Money advanced as 'loan' can qualify as 'deposit' under MPID Act: Supreme Court

The Supreme Court on Friday held that money advanced as a 'loan' could still qualify as a 'deposit' under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act) if the transaction satisfied the ingredients laid down in the statute [Alka Agrawal v. State of Maharashtra]. .A Bench of Justices Manoj Misra and NV Anjaria said the nomenclature of a transaction is not the decisive factor while determining whether the MPID Act would apply.“Even if the transaction is named as ‘loan’, it would not take it out of the scope of the term ‘deposit’ as defined. 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,” the Court held.The Court added that the definition of 'deposit' under Section 2(c) of the MPID Act has a wide ambit and covers any receipt of money to be returned after a specified period or otherwise with or without benefit of interest..The judgment came in an appeal filed against a Bombay High Court ruling which had refused to permit proceedings under the MPID Act on the ground that the dispute was merely a civil dispute arising out of a loan transaction..The case involved investments worth ₹2.51 crore allegedly made by members of a family and two companies (appellants) in connection with a proposed resort project in Maharashtra's Tadoba.According to the appellants, the respondents had induced them to invest money by promising 24 per cent annual interest payable quarterly. The amounts were to be repaid by December 31, 2019. When the money was not repaid, the appellants initiated multiple legal proceedings, including summary civil suits, cheque dishonour proceedings and attempts to initiate criminal proceedings under the Indian Penal Code.After failing to secure registration of FIRs for offences including cheating and criminal breach of trust, the appellants invoked the MPID Act and sought action under Section 3 of the statute dealing with fraudulent default by financial establishments..The sessions court as well as the Bombay High Court rejected their plea. The High Court held that the transactions were essentially loan transactions of civil nature and that the respondents did not qualify as a 'financial establishment' under the MPID Act..The Supreme Court set aside the High Court judgment and held that statutory definitions under the MPID Act were deliberately broad.“The expression ‘deposit’ is conspicuously broad in its width and ambit,” the Court noted while referring to its earlier decision in State of Maharashtra v. 63 Moons Technologies Ltd.The Bench pointed out that Section 2(d) of the MPID Act defines 'financial establishment' to mean 'any person accepting deposit under any scheme or arrangement or in any other manner'.“Since it includes any person accepting deposits, a private respondent like respondent Nos.2 to 6 who accepted the money which was deposited stand covered within the concept of ‘Financial Establishment’,” the Court said..The Court emphasised that proceedings under the IPC and remedies under the MPID Act operate in 'distinct fields' and carry separate legal consequences.“It is not possible to take a view that the two areas of remedies namely under the criminal law and by invoking the provisions of the MPID Act, have the common aspects and ingredients to follow, for, both operate in a distinct field and in different ways,” the Bench observed..In view of the above, the court held that the amounts advanced by the appellants satisfied all ingredients of a 'deposit' under Section 2(c) of the MPID Act and that the respondents would qualify as a 'financial establishment' under Section 2(d)..It accordingly set aside the Bombay High Court judgment and held that the appellants were entitled to invoke remedies under Section 3 of the MPID Act..The appellants were represented by advocates Naveen Hegde and Bhargavi Bharadwaj. The respondents were represented by advocates Samrat Krishnarao Shinde, Siddharth Dharmadhikari, Aaditya Aniruddha Pande, Shrirang B Varma, Gagan Sanghi and Rameshwar Prasad Goyal..[Read Judgement]