The Gujarat Protection of Interest of Depositors (in Financial Establishments) Act, 2003

GUJARAT ACT NO.  1  OF 2004. 

THE GUJARAT PROTECTION OF INTEREST OF DEPOSITORS                
(IN FINANCIAL ESTABLISHMENTS) ACT, 2003.  

 

 

SECTIONS 

CONTENTS  

PAGE NO. 

   
1. Short title and commencement. 1 

2. Definitions. 2 

3. Fraudulent defaults by Financial Establishment. 3 

4. Attachment of properties on default of return of 
deposit. 

4 

5. Appointment of Competent Authority. 5 

6. Duties and powers of Competent Authority. 6 

7. Assessment of assets, deposits and liabilities. 7 

8. Report by Competent Authority. 7 

9. Designated Court. 8 

10. Powers of Designated Court regarding attachment. 8 

11. Powers of Designated Court regarding realisation 
of assets and payment to depositors. 
 

9 

12. Attachment of property of malafide transferees. 10 

13. Security in lieu of attachment. 11 

14. Administration of property attached. 11 

15. Appeal. 11 

16. Special Public Prosecutor. 11 

17. Procedure and powers of Designated Court 
regarding offences. 
 

11 

18. Act to override other laws. 12 

19. Protection of action taken in good faith. 12 

20. Power to make rules. 12 

21. Power to remove difficulty. 12 

 



 2 

 
The following Act of the Gujarat Legislature, having been assented 

to by the President on the 6th January, 2004 is hereby published for general 
information. 

 
S. S. PARMAR, 

Secretary to the Government of Gujarat, 
Legislative and Parliamentary Affairs Department. 

 
GUJARAT ACT No. 1 OF 2004. 

 
(First published, after having received the assent of the President in 

the “Gujarat Government Gazette’, on the 22nd January, 2004). 
 

AN  ACT 
 

to protect the interest of depositors of the Financial Establishments  
and for the matters connected therewith or incidental thereto. 

 
 It is hereby enacted in the Fifty-fourth Year of the Republic of India 
as follows:- 
 
1. (1) This Act may be called the Gujarat Protection of Interest of 
Depositors (in Financial Establishments) Act, 2003. 
 
(2) It shall come into force on such date as the State Government may, 
by notification in the Official Gazette, appoint. 

 
 
2. In this Act, unless the context otherwise requires, - 

 
(a) "Competent Authority" means the Competent Authority 

appointed under section 5; 
 
(b) "Designated Court" means the Designated Court constituted 

under section 9; 
 
(c) "deposit" includes and shall be deemed always to have been 

included any receipt of money or acceptance of any valuable 
commodity by any Financial Establishment to be returned 
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 – 
 

Short title and 
commencement. 

Definitions. 
H-666-1 



 3 

(i) amounts raised by way of share capital or by way of 
debenture, bond or any other instrument covered 
under the guidelines given and regulations made by 
the Securities and Exchange Board of India, 
established under the Securities and Exchange Board 
of India Act, 1992; 

 
(ii) amounts contributed as capital by partners of a firm; 
 
(iii) amounts received from a Scheduled Bank or a Co-

operative Bank or any other banking company as 
defined in       clause (c) of section 5 of the Banking 
Regulation Act, 1949; 

 
(iv) any amount received from – 

 
(a) the Industrial Development Bank of India, 
 
(b) the Gujarat State Financial Corporation, 

(c) any financial institution specified in or under 
section 4A of the Companies   Act, 1956, 

 
(d) any other institution as the State Government 

may by an order specify; 
 
(v) amounts received in the ordinary course of business 

by way of – 
 
(a) security deposit, 
(b) dealership deposit, 
(c) earnest money, or 
(d) advance against order for goods or service; 

 
(vi) any amount received from an individual or a firm or 

an association of individuals not being a body 
corporate, registered under any enactment relating to 
money lending which is for the time being in force in 
the State; and 

 
(vii)  any amount received by way of subscriptions in 

respect of a Chit. 
 
Explanation.-  For the purpose of this clause – 
 
(i)  Chit shall have the same meaning as assigned to it in  

clause (b) of section 2 of the Chit Funds Act, 1982; 

10 of 1949. 

   1 of 1956. 

15 of 1992. 

40 of 1982.



 4 

 
(ii)  Any credit given by a seller to a buyer on the sale of 

any property whether movable or immovable shall 
not deemed to be a deposit; 

 
(d) "Financial Establishment" means any person or group of 
individuals accepting deposits under any scheme or 
arrangement or in any other manner but does not include a 
Corporation owned or controlled by any State Government 
or the Central Government or a banking Company as defined 
under clause (c) of section 5 of the Banking Regulation Act, 
1949.  

 
3. Any Financial Establishment, which fraudulently defaults any 
repayment of deposit on maturity alongwith any benefit in the form of 
interest, bonus, profit or in any other form as promised or fraudulently fails 
to render service as assured against the deposit, every person including the 
promoter, partner, director, manager or any other person or an employee 
responsible for the management of or conducting of the business or affairs 
of such Financial Establishment shall, on conviction, be punished with 
imprisonment for a term which may extend to six years and with fine which 
may extent to ten lacs of rupees and such Financial Establishment also shall 
be liable for a fine which may extend to ten lacs of rupees: 
 
 Provided that in the absence of special and adequate reasons 
recorded in the judgement of the court, the imprisonment shall not be less 
than three years and the fine shall not be less than one lac of rupees and in 
case of imposition of fine on Financial Establishment, it shall not be less 
than five lacs of rupees. 
 

Explanation. – For the purpose of this section, a Financial 
Establishment, which commits default in repayment of such deposit with 
such benefits in the form of interest, bonus, profit or in any other form as 
promised or fails to render any specified service promised against such 
deposit, or fails to render any specific service agreed against the deposit 
with an intention of causing wrongful gain to one person or wrongful loss to 
another person or commits such defaults due to its inability arising out of 
impracticable or commercially not viable promises made while accepting 
such deposit or arising out of deployment of money or assets acquired out 
of the deposits in such a manner as it involves inherent risk in recovering 
the same when needed shall, be deemed to have committed a default or 
failed to render the specific service, fraudulently. 
 
4. (1) Notwithstanding anything contained in any other law for the 
time being in force, - 
 

Fraudulent 
defaults by 
Financial 
Establishme
nt. 

Attachment of 
properties on 
default of 
return of 
deposit. 

10 of 1949. 

 



 5 

(i) Where upon complaint received from the depositor or 
otherwise, the State Government is satisfied that any 
Financial Establishment has failed, - 
 
(a) to return the deposit  on maturity on demand by the 

depositor; or 
(b) to pay interest or other assured benefit; or 
(c) to provide the service promised against such deposit; or 

 
(ii) Where the State Government has reason to believe that any 

Financial Establishment is acting in a calculated manner 
detrimental to the interest of the depositors with an intention 
to defraud them; 
 

and if the State Government is satisfied that such Financial 
Establishment is not likely to return the deposits or make payment of 
interest or other benefits assured or to provide the services against 
which the deposit is received, the State Government may, in order to 
protect the interest of the depositors of such Financial 
Establishment, after recording the reasons in writing, issue an order 
by publishing it in the Official Gazette, for attaching the money, 
property or assets belonging to or believed to have been acquired by 
such Financial Establishment either in its own name or in the name 
of any other person from out of the deposits collected by the 
Financial Establishment, or if it transpires that such moneys, 
properties or assets, is not available for attachment or not sufficient 
for repayment of the deposits, such other property or assets of the 
said Financial Establishment or of the promoter, director, partner or 
member of the said establishment as the State Government may 
think fit. 
 

(2) On publication of the order under sub-section (1), all the moneys, 
properties and assets of the Financial Establishment and of the person 
mentioned therein shall forthwith vest in the Competent Authority pending 
further order from the Designated Court. 
 
(3) The Collector of a district shall be competent within his jurisdiction 
to receive the complaint under sub-section (1) and he shall forward such 
complaint alongwith his report to the State Government at the earliest and 
shall send a copy of the complaint to the concerned Superintendent of 
Police or Commissioner of Police, as the case may be, for investigation. 
 
5. (1) The State Government shall while issuing the order under 
sub-section (1) of section 4, appoint an officer not below the rank of the 
Deputy Collector to be the Competent Authority to exercise control over the 

Appointme
nt of 
Competent 
Authority. 



 6 

moneys, properties and assets attached by the State Government under 
section 4. 
 
(2) The Competent Authority shall have such other powers and 
discharge such other functions as may be prescribed by rules for carrying 
out the purposes of this Act. 
 
(3) The Competent Authority shall apply, within thirty days from the 
date of the publication of the order made under section 4 to the Designated 
Court, accompanied by one or more affidavits stating therein the grounds on 
which the State Government has issued the said order and the amount of 
moneys or other properties or assets belonging to or believed to have been 
acquired out of the deposits and the details, if any, or persons in whose 
name such property is believed to have been invested or acquired or any 
other property attached under section 4, for such further orders as the 
Designated Court may find necessary. 
 
(4) The Competent Authority may, also make an application to any 
Special Court or Designated Court or any other judicial forum established 
or constituted or entrusted with the powers by any other State Government 
for adjudicating any issue or subject matter pertaining to moneys or 
properties or assets of the Financial Establishment under any similar 
enactment in respect of moneys or properties or assets belonging to or 
ostensibly belonging to the Financial Establishment or of any person 
notified under this Act situated within the territorial jurisdiction of that 
Special Court or Designated Court or any judicial forum, as the case may 
be, for passing appropriate orders to give effect to the provisions of this Act. 
 
6. (1) The Competent Authority, on receipt of order of his 
appointment, shall take such necessary actions as it is necessary or 
expedient for taking physical possession of all                                                            
the moneys, properties and assets of the concerned Financial Establishment 
expeditiously and he shall have all the powers which are necessary for the 
aforesaid purpose. 
 
(2) Without prejudice to the generality of the powers vested under               
sub-section (1), the Competent Authority shall be entitled to - 

 
(a) require assistance of any police authority or any other authority 

or person and on such requisition, it shall be the duty of the 
police authority or such other authority or person to extend 
necessary assistance; 

 
(b) open bank accounts in any scheduled commercial bank and 

credit all moneys realised and operate the bank accounts while 
dealing; 

Duties and 
powers of 
Competent 
Authority. 

H-666-2 



 7 

 
(c) to direct the person to furnish the necessary information relating 

to moneys, properties and assets of the Financial Establishment 
to hand over possession of such moneys, properties and assets to 
the Competent Authority and such person shall comply with the 
requisition without any loss of time; 

 
(d) appoint legal practitioner or chartered accountant or any other 

person whose services are necessary for taking possession of 
assets and realisation of the assets of the Financial 
Establishment; 

 
(e) sell, receive, transfer, endorse, negotiate or otherwise deal with 

any marketable security or negotiable instrument belonging to or 
in the control of the Financial Establishment and give proper 
discharge for the same; 

 
(f) sell, transfer or otherwise realise any movable or immovable 

property belonging to or in the control of the Financial 
Establishment either by public auction or with the prior approval 
of the Designated Court by private arrangements: 

 
Provided that the perishable items of assets shall be sold 

by public auction at the earliest as the Competent Authority 
deems fit; 

 
(g) make payment as per the orders passed by the Designated Court 

from out of the bank accounts; and 
 
(h) do all and every acts and deeds which would be necessary for 

the speedy realisation of the assets of the Financial 
Establishment. 
 

  Explanation.- For the purpose of this section, the expression 
"Financial Establishment" includes the promoters, directors, 
partners, managers or members of the said establishment or any 
other person whose property or assets have been attached under 
section 4. 

 
7. (1) The Competent Authority shall, within thirty days from the date 
of his appointment, assess the assets, deposits and liabilities of the Financial 
Establishment and submit the statement thereof to the Designated Court. 
 
(2)  The Competent Authority thereafter shall issue notice either 
individually or by means of effective media publication inviting the claims 
by secured creditors, if any, and also the depositors of the Financial 

Assessment 
of assets, 
deposits 
and 
liabilities. 



 8 

Establishment to submit their claims with sufficient proof in support 
thereof. 
 
(3)  Every notice under sub-section (2) shall specify that if the statement 
of claims is not sent to the Competent Authority before the expiry of the 
period of one month from the date of such notice, the claims shall not be 
treated as claim entitled to be paid under the provisions of this Act. 
 
(4)  Every notice to a secured creditor shall require him to value the 
security before the expiry of the period of one month from the date of the 
notice and such notice shall also specify that if the statement of the claim 
together with the valuation of the security is not sent to the Competent 
Authority within such period, the Competent Authority himself shall value 
the security to the best of his judgement and his valuation shall be binding 
on such secured creditors. 
 
(5)  The Competent Authority shall prepare a statement of dues of the 
Financial Establishment which is due from various debtors, the assessments 
of the value of the property and assets of the Financial Establishment and 
the list of the depositors and their respective dues; and submit the same to 
the Designated Court. 
 
8. The Competent Authority shall, after complying with the provisions 
of section 7, make an application to the Designated Court seeking 
permission to make payment to the depositors from out of the money 
realised. While making such application, the Competent Authority shall 
assess the liability to the depositors and the other liabilities and in case the 
money realised or realisable is not sufficient to meet with the entire liability, 
make a submission to the Designated Court seeking permission for making 
payment to the depositors and disburse the money as per the orders of the 
Designated Court. 
 
9. (1) For the purposes of this Act, the State Government may, with the 
concurrence of the Chief Justice of the High Court of Gujarat, by 
notification, in the Official Gazette, constitute one or more Designated 
Court of the level of the Court of a District and Sessions Judge for such area 
or for such case or group of cases or such class as may be specified in the 
notification. 
 
(2)  No Court, other than the Designated Court shall have jurisdiction to 
deal with or decide any question which the Designated Court is empowered 
to deal with or decide by or under this Act. 
 
(3)  Any case or proceeding pending before any Court or any authority 
in relation to the moneys, properties or assets of the Financial Establishment 
covered by an order made under section 4, shall stand transferred to the 

Report by 
Competent 
Authority. 

Designated 
Court. 



 9 

respective Designated Court and shall be dealt with and decided by such 
Court in accordance with the provisions of this Act. 
 
10. (1) Upon receipt of an application made under section 5, the 
Designated Court shall issue to the Financial Establishment or to any other 
person whose moneys, properties or assets are attached by the State 
Government and vested in the Competent Authority under section 4, a 
notice accompanied by the application and affidavits and copies of the 
evidence, if any, recorded, calling upon the said establishment or the said 
person to show cause on a date to be specified in the notice, why the order 
of attachment should not be made absolute. 
 
(2)  The Designated Court shall also issue such notice, to all other 
persons represented to it, as having or being likely to claim any interest or 
title in the property of the Financial Establishment or of the person to whom 
the notice is issued under sub-section (1), calling upon all such persons to 
appear on the same date as that specified in the notice and to make objection 
if they so desire, to the attachment of the moneys, properties or assets or 
any portion thereof on the ground that they have interest in such property or 
portion thereof. 
 
(3)  Any person claiming an interest in the moneys, properties or assets 
attached or any portion thereof may, notwithstanding that no notice has 
been served upon him under this section, make an objection as aforesaid to 
the Designated Court at any time before an order is passed under            
sub-section (4) or sub-section (6). 
 
(4)  The Designated Court shall, if no objection is made or no cause is 
shown on or before the specified date under sub-section (2), forthwith pass 
an order making the order of attachment absolute, and issue such direction 
as may be necessary for realisation of the property, and assets and moneys  
attached and for equitable distribution among the depositors of the money 
so realised. 
 
(5)  If cause shown or any objection is made as aforesaid, the Designated 
Court shall proceed to investigate the same and in so doing as regards the 
examination of the parties and in all other respects, the Designated Court 
shall, subject to the provisions of this Act, follow the summary procedure as 
contemplated under Order 37 of the Civil Procedure Code, 1908 and 
exercise all the powers of a court in hearing a suit under the said Code and 
any person making an objection shall be required to adduce evidence to 
show that at the date of the attachment he had some interest in the property 
so attached. 
 
(6)  After investigation under sub-section (5), the Designated Court shall 
pass an order either making the order of attachment passed under sub-

Powers of 
Designated 
Court 
regarding 
attachment. 

 

5 of 1908.



 10

section (1) of section 4 absolute or varying it by releasing a portion of the 
property or assets or moneys from attachment or canceling the order of 
attachment: 

 
Provided that the Designated Court shall not release from 

attachment any interest, which it is satisfied that the Financial 
Establishment or the person referred to in sub-section (1) has in the property 
or assets, unless it is also satisfied that there will remain under attachment 
an amount of property of value not less than the value that is required for re-
payment to the depositors of such Financial Establishment. 
  
(7)  Where an application is made by any person duly authorised or 
constituted or specified by any other State Government under similar 
enactment empowering him to exercise control over any moneys or 
properties or assets attached by that State Government, the Designated 
Court shall exercise all its powers, as if, such an application were made 
under this Act and pass appropriate order or give direction on such 
application so as to give effect to the provisions of such enactment. 
 
11. (1) The Designated Court shall have all the powers for giving effect 
to the provisions of this Act. 
 
(2)  Without prejudice to the generality of sub-section (1), the 
Designated Court may – 

(a) give any direction to the Competent Authority as it deems fit, 
for effective implementation of the provisions of this Act; 

(b) approve the statement of dues of the Financial Establishment 
which is due from various debtors, the assessment of the value 
of the assets of the Financial Establishment and finalise the list 
of the depositors and their respective dues; 

(c) direct the Competent Authority to take possession of any 
property or assets belonging to or in the control of the Financial 
Establishment and to sell, transfer or realise the attached 
property or assets either by public auction or by private sale as it 
deems fit depending upon the nature of property or assets and 
credit the sale proceeds thereof to the bank accounts; 

(d) approve the necessary expenditure incurred by the Competent 
Authority for taking possession and realisation of the properties 
and assets of the Financial Establishment; 

(e) pass an order to make payment to the depositors by the 
Competent Authority or for proportionate payment to the 
depositors in the case where the moneys so realised is not 
sufficient to meet with the entire deposit liability; and 

(f) pass any order appropriate for realisation of the property or 
assets of the Financial Establishment and repayment to the 

Power of 
Designated 
Court 
regarding 
realization 
of assets 
and 
payment to 
depositors. 

H-666-3 



 11

depositors of such Financial Establishment or on any matter 
incidental thereto. 

 
Explanation. – For the purpose of this section, the expression 

"Financial Establishment" includes the promoter, director, partner, 
manager or member of the said Establishment or any other person 
whose properties or assets have been attached under section 4. 

 
12. (1) Where the property or assets available for attachment of a 
Financial Establishment or other person referred to in section 4 are found to 
be less than the amount or value which such Financial Establishment is 
required to repay to the depositors and where the Designated Court is 
satisfied by an affidavit or otherwise, that there is reason to believe that the 
said Financial Establishment has transferred any of the property otherwise 
than in good faith or for inadequate consideration, the Designated Court 
may, by notice, require any transferee of such property, whether or not he 
received the property directly from the said Financial Establishment, to 
appear, on a date to be specified in the notice and show cause why so much 
of the transferee's property as is equivalent to the proper value of the 
property transferred should not be attached. 
 
(2) Where the said transferee does not appear and show cause on the 
specified date, or where after investigation in the manner provided in sub-
section (5) of section 10, the Designated Court is satisfied that the transfer 
of the property to the said transferee was not in good faith and for not for 
adequate consideration, the Designated Court shall order the attachment of 
so much of the said transferee's property as is in the opinion of the 
Designated Court equivalent to the proper value of the property transferred. 
 
13. Any Financial Establishment or person whose moneys, properties or 
assets have been or are about to be attached under this Act may, at any time, 
apply to the Designated Court for permission to give security in lieu of such 
attachment and where the security offered and given is, in the opinion of the 
Designated Court, satisfactory and sufficient, the Designated Court may 
modify or cancel the order of attachment or as the case may be, refrain from 
passing the order of attachment. 
 
14. The Designated Court may, on the application of any person 
interested in any moneys, properties or assets attached and vested in the 
Competent Authority under this Act and after giving the Competent 
Authority an opportunity of being heard, make such order as the Designated 
Court considers just and reasonable for - 
 
(a) providing from such of the moneys, properties or assets attached and 

such sums as may be reasonably necessary for the maintenance of 
the applicant and of his family, and for expenses connected with the 

Attachment of 
property of 
malafide 
transferees. 

Security in 
lieu of 
attachment. 

Administration 
of property 
attached.. 



 12

defence of the applicant where criminal proceedings have been 
instituted against him in the Designated Court under section 3; 

 
(b) safeguarding, so far as may be practicable, the interest of any 

business affected by the attachment and in particular, the interest of 
any partner or any other person connected with such business. 

 
15. (1) Any person, including the Competent Authority, if aggrieved 
by an order of the Designated Court, may appeal to the High Court within 
thirty days from the date of such order. 
 
(2) In computing the period of limitation, the provisions of sections 4 
and 12 of the Limitation Act, 1963 shall so far as may be, apply. 
 
16. The State Government may, by an order, appoint one or more 
advocates of not less than ten years standing, as a Special Public Prosecutor 
as well as Special Government Pleader for the purpose of conducting the 
case in the Designated Court. 
 
17. (1) The Designated Court may take cognizance of the offence 
without the accused being committed to it for trial and, in trying the accused 
person, shall follow the procedure prescribed in the Code of Criminal 
Procedure, 1973 for the trial of warrant cases by Magistrates. 
 
(2) The provisions of the Code of Criminal Procedure, 1973 except 
section 438 thereof shall, so far as may be, apply to the proceedings before 
a Designated Court and for the purposes of the said provisions a Designated 
Court shall be deemed to be a Magistrate. 
 
18. Save as otherwise provided in this Act, the provisions of this Act 
shall have effect notwithstanding anything inconsistent therewith, contained 
in any other law for the time being in force or any custom or usage. 
 
19. No suit, prosecution or other legal proceedings shall lie against the 
State Government or the Competent Authority or an officer or employee of 
the State Government for anything which is in good faith done or intended 
to be done in pursuance of the provisions of this Act, or rules made 
thereunder. 
 
20. (1) The State Government may, by notification in the Official 
Gazette, make rules for carrying out the purposes of this Act. 
 
(2) All rules made under this section shall be laid for not less than thirty 
days before the State Legislature as soon as may be after they are made and 
shall be subject to rescission by the State Legislature or to such 

 

Appeal. Appeal. 

Special 
Public 
Prosecutor. 

Procedure and 
powers of 
Designated 
Court 
regarding 
offences. 

Act to 
override other 
laws. 

Protection of 
action taken 
in good faith. 

Power to 
make rules. 

36 of 1963. 

 2 of 1974. 



 13

modification as the State Legislature may make during the session in which 
they are so laid or the session immediately following. 
 
(3) Any rescission or modification so made by the State Legislature 
shall be published in the Official Gazette, and shall thereupon take effect. 
 
21. If any difficulty arises in giving effect to the provisions of this Act, 
the State Government may, by order, do anything, not inconsistent with the 
provisions of this Act, as appears it to be necessary or expedient for 
removing the difficulty:  

 
Provided that no such order shall be made under this section after 

the expiry of three years from the commencement of this Act. 
 
 
 

Power to 
remove 
difficulty.