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Power to make scheme STATEMENT OF OBJECTS AND REASONS There has been a rapid growth of Financial establishments, not covered by the Reserve Bank of India Act, 1934 (Central Act II of 1934) in the State. These financial establishments are receiving deposits from the public, mostly middle class and poor classes on the promise of high rates of interest and easy gains, Many of the financial establishments have defaulted to return to the public, the deposits on maturity and thereby cheating the depositors of their legitimative due. There have been representations from Depositors Associations and public to have a legal mechanism to protect the interests of depositors. The Reserve Bank of India has also suggested that the State Government should enact a law in order to protect the interests of the depositors. Therefore it was considered necessary to bring a suitable legislation to regulate the activities of such financial establishments, other than those covered by the Reserve Bank of India Act, 1934. Accordingly, the Karnataka (Protection of Interest of Depositors in Financial Establishments) Bill, 2000 (L. A. Bill No. 36 of 2000) was introduced in the State Legislature and both the Houses approved the same. The Bill was then sent to the Government of India to obtain assent of the President. However, the President of India withheld his assent to the Bill on the ground that the amendments suggested by the Ministry of Finance Company Affairs (Banking Division) could not be carried out as the Bill had already been passed by the State Legislature. The Bill among other things provides for the following:- (i) Defining the term "Default" to include fraudulent failure to return the deposit or pay interest, bonus, and profit or perform service promised. 3 (ii) Attachment of property of financial establishment and that of the Promoter, Director, Partner, Manager or Member of the Financial Establishment, in case of default of return of deposit. (iii) Attachment of property of malafide transferees where it is transferred by the Financial Establishment otherwise than in good faith and for consideration. (iv) Appointment of competent authority to exercise control over the said property and the powers and duties of the competent authority (v) Constitution of Special Court for dealing with all the cases (vi) Institution of Criminal Proceedings against the Promoter, Partner, Director, Manager or any other person responsible for management of the Financial Establishment for contravention of the provisions of the law which is punishable up to ten years of imprisonment and up to one lakh rupees of fine. Certain other consequential and incidental provisions are also made. Hence the Bill. [ L.A. BILL No. 2 OF 2004 ] [Entry 64, 65 of list II and entry 2, 11A, 13 and 46 of list III of the Seventh Schedule to the Constitution of India] I Act 06 of 2021.- It is considered necessary to amend the Karnataka Protection of Depositors in Financial Establishments Act, 2004 (Karnataka Act 30 of 2005),- (1) to authorise the Government or the District Magistrate or Police Authorities to cause investigation of a complaint or fraudulent transaction and to empower the Secretary to Government, Revenue Department or any authority nominated by the Government to conduct investigation or enquiry and also to empower the Secretary to Government or Competent Authority with powers of a Civil Court summon persons and documents as per Code of Civil Procedure, 1908; (2) to appoint one competent authority where cases pertaining to any one financial establishment, which is spread over more than one district; (3) to empower the secretary to Government Revenue Department, to extend the time limit for making application to the special court for orders to attach absolutely; 4 (4) to empanel or adopt and notify the list of agencies for valuation of assets to assist selling of assets to prospective buyers; (5) to enhance the term of imprisonment and penalty for fraudulent default by the Financial Establishments on par with the Banning of unregulated deposits schemes Act, 2019 (Central Act 21 of 2019); (6) to transfer cases pending in different courts pertaining to any one financial establishments spread over different districts to one special court; (7) to utilize the services of the e-auction plat form, empanelled agencies, official liquidators and the valuers approved by any Nationalised Bank for valuation of assets; (8) to empower the special courts to assess the value of attached assets and for facilitating their sale expeditiously; (9) to ensure more transparency and fair assessment of the value of property to be released; and (10) Certain consequential amendments are also proposed. Hence the Bill [L.A. Bill No. 01 of 2021, File No. Samvyashae 84 Shasana 2020] [Entry 01 and 30 of List II and Entry 08 of List III of the Seventh Schedule to the Constitution of India.] [Published in Karnataka Gazette Extra-ordinary No.196 in part-IVA dated: 19.02.2021] II Amending Act 24 of 2022.- It is considered necessary to amend the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (Karnataka Act 30 of 2005) to,- (1) treat offence under this Act as cognizable and non – bailable; (2) provide for clubbing of all First Information Reports and a single case to be filed against the same accused or the same financial establishment, as discussed in the SLCC Meeting in the RBI; and 5 (3) empower the special courts to try an offence, other than offence under this Act, with which the accused may under the Code of Criminal Procedure, 1973 be charged at the same trial. As the matter was urgent and both Houses of the State Legislature were not in a session, the Karnataka Protection of Interest of Depositors in Financial Establishments (Amendment) Ordinance, 2022 (Karnataka Ordinance 01 of 2022) was promulgated to achieve the above object. This Bill seeks to replace the said Ordinance. Hence, the Bill. [L.A. Bill No. 14 of 2022, File No. SAMVYASHAE 12 SHASANA 2022] [Entry 1 and 30 of List II and entry 8 of List III of the Seventh Schedule to the Constitution of India..] [Published in Karnataka Gazette Extra-ordinary No. 490 in part-IVA dated: 28.09.2022] III Amendment Act 09 of 2025:- As discussed in the meeting of the State Level Co- ordination Committee (SLCC), for Karnataka held at Reserve Bank of India, it is considered necessary further to amend the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 (Karnataka Act 30 of 2005) to,- (1) re-define the words “Depositor” and “Market Intelligence”, in view of the current trends by inducing the depositor for investing; and (2) empower the Government or the nodal officer notified by the Government or the District Magistrate, to investigate a complaint or fraudulent transaction by suo-moto or based on Market Intelligence Report or Police Authority; and (3) empower the Government or any Authority notified by the Government, to direct any news paper or publication agency to desist from issuing advertisement in favour of any scheme of any financial establishment which is under investigation or enquiry; and (4) make provisions for proclamation for person absconding; and (5) empower any special court or any competent authority to issue summons to produce document or things in who‟s procession or power such documents or thing is believe to be, requiring him to attend and produce such document; and 6 (6) give explaination for the words “certain documents”, “document or thing”, “effective media publication”, “proper proof to established claim”, “unfunded exposures” and “Relevant period”; and (7) establish the liability of any Director, Promoter, Office Bearer, Accountant, Agent or Partner of the establishment or former Directors, Partners, Promoters who have resign from establishment; and (8) Empower the Government to make schemes. Hence, the Bill. [L.A. Bill No.51 of 2024, File No. SAMVYASHAE 64 SHASANA 2024] [Entries 1 and 30 of List II and 8 of List III of the Seventh Schedule to the Constitution of India.] [Published in Karnataka Gazette Extra-ordinary No.21 in part-IVA dated:10.01.2025] 7 KARNATAKA ACT NO. 30 OF 2005 (First Published in the Karnataka Gazette Extra-ordinary on the Twenty Second Day of December, 2005) THE KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 2004 (Received the assent of the President of India on the Fourteenth Day of December, 2005) (Amended by Acts 06 of 2021, 24 of 2022 and 09 of 2025) An Act to provide for protection of Interest of depositors in Financial Establishments and matters relating thereto: Whereas it is expedient to provide for protection of interest of the depositors in Financial Establishments and the matters relating thereto and for the purposes hereinafter appearing; Be it enacted by the Karnataka State Legislature in the fifty fourth year of the Republic of India, as follows:- CHAPTER-1