Karnataka Protection of Interest of Depositors in Financial Institutions Act 18/06/2019 – Posted in: Daily News

KARNATAKA PROTECTION OF INTEREST OF DEPOSITORS IN FINANCIAL INSTITUTIONS ACT, 2004

 

For: Preliminary & Mains

Topic cover: KPID Act, amendments, features, and its significance

 

News Flash

The State government is considering an amendment to Karnataka Protection of Interest of Depositors in Financial Institutions Act, 2004, to ensure firms that used a loophole in the law to escape action, are covered by the law.

  • The government is now amending the law to protect the interest of investors.

 

Background

  • 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 legitimate due.
  • There have been representations from Depositors Associations and the 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.
  • Accordingly, the Karnataka (Protection of Interest of Depositors in Financial Establishments) Bill, 2000 was introduced in the State Legislature and both the Houses approved the same.
  • 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.

(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 the 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.

 

Significance of the Act

  • It is an act to provide for the protection of the Interest of Depositors in Financial Establishments.
  • Whereas it is expedient to provide for the protection of interest of the depositors in Financial Establishments.

 

Source: The Hindu

 

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