3 and proceed under the MPID Act for redressal of their grievances.
Cause Title: Alka Agrawal & Ors. v. State of Maharashtra & Ors. (Neutral Citation: 2026 INSC 489)
Appearances
Appellants: Naveen Hegde, AOR; Advocate Bhargavi Bhardwaj
Respondents: Advocates Samrat Krishnarao Shinde, Siddharth Dharmadhikari, Aaditya Aniruddha Pande, AOR, Shrirang B. Varma, Gagan Sanghi, Rameshwar Prasad Goyal, AOR