[09
OF 2025] [10th
January 2025] An Act further to amend the
Karnataka Protection of Interest of Depositors in Financial Establishments Act,
2004. Whereas it is expedient
further to amend the Karnataka Protection of Interest of Depositors in
Financial Establishments Act, 2004 (Karnataka Act 30 of 2005) for the purposes
hereinafter appearing; Be it enacted by the
Karnataka State Legislature in the Seventy Fifth year of the Republic of India,
as follows:- (1)
This Act may be called the Karnataka
Protection of Interest of Depositors in Financial Establishments (Amendment)
Act, 2024. (2)
It shall come into force at once. 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,- (1)
for clause (3), the following shall be
substituted, namely:- "
(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. (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." In section 3 of the
principal Act,- (1)
for sub-section (1), the following shall be
substituted, namely:- "
(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." (2)
in sub-section (1c), for the words, figures
and brackets, "section 193 and section 228 of the Indian Penal Code,1860
(Central Act 45 of 1860)", the words, figures and brackets, "section
229 and section 267 of the Bharatiya Nyaya Sanhita, 2023 (Central Act 45 of
2023)", shall be substituted. (3)
in sub-section (2), for clause (iii), the
following shall be substituted namely:- "(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. In section 4 of the
principal Act,- (1)
In subsection (2),- (i)
in the proviso 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)
after proviso, the following shall be
inserted, namely:- "Explanation- For the
purpose of this section "Certain Documents" shall include electronic
form or records within the meaning of sub-clause (r) of clause (1) of sections
2 and 4 of the information Technology Act, 2000 (central Act, 21 of 2000}
". (2)
After sub-section (2), the following shall be
inserted, namely:- "(3)
Proclamation for person absconding,- (i)
If the Special Court has reason to believe
(whether after taking evidence or not) that any person against whom a notice or
summons or warrant has been issued who has absconded or is concealing himself
so that such notice or summons or warrant shall not be executed, such Special
Court may publish a written proclamation requiring him to appear at a specified
place and at a specified time not less than thirty days from the date of
publishing such proclamation. (ii)
The proclamation shall be published in the
following manner, namely:- (a)
it shall be publicly read in some conspicuous
place of the town or village in which such person ordinarily resides; (b)
it shall be affixed to some conspicuous part
of the house or homestead in which such person ordinarily resides or to some
conspicuous place of such town or village; (c)
a copy of the proclamation shall be affixed
to some conspicuous part of the Special Court-house; (d)
the Special Court may also, if it thinks fit,
direct a copy of the proclamation to be published in two daily newspaper (at
least one kannada news paper) circulating in the place in which such person
ordinarily resides. (e)
A statement in writing by the Special Court
issuing the proclamation to the effect that the proclamation was duly published
on a specified day, in the manner specified in clause (i) shall be conclusive
evidence that the requirements of this section have been complied with, and
that the proclamation was published on such day. If such person fails to appear
at the specified place and time required by the proclamation, the Special Court
may, after making such inquiry as it thinks fit, pronounce him a proclaimed
offender and make a declaration to that effect. In the principal Act in
section 5, in subsection (2), in the proviso, for the words "fifteen
days" the words "thirty days" shall be substituted. 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." 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" In the Principal Act, in
section 9.- (1)
in subsection (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. In section 9A of the
principal Act, in subsection (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. In section 10 of the
principal Act, in subsection (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. 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. In the Principal Act, in
section 13 after subsection (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 Rupees 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 limitedto
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 derivingfrom 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. After section 21 of the
Principal Act, the following section shall be inserted, namely:- "21A.
Power to make scheme.- (1)
The Government may by notification published
in the official Gazette make such scheme similar to SEBI (Grant of reward of
informant under recovery proceedings) Guidelines, 2023 not inconsistent with
the provisions of this Act and rules made thereunder to incentivize whistle
blowers to disclose any deposit related illegal activities and or provide
original information related to the assets of the defaulters to help the
Government to recover monies from fraudsters and to repay the depositors their
deposits. (2)
Every scheme made under this section shall as
soon as may be after it is made, be laid before both the houses of the State
Legislature."The Karnataka Protection of Interest of Depositors In Financial
Establishments (Amendment) Act, 2024
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