Karnataka High Court
Sri Shivanand S/O Dadu Kumbar vs State Of Karnataka on 17 January, 2025
1 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
R
IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH
DATED THIS THE 17TH DAY OF JANUARY, 2025
BEFORE
THE HON'BLE MS.JUSTICE J.M.KHAZI
CRIMINAL PETITION No.100048 OF 2024
CONNECTED WITH
CRIMINAL PETITION No.102510 OF 2023
IN CRL.P.No.100048 OF 2024
BETWEEN:
YALLAPPA SHAM MANAGUTAKAR
AGED ABOUT 39 YEARS,
OCC: BUSINESS,
R/O. BEHIND APMC POLICE STATION
BOUXITE ROAD,
BELAGAVI - 590 010
AT PRESENT HOUSE NO.25/A,
LAXMI GALLI,
BAMBRAGA AND CHANNAMMA ROAD,
SAI APARTMENT KAKATI.
...PETITIONER
(BY SRI SHARAD M. PATIL, ADVOCATE)
AND:
1. STATE OF KARNATAKA
THROUGH BELAGAVI C.E.N. POLICE STATION,
NOW REPRESENTED BY
STATE PUBLIC PROSECUTOR,
HIGH COURT BUILDING
DHARWAD.
Pg.No.1, Retyped and replaced vide Chamber order dtd 24.01.2025.
2 CRL.P NO.100048/2024
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2. SHRI ARJUN
S/O KALLAPPA PATIL
AGED ABOUT 38 YEARS,
OCC. BUSINESS,
R/O.SHIVAJI GALLI,
JAFARWADI - 590 001
POST. KODOLI,
TALUK AND DISTRICT - BELAGAVI
...RESPONDENTS
(BY SRI. PRAVEENA Y. DEVARMANI, HCGP FOR R-1
SRI. RAMACHANDRA A. MALI, ADVOCATE FOR R-2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH PROCEEDING AGAINST THE
PETITIONER PENDING ON THE FILE OF PRINCIPAL DISTRICT AND
SESSIONS AND SPL. JUDGE COURT, BELAGAVI, IN CRIMINAL
PROCEEDINGS REGISTERED SPECIAL CASE NO.197/2022 FOR
THE OFFENCES PUNISHABLE UNDER SECTIONS 406 AND 420 OF
IPC AND SECTION 21(1) (2) (3) OF BANNING OF UNREGULATED
DEPOSIT SCHEMES ACT 2019, ORDER SHEET IS MARKED AT
ANNEXURE-A IN SO FAR AS ACCUSED NO.2/PETITIONER IS
CONCERNED IN THE INTEREST OF JUSTICE AND EQUITY.
IN CRIMINAL PETITION NO.102510 OF 2023
BETWEEN:
SRI SHIVANAND
S/O DADU KUMBAR
AGED ABOUT 47 YEARS,
OCC: BUSINESS,
R/O. SADALAGA,
NOW AT PLOT NO.43,
SAMBHAV COLONY,
SHRI. MAHALAKSHMI APARTMENT,
YADRAON, ICHALAKARANJI,
TALUK HATAKANAGALE,
DISTRICT: KOLHAPUR - 416 115,
STATE: MAHARASHTRA
...PETITIONER
(BY SRI. SRINAND A. PACHHAPURE, ADVOCATE)
3 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
AND:
1. STATE OF KARNATAKA
THROUGH BELAGAVI C.E.N. POLICE STATION,
NOW REPRESENTED BY STATE PUBLIC PROSECUTOR
HIGH COURT OF KARNATAKA
DHARWAD BENCH AT
DHARWAD - 580 011
2. SRI. ARJUN
S/O. KALLAPPA PATIL
AGED ABOUT 38 YEARS,
OCC. BUSINESS,
R/O. SHIVAJI GALLI,
JAFARWADI - 590 001,
POST. KADOLI,
TALUK AND DISTRICT BELAGAVI.
...RESPONDENTS
(BY SRI. PRAVEENA Y. DEVAREDDIYAVARA, HCGP FOR R-1
SRI. RAMACHANDRA A. MALI, ADVOCATE FOR R-2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C. SEEKING TO QUASH THE PROCEEDINGS IN SPECIAL
CASE NO.197/2022 ON THE FILE OF COURT OF PRINCIPAL
DISTRICT AND SESSIONS JUDGE, BELAGAVI REGISTERED FOR
THE OFFENCES PUNISHABLE UNDER SECTIONS 406 AND 420 OF
IPC AND SECTION 21(1)(2)(3) OF BUDS ACT, ORDER SHEET
MARKED AT ANNEXURE-A IN SO FAR AS PETITIONER/ACCUSED
NO.1 IS CONCERNED.
THESE PETITIONS HAVING BEEN HEARD AND RESERVED
ON 16.12.2024, COMING ON FOR PRONOUNCEMENT OF
JUDGMENT THIS DAY, THE COURT DELIVERED THE FOLLOWING:
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C/W CRL.P NO.102510/2023
CORAM: THE HON'BLE MS. JUSTICE J.M.KHAZI
CAV COMMON ORDER
(PER: THE HON'BLE MS. JUSTICE J.M.KHAZI)
In these two petitions filed under Section 482 of the
Cr.P.C, accused Nos.2 and 1 respectively have sought for
quashing the criminal proceedings initiated against them in
Spl.C.No.197/2022 on the file of Prl.District and Sessions
Judge, Belagavi, for the offences punishable in Sections 406
and 420 IPC and Section 21(1)(2) and (3) of The Banning of
Unregulated Deposit Schemes Act, 2019 ('BUDS Act' for
short).
2. While Crl.P.No.102510/2023 is filed by accused
No.1, Crl.P.No.100048/2024 is filed by accused No.2.
3. Since these two petitions are arising out of the
same case, they are clubbed together and disposed of by a
common order.
Pg.No.4, Retyped and replaced vide Chamber order dtd 24.01.2025.
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4. In support of the petition, the petitioners have
contended that absolutely there is no material in the charge
sheet to proceed against them and as such, it is liable to be
quashed, as it amounts to abuse of process of law. As per
Section 27 of BUDS Act, no designated Court shall take
cognizance of an offence punishable under the said section,
except upon a complaint made by the regulator. As per
Section 7 of the said Act, the Government shall first appoint
a regulator and thereafter designate a Court to deal with the
matters to which the provisions of the said Act apply, and
the designated Court can take cognizance only on complaint
in writing made by the regulator. In the present case,
respondent No.2 who is a private person has given the first
information and on the basis of it, FIR is registered. During
the course of investigation, the provisions of BUDS Act are
invoked and after investigation, charge sheet is filed. The
trial Court ought to have complied with the provisions of
Section 27 of BUDS Act. The non-compliance of said
provision, has vitiated the entire proceedings.
6 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
5. The petitioners are in no way concerned with the
allegations made in the complaint. Allegations made in the
complaint are not believable. There is no material to show
that complainant has invested Lakhs together. As per the
statements of CW-2, 12 to 17, it is alleged that accused No.1
has cheated the innocent investors to the tune of `55 Crores,
which is not believable. Viewed from any angle, the
proceedings are not sustainable and pray to allow the
petitions and quash the criminal proceedings against the
petitioners.
6. In support of their arguments, the learned counsel
for petitioners have relied upon the following decisions:
(i) Shivaji s/o Baburao Patil and Anr. Vs. The
State of Karnataka (Shivaji)1
(ii) Santosh Kumar S/o Gadeppa Khot and anr.
Vs. The State of Karnataka and Ors.
(Santosh Kumar)2
(iii) Sri.Ravikiran s/o Sureshkamlakar and Anr.
Vs. The State by Chikkodi Police Station
Belagavi District and Ors. (Ravikiran)3
1
Cril.P.No.200861/2022
2
W.P.No.102888/2022
3
W.P.No.100390/2022 c/w
Cril.P.No.100407/2022, Cril.P.No.102449/2021
Pg.No.6, Retyped and replaced vide Chamber order dtd 24.01.2025.
7 CRL.P NO.100048/2024
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7. Learned counsel for respondent No.2/complainant
submitted oral objections stating that initially, first
information came to be filed by Arjun Kallappa Patil stating
that since 10 years, he is doing vegetable business. He is
having agriculture land and also doing diary business. While
doing vegetable business, he came to be acquainted with
accused No.2-Yallappa Managutakar. Accused No.2
convinced the complainant that if he invest in steel and
cement business, he would pay handsome return. Therefore,
on 25.01.2021, complainant paid `40 lakhs to accused No.2.
After two months, accused No.2 paid him `2 lakhs by way of
profit. Convinced by the fact that accused No.2 would give
him handsome profit and also return the investment made
by him, on 01.04.2021 complainant invested `35 lakhs with
accused No.2.
8. Subsequently, when he requested accused No.2 to
return his money, time and again he went on postponing. On
enquiry, accused No.2 revealed that he has invested the said
money with accused No.1 Shivanand Kumbar and after
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taking money invested by several persons, on 18.07.2021
accused No.1 absconded and he is also searching for him. In
whatsapp also, he came across the information regarding
accused No.1 Shivananda Kumbar having absconded.
However, later accused No.2 Yallappa Managutakar also
absconded and he is not receiving the calls. Both accused
Nos.1 and 2 have cheated the complainant in a sum of
`75,00,000/- and accordingly, he filed the complaint.
9. Based on the said complaint, the CEN Crime
Police, Belagavi City have registered case in Cr.No.26/2021
for the offences punishable under Sections 406 and 420 IPC
and taken up investigation. Accused Nos.1 and 2 were
arrested and based on their voluntary statement,
incriminating evidence was collected. The investigation
reveal that accused No.1 who is hailing from Sadalaga of
Chikkodi, dropped out of college after failing in PUC. For six
years, he worked at Doodhaganga Sugar Factory and left his
job when he was not confirmed. Thereafter, he was driving
tractor belonging to his father till it was sold and he worked
9 CRL.P NO.100048/2024
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as a driver with one Ingale and left the job after 2-3 years.
In 2002, he started working in the Ashram of Shirdi Junglee
Maharaj, at Kokamthana. There he was working as a driver
of tractor and tempo. While working in the said Ashram, he
started getting cement and steel at concession rate in the
name of Ashram on credit basis and supply the same to
those person who were in need of it and used to pay the
amount belatedly.
9.1 In this manner, he started getting money. He
used to make the payment for the cement and steel
purchased on credit basis, after he received money from the
next prospective buyer. In this way, he used to retain certain
amount for a short period. Those who are not in need of
cement and steel, started investing with him. Though he was
not getting high margin of profit, in order to gain the
confidence of investors, he used to pay profit to them out of
the investment made by subsequent investors. He used to
utilise the money at his hand for his personal needs,
including investment in real estate, construction of
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apartments, farm house and for purchasing agricultural land
etc. Lured by the high returns in short time business people
started investing with him.
9.2 With the money received from such investment,
he also started tours and travel business by name, Nayikba
Yatra tours. In the meanwhile, he came to be acquainted
with accused No.2-Yallappa Managutakar. Through accused
No.2, he started getting heavy investments ranging from 50
lakhs to crores. He used to pay benefit to the previous
investor out of the investment received from the new
investor. He has not taken any license from the concerned
authority. This was going on smoothly till 2019-2020.
9.3 On account of COVID and lockdown, the
investment slowed down and on the other hand, the investor
started demanding back the money invested by them. Since
he has already utilised the investment for purchasing lands,
construction of house, etc., he could not return the said
investment. Therefore, he along with his wife and children
11 CRL.P NO.100048/2024
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escaped to Maldives. From there, they proceeded to other
places, including Egypt, Dubai, Ajman and Nepal. Till
26.06.2022, he managed to keep the police away. However,
on 26.06.2022, at 11.00 p.m, when he came to Mumbai from
Nepal, he was apprehended by the concerned police. Before
he was apprehended, accused No.2 was arrested by the
concerned police and through him, they came to know about
the part played by accused No.1. During investigation, the
concerned police have seized and attached the movable and
immovable properties of accused Nos.1 and 2. The
investigation reveal that accused Nos.1 and 2 have cheated
complainant, CW-2, 12 to 17 and many other persons to the
tune of `55 crores spread across Karnataka and
Maharashtra. He has acquired properties not only in his
name, but also in the name of his wife, Smt.Vijaya Kumbar.
There is prima facie material to proceed against the
petitioners and pray to dismiss the petitions.
10. During the course of the argument, learned
counsel for petitioners submitted that as per Section 27 of
Pg.No.11, Retyped and replaced vide Chamber order dtd 24.01.2025.
12 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
the BUDS Act, the designated Court can take cognizance only
on a complaint filed by the regulator and therefore the entire
proceedings initiated based on the first information furnished
by respondent No.2/defacto complainant before the
concerned police and the charge sheet filed is vitiated and on
this ground alone, the petitioners are entitled for quashing of
the criminal proceedings against them. He would submit that
in the similar cases in Shivaji, Santosh Kumar and
Ravikiran referred to supra, the criminal proceedings
initiated are quashed, reserving liberty to the regulator to file
complaint under Section 200 Cr.P.C before the designated
Court.
11. On the other hand learned counsel representing
respondent No.2/defacto complainant as well as learned High
Court Government Pleader submitted that the restriction in
Section 27 relates to an offence punishable under Section 4
committed by a deposit taker, who is running a Regulated
deposit scheme and commit any fraudulent default in the
repayment or return of deposit on maturity or in rendering
13 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
any specified service promised against such deposit. They
would further submit that, however, if the offence is
committed by any person or entity who are running an
Unregulated deposit scheme and also where the offence
under Section 4 is committed by a company, then the
complaint may be filed by anyone who is aggrieved or by the
concerned for this and cognizance is to be taken on such
charge sheet by the designated Court. In the present case,
since the offences punishable under Section 21 (1)(2) and
(3) of BUDS Act, committed by accused Nos.1 and 2 comes
under the definition of Unregulated Deposit Scheme, the
restriction contained in Section 27 of the BUDS Act is not
applicable and therefore question of quashing the said
proceeding would not arise. He would further submit that in
the decisions relied upon by the petitioners, this aspect is not
examined and therefore the said decisions are not applicable
to the case on hand.
12. Heard arguments of both sides and perused the
record.
Pg.No.13, Retyped and replaced vide Chamber order dtd 24.01.2025.
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13. The crux of the argument submitted by the
learning counsel representing for petitioners is that under
Section 27 of the BUDS Act, there is prohibition for the
designated Court to take cognizance of an offence under the
Act, except upon a complaint made by the regulator.
According to the learned counsel for the petitioners, the
designated Court can take cognizance only on the basis of a
complaint filed under Section 200 by the regulator and
therefore the proceedings initiated upon the first information
report furnished by the defacto complainant i.e., respondent
No.2 and ultimately charge sheet filed against the petitioners
are vitiated and as such, the petitioners are entitled for
quashing of the proceedings, but right may be reserved to
the concerned authorities to file complaint under Section 200
of Cr.P.C. and proceed with the matter.
14. Before going to the merits of the case, it is
necessary to refer to some of the provisions of the BUDS Act.
The object of the said Act is to provide for a comprehensive
Pg.No.14, Retyped and replaced vide Chamber order dtd 24.01.2025.
15 CRL.P NO.100048/2024
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mechanism to ban the Unregulated deposit schemes, other
than the deposits taken in the ordinary course of business
and to protect the interest of depositors and matters
connected there with or incidental thereto.
15. Section 2 (4) define the term deposit means an
amount of money received by way of an advance or loan, or
in any other form, by any deposit taker with a promise to
return whether after a specified period or otherwise, either in
cash, or in kind or in the form of a specified service, with or
without any benefit in the form of interest, bonus, profit or in
any other form, but does not include-
(a) amounts received as loan from a scheduled
bank or a co-operative bank or any other
banking company as defined in Section 5 of the
Banking Regulation Act, 1949;
(b) amounts received as loan or financial
assistance from the Public Financial Institutions
notified by the Central Government in
consultation with the Reserve Bank of India or
any non-banking financial company as defined
16 CRL.P NO.100048/2024
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in clause (f) of section 45-I of the Reserve
Bank of India Act, 1934 and is registered with
the Reserve Bank of India or any Regional
Financial Institutions or insurance companies;
(c) amounts received from the appropriate
Government, or any amount received from any
other source whose repayment is guaranteed
by the appropriate Government, or any amount
received from a statutory authority constituted
under an Act of Parliament or a State
Legislature;
(d) amounts received from foreign Governments,
foreign or international banks, multilateral
financial institutions, foreign Government
owned development financial institutions,
foreign export credit collaborators, foreign
bodies corporate, foreign citizens, foreign
authorities or person resident outside India
subject to the provisions of the Foreign
Exchange Management Act, 1999 and the rules
and regulations made thereunder;
(e) amounts received by way of contributions
towards the capital by partners of any
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partnership firm or a limited liability
partnership;
(f) amounts received by an individual by way of
loan from his relatives or amounts received by
any firm by way of loan from the relatives of
any of its partners;
(g) amounts received as credit by a buyer from a
seller on the sale of any property (whether
movable or immovable);
(h) amounts received by an asset re-construction
company which is registered with the Reserve
Bank of India under section 3 of the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest
Act, 2002;
(i) any deposit made under section 34 or an
amount accepted by a political party under
section 29B of the Representation of the People
Act, 1951;
16. Section 2(5) defines the term 'depositor' means -
'any person who makes a deposit under the BUDS Act;
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17. Section 2(6) defines the term 'deposit taker'
means -
(i) any individual or group of individuals;
(ii) a proprietorship concern;
(iii) a partnership firm (whether registered or
not);
(iv) a limited liability partnership registered under
the Limited Liability Partnership Act, 2008;
(v) a company;
(vi) an association of persons;
(vii) a trust (being a private trust governed under
the provisions of the Indian Trusts Act, 1882 or a
public trust, whether registered or not);
(viii) a co-operative society or a multi-State co-
operative society; or
(ix) any other arrangement of whatsoever nature,
receiving or soliciting deposits, but does not
include--
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(i) a Corporation incorporated under an Act
of Parliament or a State Legislature;
(ii) a banking company, a corresponding new
bank, the State Bank of India, a subsidiary
bank, a regional rural bank, a co-operative
bank or a multi-State co-operative bank as
defined in the Banking Regulation Act, 1949;
18. Section 2(14) defines the term "Regulated Deposit
Scheme" means the schemes specified under column (3) of
the First Schedule.
19. Similarly, Section 2(15) defines the term
'Regulator' means the Regulator specified under column (2)
of the First Schedule.
20. Section 2(16) defines the term 'Schedule' means
the Schedule appended to the BUDS Act.
21. Section 2(17) defines the term 'Unregulated
Deposit Scheme' means a Scheme or an arrangement under
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which deposits are accepted or solicited by way of business,
and which is not a Regulated Deposit Scheme as specified
under column (3) of the First Schedule.
22. Chapter-II of the BUDS Act, deal with Banning of
Unregulated Deposit Schemes. Section 3 states that - On and
from the date of commencement of the BUDS Act, (a) the
Unregulated Deposit Schemes shall be banned, and (b) no
deposit taker shall directly or indirectly promote, operate,
issue any advertisement soliciting participation or enrolment
in or accept deposits in pursuance to an Unregulated Deposit
Scheme.
23. Thus, while Section 3(a) totally banned
Unregulated Deposit Schemes, Section 3(b), prohibits any
deposit taker from directly or indirectly promoting, operating,
issuing any advertisement, soliciting participation, or
enrolment in, or accept deposits in pursuance of an
Unregulated Deposit Scheme.
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24. Section 5 also prohibits any person by whatever
name called knowingly, make any statement, promise, or
forecast, which is false, deceptive or misleading in material
facts or deliberately conceal any material facts, to induce
another person to invest in, or become a member of or
participate in any Unregulated Deposit scheme.
25. Section 6 clarifies that a prize chit or money
circulation scheme banned under the provisions of the prize
Chits and Money Circulation Scheme (Banning) Act, 1978,
shall be deemed to be an Unregulated Deposit Scheme under
the BUDS Act.
26. While Sections 3, 5 and 6 deals with Unregulated
Deposit Schemes, Section 4 makes certain acts of deposit
taker of Regulated Deposit Scheme punishable, who commits
fraudulent default in the repayment or return of deposit on
maturity or in rendering any specified service promised
against such deposit.
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C/W CRL.P NO.102510/2023
27. Chapter 6 of the BUDS Act deals with offences and
punishments. Section 21 prescribes punishment for
contravention of Section 3. Section 21(1) states that any
deposit taker who solicits deposits in contravention of
Section 3 shall be punished with imprisonment for a term
which shall not be less than one year, but which may extend
to five years and fine, which shall not be less than `2 lakhs,
but which may extent to `10 lakhs. This is for soliciting
deposits in contravention of Section 3.
28. Section 21(2) states that any deposit taker who
accepts deposits in contravention of Section 3 shall be
punished with imprisonment for a term which shall not be
less than 2 years, but which may extend to 7 years and fine,
which shall not be less than `3 lakhs, but which may extend
to `10 lakhs. This is for accepting deposits in contravention
of Section 3.
29. Section 21(3) provides that that any deposit taker
who accepts deposits in contravention of Section 3 and
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fraudulently default in repayment of such deposits or in
rendering any specified service shall be punished with
imprisonment for a term which shall not be less than 3
years, but which may extend to 10 years and fine, which
shall not be less than `5 lakhs, but which may extend to
twice the amount of aggregate funds collected from the
subscribers, members or participants in the Unregulated
Deposit Scheme. This is for fraudulent default in repayment
of such deposits or in rendering any specified service in
contravention of Section 3.
30. Section 23 prescribes punishment for
contravening the provisions of Section 5 and states that any
person who contravenes the provisions of Section 5 shall be
punishable with imprisonment for a term which shall not be
less than one year, but which may extend to 5 years and
with fine, which may extend to ten lakhs.
31. Section 24 deals with second and subsequent
offence, except under Section 26, prescribing higher
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punishment, which shall not be less than 5 years, but which
may extend to 10 years and fine, which shall not be less
than `10 lakhs, but which may extend to `50 Crores.
32. Section 25 deals with offences by deposit takers
who are other than individuals such as company and other
entities and every person who at the time the offence
committed was in charge of and responsible to the deposit
taker for conduct of its business, as well as deposit taker
shall be deemed to be guilty of the offence and punished
accordingly. Sub-section (2) carves out exception.
33. Section 26 punishes those persons who failed to
furnish any statement, information or particulars as required
under Section 10(2) (1), with fine, which may extend to `5
lakhs.
34. At this stage, it is relevant to note that as per
Section 28, notwithstanding anything contained in the Code
of Criminal Procedure, 1973, every offence punishable under
Pg.No.24, Retyped and replaced vide Chamber order dtd 24.01.2025.
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this Act, except offence under Section 22 and 26 shall be
cognizable and non-bailable.
35. Section 22 prescribe punishment for contravention
of Section 4 by any deposit taker means deposit taker of
Regulated deposit Scheme who commits offence relating to a
Regulated deposit scheme. Section 26 deals with failure to
give information required under Section 10(1). Except these
two offences, the rest of the offences are cognizable and
non-bailable.
36. Thus, perusal of Sections 3, 5 and 6 makes it
evident that while Section 3 ban the Unregulated Deposit
Schemes, Section 5 makes punishable a person knowingly
making any statement, promise, or forecast, which is false,
deceptive or misleading in material facts and deliberately
conceals any material fact to induce any person to invest in
or become member or participate in any Unregulated
Deposit Scheme. Section 6 includes any chit or money
circulation scheme which is banned under the
Pg.No.25, Retyped and replaced vide Chamber order dtd 24.01.2025.
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provisions of prize chits and Money Circulation Scheme
(Banning) Act 1978, as Unregulated deposit scheme. The
violation of Section 3 and 5 are made punishable under
Sections 21 and 23.
37. Section 4 concerns with Regulated deposit taker
and prohibits such a Regulated deposit taker from
committing fraudulent default in repayment or return of the
deposit on maturity or rendering any specified service
promised against such deposit.
38. It is to be remembered that as defined under
Section 2(14) Regulated Deposit Schemes are those which
are specified under column (3) of Serial number (1) of the
first schedule. Serial number (2) provides that (a) Deposits
accepted under any scheme or an arrangement, registered
with any regulatory body in India, constituted or established
under a statute and (b) Any other scheme, as may be
notified by the Central Government under the BUDS Act shall
also be treated as Regulated Deposit Schemes under the
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BUDS Act. As per Section 2(15) to regulate such Regulated
Deposit Schemes, a regulator is appointed who is specified in
column (2) of first schedule. Thus for every Regulated
deposit scheme, there is a regulator. Section 40 deals with
power of the Central Government to amend the First
Schedule by Notification and add to, or omit from the First
Schedule any scheme or arrangement and on such addition
or omission, such scheme or arrangement shall become or
cease to be a Regulated Deposit Scheme.
39. Chapter 4 deals with information on deposit
takers, which necessarily mean a Regulated Deposit Scheme.
As per Section 9(1) the Central Government may designate
an authority, whether existing or to be constituted, the duty
of which is to create, maintain and operate an online
database for information on deposit takers operating in
India. As per Section 9(2) the authority so designated under
sub-section one may require the regulator or the competent
authority to share such information on deposit takers, as
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may be prescribed. Section 10 deals with information of
business by the deposit taker.
40. Section 10(1) mandates that every deposit taker,
which commences or carries on its business as such and on
or after the commencement of the BUDS Act to intimate the
authority referred to in Section 9(1) about its business in
such form and manner and within such time as may be
prescribed. Section 10 (2) requires that where the competent
authority has reason to believe that the deposits are being
solicited or accepted, pursuant to an Unregulated deposit
scheme, direct any deposit taker to furnish such statements,
information, or particular, as it considers necessary, relating
to or connected with the deposits received by such deposit
taker.
41. The explanation (a) clarify that the requirement of
intimation under the sub-section (1) is applicable to deposit
takers accepting or soliciting deposits as defined under
Section 2(4), which means a Regulated deposit, since the
29 CRL.P NO.100048/2024
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Unregulated deposit is banned under Section 3. Similarly
explanation (b) clarifies that the intimation under sub-section
(1) also apply to a company, if the company accepts the
deposits under Chapter 5 of the Companies Act.
42. Thus, the information on deposit takers is
required to be collected by the authority designated by the
Central Government, whether existing or to be constituted,
which necessarily mean the information which is required to
be regularly maintained by the deposit taker of Regulated
Deposit Scheme. The requirement of designated authority
directing any deposit taker to furnish such statement,
information, or particulars with regard to Unregulated
deposit schemes is an exception, and it happens only when
the competent authority has reason to believe that deposits
are being solicited or accepted in respect of Unregulated
Deposit Scheme.
43. Chapter 7 deals with investigation, search and
seizure. Under Section 29, a police officer on recording
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information about the commission of an offence under this
Act is duty bound to inform the same to the competent
authority, while Section 11 deals with requirement of
competent authority to share information received under
Section 29 with the Central Bureau of Investigation and with
the authority, which may be designated by the Central
Government under Section 9. Similarly, as per Section 11 (2)
the appropriate Government, any regulator, income tax
authorities, or any other investigation agency, having any
information or documents in respect of the offence
investigated under this Act by the police or the Central
Bureau of Investigation shall share all such information or
documents with the police or the Central Bureau of
Investigation. Similarly, as per Section 11(3) the principal
officer of any banking company, a corresponding new bank,
the State Bank of India, a subsidiary bank, original rural
bank, a Co-operative bank or multi-cooperative bank has a
reason to believe that any client is a deposit taker and is
31 CRL.P NO.100048/2024
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acting in contravention of the provisions of BUDS Act, shall
forthwith inform the same to the competent authority.
44. Section 31 deals with the power to enter, search
and seize without warranty. It authorise any police officer,
not below the rank of an officer in charge of a police station,
who has reason to believe that anything necessary for the
purpose of an investigation into any offence under this Act
may be found in any place within the limits of jurisdiction of
police station of which he is in charge and other cases with
the written authority of an officer, not below the rank of
Superintendent of Police, may conduct search and seizure.
As per Section 31(2), in case it is not practicable to seize the
record or property, he may make an order in writing to
freeze such property, account, deposits or valuable securities
maintained by any deposit taker regarding the offence under
the Act initially for a period of 30 days and it may be
extended for further period as per the order of the
designated Court.
32 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
45. As per sub-section (3) of Section 31, where an
officer takes down any information in writing or records
ground for his belief or makes an order in writing under sub-
section (1) or sub-section (2), within 72 hours shall send a
copy there to the designated Court in a sealed envelope. The
owner or occupier of the building, conveyance, or place shall
on application entitled for a copy to be furnished free of cost,
by the designated Court. Section 32 (1) provides that the
designated Court may take cognizance of offence under the
Act without the accused being committed to it for trial.
46. Chapter 3 deals with authorities. As required
under Section 7, the appropriate Government is required to
appoint one or more officers, not below the rank of Secretary
to that Government as the competent authority for the
purpose of BUDS Act. As per sub-section (2), the appropriate
Government is also required to appoint such other officer or
officers to assist the competent authority in discharge of its
functions under the Act. Perusal of provisions of chapter 3
makes it evident that wherever the competent authority or
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officers appointed under sub-section (2), have reason to
believe that any deposit taker is soliciting deposits in
contravention of Section 3, he may order for attachment,
etc. It is having powers as vested in Civil Court. Under this
chapter, Section 8 deals with constitution of designated
Courts, not below the rank of a District and Sessions Judge.
No Courts other than the designated Court shall have the
jurisdiction in respect of any matters to which the provision
of the BUDS Act apply. While trying the offences under the
BUDS Act, the designated Court may also try an offence
under other enactments.
47. As per Section 37 of the Act, the Central
Government and under Section 38 the State Government or
Union Territory Government as the case maybe in
consultation with the Central Government may make rules
for carrying out the provisions of the Act.
48. Accordingly vide Notification dated 12.02.2020,
the Central Government has framed the Banning of
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Unregulated Deposits Schemes Rules 2020 ('Central Rules'
for short). Rule 3 of the Central Rules state that while the
competent authority pass order provisionally, attaching the
property of the deposit taker, in addition to the other
information, enumerated in class B to D, as per clause A it
shall also take into consideration any complaint against the
promotion or operation of an Unregulated deposit scheme,
whether the complainant is a depositor in the said
Unregulated deposit scheme or not, any information received
from Central Government and State Governments. Rule 10
of the Central rules deals with authorisation for search and
seizure relating to an Unregulated Deposit Scheme.
49. In exercise of the provisions of Section 37, vide
Notification dated 27.10.2020, the State Government has
framed the Karnataka Banning of Unregulated Deposit
Schemes Rules, 2020 ('State Rules' for short). As per Rule
4(1), while conducting investigation or enquiry under Section
7(4) of the Act, Notices may be issued in form No. A and C,
which clearly referred to the violation of provision of Section
35 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
3 of the Act. Similarly, as per Rule 4(2), the order of
provisional attachment shall contain the details enumerated
in 1 to 9 which includes details of the complaint, enquiry
report from the police, complaints received from the public.
50. The plain reading of Section 27 makes it evident
that the designated Court is prohibited from taking
cognizance of an offence under Section 4, except upon the
complaint made by the regulator. It does not refer to any
other offence under the provisions of BUDS Act. The reason
behind this is that in case of Regulated deposit schemes,
prescribed authorities are there to monitor the same.
Database is created and maintained. Such Regulated deposit
schemes are managed by the regulators who are constituted
under respective statutory provisions.
51. The offence that could be committed by a deposit
taker running a Regulated deposit scheme under Section 4,
are where it may fraudulently default in repayment or return
of deposit on maturity or in rendering any specified service,
36 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
promised against such deposit. This offence could be
established by the regulator on the basis of information
available with it. It may not require an extensive
investigation by the police as in case of other offences under
Section 3 and 5. In fact, a deposit taker of Regulated deposit
scheme may commit an offence punishable under Section 3
(2) or 5, if he directly or indirectly promote, operate, issue
any advertisement, soliciting, participation or enrolment in or
accept deposits in pursuance of an Unregulated deposit
scheme. He may commit the offence under Section 5 in case
he succeeds in persuading any person to invest in or become
a member or participant of any Unregulated Deposit Scheme.
52. Thus, while Section 3 deals with Unregulated
Deposit Schemes and that all the Unregulated Deposit
Schemes shall be banned, Section 4 punishes a deposit
taker, who is running a Regulated Deposit Scheme,
committing an offence in the respective Regulated Deposit
Scheme, by committing any fraudulent default in the
repayment or return of deposit on maturity or in rendering
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C/W CRL.P NO.102510/2023
any specified service promised against such deposit. There
is sea of difference between an offence under Section 4 and
the other offences under Sections 3 and 5. While Section 4
deals with an offence committed by a deposit taker who is
running a Regulated deposit scheme, Section 3 and 5 deals
with offences concerning Unregulated Deposit Schemes.
53. The Regulated Deposit Schemes are run under the
supervision and control of the regulator. While under Section
9, the designated authority is required to create a central
database, under Section 10, every regulated deposit taker is
duty bond intimate the designated authority and furnish
statements, information or particulars concerning the
deposits. Explanation makes it very explicit that the deposit
taker means under a Regulated Deposit Scheme, since a
deposit taker of Unregulated deposit scheme cannot be
expected to intimate the designated authority that he is
running an illegal deposit scheme.
Pg.No.37, Retyped and replaced vide Chamber order dtd 24.01.2025.
38 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
54. While the offence under Section 4 is punishable
under Section 22, the failure to give intimation under Section
10(1) and failure to furnish statements, information or
particulars as required under Section 10(2) is made
punishable under Section 26 of the Act. Except these two
sections, rest of the offences which are punishable under
Sections 21, 23 to 25 are cognizable. In fact, for these
cognizable offences, minimum sentence is prescribed. Having
regard to the nature of the offences under Section 3 and 5, it
requires extensive investigation by a police agency.
Therefore, the arguments of the learned counsel for
petitioners that there is prohibition under Section 27 to take
cognizance, except by way of a complaint under Section 200
Cr.P.C by the regulator in respect of the offences punishable
under Section 3 and 5 is not correct and the same cannot be
accepted.
55. However, if the offence under Section 4 is
committed by a company, then also it is required to
investigated by the police. As per the proviso, the exception
39 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
carved out by Section 27 is not applicable to an offence
committed under Section 4 by company.
56. The object behind the requirement of filing of
complaint under Section 200 by a regulator in case of an
offence under Section 4 by a deposit taker running Regulated
deposit scheme, which is not a company, appears to be that
when this scheme is run by a regulator, unnecessarily, the
deposit taker shall not be subject to ignominy of facing a
criminal investigation and trial, by unscrupulous persons and
also to face multiple complaints. Only when the regulator
after verifying all the records is convinced that a deposit
taker who is running a Regulated deposit scheme is guilty of
committing any fraudulent default in the repayment or return
of the deposit on maturity or in rendering any specified
service promised against such deposit, he may file a
complaint under Section 200 Cr.P.C with all the information
available at his hand and request the designated Court to
take action against such person. Similar provision is available
under the ESIC, EPFO and Drugs and Cosmetics Act.
Pg.No.39, Retyped and replaced vide Chamber order dtd 24.01.2025.
40 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
However, this protection is not available to those persons
who run Unregulated Deposit Schemes and cheat innocent
and gullible people.
57. Therefore, when a deposit taker running a
Regulated Deposit Scheme, commit an offence under Section
4, the complaint is required to be filed by the regulator under
Section 200 Cr.P.C as the said offence is non-cognizable
which is punishable under Section 22 of the Act. The
remaining offences under Sections 21, 23 to 25 are
cognizable and required to be investigated by the police.
58. Undisputedly, there is Prima-facie material to
show that the petitioners are guilty of soliciting investment
from innocent and gullible persons and cheated them to the
tune of around `55 Crores. In fact, the detailed investigation
conducted by the investigating officer and charge sheet
makes out a strong prima facie case against the petitioners.
In the decisions relied upon by the petitioners, the
co-ordinate Bench of this Court has not examined these
Pg.No.40, Retyped and replaced vide Chamber order dtd 24.01.2025.
41 CRL.P NO.100048/2024
C/W CRL.P NO.102510/2023
aspects and as such, they are not applicable to the case on
hand.
59. Thus from the above discussion, this Court is of
the considered opinion that the petitions are liable to be
dismissed and accordingly, the following:
ORDER
The criminal petition in Crl.P.No.100048/2024
filed by accused No.2 and Crl.P.No.102510/2023
filed by accused No.1 under Section 482 of Cr.P.C. in
Crime No.26/2021 in Special Case No.197/2022
registered by respondent police-CEN Police Station,
Belagavi city, for the offences punishable under
Sections 406 and 420 of IPC and Section 21(1)(2)(3)
of BUDS Act, 2019, on the file of Prl. Dist. & Sessions
& Special Judge, Belagavi, are hereby rejected.
Sd/-
(J.M.KHAZI)
JUDGE
RR
Pg.No. 41, Retyped and replaced vide Chamber order dtd 24.01.2025.
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