THE PUDUCHERRY PROTECTION OF INTERESTS OF DEPOSITORS IN FINANCIAL ESTABLISHMENTS ACT, 2004

English — official source version

the_puducherry_protection_of_interests_of_depositors_in_financial_establishments_act,_2004.pdf.txt

 417 

THE PUDUCHERRY PROTECTION OF INTERESTS OF DEPOSITORS IN 
FINANCIAL ESTABLISHMENTS ACT, 2004 

 
(Act No. 1 of 2005) 

 
______________________________________________________________________________ 
 

ARRANGEMENT OF SECTIONS 
SECTION 
 
 
  1. Short title, extent and commencement 
  2. Definitions 
  3. Fraudulent default by Financial Establishment 
  4. Attachment of properties on default of return of deposits 
  5. Appointment of Competent Authority 
  6. Duties and powers of Competent Authority 
  7. Assessment of assets and deposit liabilities 
  8. Report by the Competent Authority 
  9. Powers of the Designated Court regarding realization of assets and payment to    
      depositors 
10. Designated Court 
11. Power of Designated Court regarding attachment 
12. Attachment of property of mala fide transferees 
13. Security in lieu of attachment 
14. Administration of property attached 
15. Appeal 
16. Special Public Prosecutor 
17. Procedure and powers of Designated Court regarding offences 
18. Act to override other laws 
19. Protection of action taken in good faith 
20. Power to make rules 
21. Power to remove difficulties 
 

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THE PUDUCHERRY PROTECTION OF INTERESTS OF DEPOSITORS IN 
FINANCIAL ESTABLISHMENTS ACT, 2004 

 
(Act No. 1 of 2005) 

(15-3-2005) 
AN 
ACT 

 
to protect the interests of depositors in the Financial Establishments in the Union 

territory of Puducherry.  
 
 BE it enacted by the Legislative Assembly of Puducherry in the Fifty-fifth Year of 
the Republic of India as follows:- 
 

Short title, extent and commencement 
 1. (1) This Act may be called the Puducherry Protection of Interests of Depositors 
in Financial Establishments Act, 2004.  
               (2) It extends to the whole of the Union territory of Puducherry. 
          (3) It shall come into force at once. 
 

Definitions 
 2. In this Act, unless the context otherwise requires, - 
 
  (a) "competent authority" means the authority appointed under section 5;  
  (b) "Deposit" includes and shall be deemed always to have 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- 
       (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 (Central Act 15 of 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 (Central Act 10 of 1949); 
   (iv) any amount received from, - 
    (A) the Industrial Development Bank of India;  
    (B) a State Financial Corporation;   
    (C) any financial institution specified in or under section 4A of the  
                                           Companies Act, 1956 (Central Act 1 of 1956); or  



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    (D) any other institution that may be specified by the Government  
                                           in this behalf;  
   (v) amounts received in the ordinary course of business by way of,  
    (A) security deposit;  
    (B) dealership deposit;  
    (C) earnest money; and  
    (D) advance against order for goods or services;  
   (vi)  any amount received from an individual or a firm or an association of  
                                individuals registered under any enactment relating to money  
                                lending which is for the time being in force in the Union territory of  
                                Puducherry; and 
   (vii) any amount received by way of subscriptions in respect of a Chit.  
 
      Explanation I -- "Chit" has the meaning as assigned to it in clause (b) of section 2 
of the Chit Funds Act, 1982 (Central Act 40 of 1982). 
      Explanation II – Any credit given by a seller to a buyer on the sale of any 
property (whether movable or immovable) shall not be deemed to be a deposit for the 
purpose of this clause;  
 
  (c) "Designated Court" means the Designated Court constituted under section  
 10;  
  (d) "Financial Establishment" means any person or group of individuals or a 
firm carrying on business of accepting deposits under any scheme or arrangement or in 
any other manner but does not include a corporation or a co-operative society owned or 
controlled by the Government, any State Government or the Central Government, or a 
banking company as defined under section 5 of the Banking Regulation Act, 1949 
(Central Act 10 of 1949);  
  (e) "Government" means the Administrator of the Union territory of 
Puducherry appointed by the President under article 239 of the Constitution. 
 

Fraudulent default by Financial Establishment 
 3. If 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 
extend to one lakh rupees and such Financial Establishment shall also be liable for a fine 
which may extend to an amount equivalent to five lakh rupees or where such deposit is 
quantifiable in terms of money twice the amount involved in such default whichever is 
more: 



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  Provided that in the absence of special and adequate reasons recorded in the 
judgement of the Designated Court, the imprisonment shall not be less than for three 
years and the fine shall not be less than twenty thousand rupees as against each 
individual and not less than one lakh rupees as against such Financial Establishment. 
 
  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.  
 

Attachment of properties on default of return of deposits 
 
 4. (1) The Government or the District Magistrate may, suo moto or on receipt of a 
complaint, cause investigation of the complaint, or fraudulent transaction referred to in 
section 3. The District Magistrate shall forward his report together with the complaint to 
the Government at the earliest.  
      (2) Notwithstanding anything contained in any other law for the time being in 
force,- 
   (i) where, upon complaints received from the depositors, or otherwise, the  
                             Government is satisfied that any Financial Establishment has failed- 
    (a) to return the deposit after maturity or on demand by the   
                                          depositor; or  
    (b) to pay interest or other assured benefit; or  
    (c) to provide the service against such deposit; or  
 
   (ii)  where the Government has reason to believe that any Financial  
                               Establishment is acting in a calculated manner detrimental to the  
                                interests of the depositors, with an intention to defraud them;  or  
   (iii) where the 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 Government may, in order to protect the interests of the depositors of such Financial 
Establishments, after recording reasons in writing, issue an order by publishing it in the 
Official Gazette, attaching the money or property believed to have been acquired by 
such Financial Establishment either in its own name or in the name of any other person 



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from and out of the deposits collected by the Financial Establishments, and where it 
transpires that such money or other property is not available for attachment or not 
sufficient for repayment of the deposits, such other property of the said Financial 
Establishments or the personal assets of the promoters, partners, directors, managers or 
members or any other person of the said Financial Establishments. 
 
      (3) On the publication of the order under sub-section (2), all the properties and 
assets of the Financial Establishment and of the persons mentioned therein shall 
forthwith vest in the Competent Authority appointed by the Government pending 
further orders from the Designated Court.  
 

Appointment of Competent Authority 
 

 5. (1) The Government shall while issuing the order under sub-section (2) of section 
4, appoint any of its officers not below the rank of Deputy Collector as the Competent 
Authority to exercise control over the money and the properties attached by the 
Government under section 4.  
 
      (2) The Competent Authority shall, apply within fifteen days from the date of the 
publication of the said order, to the Designated Court, accompanied by one or more 
affidavits stating the grounds on which the Government has issued the said order 
under section 4 and the amount of money or other property believed to have been 
acquired out of the deposits and the details, if any, of 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. 
  
     (3) 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 under any similar enactment for 
adjudicating any issue or subject matter pertaining to money or property or assets 
belonging to or ostensibly belonging to a Financial Establishment or 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.  
 

Duties and powers of Competent Authority 
 

 6.(1) Without prejudice to the generalities of sub-section (1) of section 5, the 
Competent Authority may carry out the purposes of this Act.  
 
 
 
 



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    (2)  (i) On receipt of order of appointment, the Competent Authority shall take  
                              such necessary action as may be necessary or expedient for taking  
                              physical possession of all the monies and assets of the concerned  
                               financial establishment expeditiously and the Competent Authority  
                              shall have all the powers which are necessary for the aforesaid  
                              purpose.  
 
   (ii) Without prejudice to the generality of the powers vested under clause  
                              (i), 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 
monies realized and operate the bank accounts while dealing with the money received 
in his capacity as Competent Authority;  
  (c) require any person believed to be in possession or control over any money 
or assets of the Financial Establishment, to furnish necessary information, to hand over 
possession of such 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 realization 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 realize 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 as 
soon 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 act and deed which would be necessary for the speedy 
realization of the assets of the Financial Establishment 
 
         Explanation. – For the purpose of this section, the expression “Financial 
Establishment” includes the directors, promoters, managers or member of said 
establishment or any other person whose property or assets have been attached under 
section 4.  
 
 
 



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Assessment of assets and deposit liabilities 
 
 7. (1) Within thirty days from the date of appointment, the Competent Authority 
shall assess the deposit liabilities and the assets 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 claims by secured creditors, if any, 
and also the depositors of the Financial Establishment to submit their claims with 
proper proof to establish the same. 
 
      (3) Every notice under sub-section (2) sent to or deemed to have been effected to 
claimants shall state that if the statement of claim  is not sent to the Competent 
Authority before the expiry of the period of one month from the date of notice, the 
claims shall not be treated as a claim entitled to be paid under the provisions of this Act. 
  
      (4) Every notice sent 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 state that if the statement of the claim together with the valuation of the 
security is not sent to the Competent Authority, the Competent Authority himself shall 
value the security and his valuation shall be binding on such secured creditors.  
 
     (5) If the claimant fails to comply with the notice as per sub-section (4), such 
security shall be valued by the Competent Authority in his best judgement. 
 

Report by the Competent Authority 
 

 8. After making a report as per section 7, the Competent Authority shall make an 
application to the Designated Court seeking permission to make payment to the 
depositors from out of the money realized. While making such application, the 
Competent Authority shall assess the liability to the depositors and the other liabilities 
and in case the money realized or realizable is not sufficient to meet 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.  
 

Powers of the Designated Court regarding realization of assets and payment to 
depositors 

 
 9. (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 the foregoing power, the Designated 
Court may,-- 



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  (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 due from 
various debtors, assessment of the value of the assets of the Financial Establishment, 
finalise the list of the depositors and their respective dues;  
  (c) direct the Competent Authority to take possession of any assets belonging 
to or in the control of the Financial Establishment and sell, transfer or realize the 
attached assets either by public auction or by private sale as may be deemed fit, 
depending upon the nature of assets and credit the sale proceeds thereof to the bank 
accounts;  
  (d) approve the necessary expenditure to be incurred by the Competent 
Authority for taking possession and realization of the assets of the Financial 
Establishment;  
  (e) order for payment to the depositors by the Competent Authority or order 
for proportionate payment to the depositors in the event of the money so realized being 
not sufficient to meet the entire deposit liability; and 
  (f) pass any order which the Designated Court deems fit for realization of the 
assets of the company and repayment to the depositors of the Financial Establishment 
or on any matter or issue incidental thereto. 
 
         Explanation. – For the purpose of this section, the expression “Financial 
Establishment” includes the directors, promoters, managers or member of said 
establishment or any other person whose property or assets have been attached under 
section 4. 
 

Designated Court 
 

 10.(1) For the purposes of this Act, the Government may, with the concurrence of the 
Chief Justice of the Madras High Court, by notification, in the Official Gazette, 
constitute one or more Designated Courts in the cadre of District and Sessions Judge 
including Additional District and Sessions Judge for such area or areas or for such case 
or class or group of cases, as may be specified in the notification.  
 
      (2) No Court other than the Designated Court shall have jurisdiction in respect of 
any matter to which the provisions of this Act are invoked.  
 
      (3) Any pending case in any other court in respect of which the provisions of this 
Act are invoked shall stand transferred to the Designated Court from the date of order 
issued under sub-section (2) of section 4 of this Act.  
 
 
 
 



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Power of Designated Court regarding attachment  
 

 11.(1) Upon receipt of an application under section 5, the Designated Court shall 
issue to the Financial Establishment or to any other person whose property is attached 
and vested in the Competent Authority by the Government under section 4, a notice 
accompanied by application and affidavits and of the evidence, if any, recorded calling 
upon the said establishment and the said person to show cause on or before 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 the person to whom the notice is issued under sub-
section (1) calling upon all such persons to appear on the same date as specified in the 
notice and make objection if they so desire to the attachment of the property or any 
portion thereof on the ground that they have an interest in such property or portion 
thereof. 
 
        (3) Any person claiming an interest in the property 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 cause is shown and no objections are made 
on or before the specified date, under sub-section (1) forthwith pass an order making 
the ad-interim order of attachment absolute. 
 
      (5) If cause is 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 the Code of Civil 
Procedure, 1908 (Central Act V of 1908), and exercise all the powers of a court in 
hearing a suit under the said Code. Any person making an objection shall be required to 
adduce evidence to show that on the date of attachment he had some interest in the 
property attached.  
 
      (6) After investigation under sub-section (5), the Designated Court shall pass an 
order either making the ad-interim order of attachment absolute or varying it by 
releasing a portion of the property from attachment or cancelling the ad-interim order 
of attachment:  
 
 
 
 



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  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, unless it is also satisfied that there will remain under 
attachment an amount or property of value not less than the value that is required for 
repayment to the depositors of such Financial Establishment. 
 
      (7) Where the Designated Court passes an order under sub-section (6) making the 
order of attachment absolute or varying the orders of the attachment, it may issue such 
direction as may be necessary for realization of assets attached and for equitable 
distribution amongst the depositors of the money realised from and out of the assets so 
attached.  
 
      (8) Where an application is made by any person or authority duly authorised or 
constituted or specified by any other State Government under a similar enactment 
empowering him to exercise control over any money or property 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 direction on such 
application so as to give effect to the provisions of such enactment.  
 

Attachment of property of mala fide transferees 
 

 12. (1) Where the 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 depositor and where the 
Designated Court is satisfied, by affidavit or otherwise, that there is reasonable cause 
for believing the said Financial Establishment has transferred (whether before or after 
the commencement of this Act) any of the property otherwise than in good faith or for 
proper 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 
11, the Designated Court is satisfied that the transfer of property to the said transferee 
was not in good faith or for proper consideration, the Designated Court shall order the 
attachment of so much of the said transferee’s property as in the opinion of the 
Designated Court equivalent to the proper value of the property transferred.  
 
 
 
 



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Security in lieu of attachment 
 

 13. Any Financial Establishment or person whose property has been or is 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 security offered and given is, in the 
opinion of the Designated Court, satisfactory and sufficient, it may cancel the ad-
interim order of attachment or, as the case may be, refrain from passing, the order of 
attachment.   

Administration of property attached 
 

 14. The Designated Court may, on the application of any person interested in any 
property attached and vested in the Competent Authority under this Act, and after 
giving the Competent Authority an opportunity of being heard, make such orders as 
the Designated Court considers just and reasonable for – 
 
  (a) providing from such of the property attached and vested in the Competent 
Authority as the applicant claims an interest, in such sums as may be reasonably 
necessary for the maintenance of the applicant and of his family, and for expenses 
connected with the 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 partners in such 
business;  
  (c) discharging any liability, statutory or otherwise, of such financial 
establishment. 
 

Appeal 
 

 15. Any person including the Competent Authority, aggrieved by an order of the 
Designated Court, may appeal to the High Court within thirty days from the date of 
order.   

Special Public Prosecutor 
 

 16. The Government shall, by notification in the Official Gazette, appoint an 
advocate of not less than ten years standing as a Special Public Prosecutor for the 
purpose of conducting the cases in the Designated Court. 
 

Procedure and powers of Designated Court regarding offences 
 

 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 (Central Act 2 of 1974) 
for the trial of sessions cases.  



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      (2) Except the provisions of section 467, all the provisions of the Code of Criminal 
Procedure, 1973 (Central Act 2 of 1974), shall, so far as may be, apply to the proceedings 
before a Designated Court and for the purpose of the said provisions a Designated 
Court shall be deemed to be a Magistrate.  
 

Act to override other laws 
 18. Save as otherwise provided in this Act, the provisions of this Act shall have effect 
notwithstanding anything inconsistent therewith in any other law for the time being in 
force or any custom or usage or any instrument having effect by virtue of any such law.  
 

Protection of action taken in good faith 
 19. No suit or other proceedings shall lie against the Government or the Competent 
Authority or an officer or employee of the Government for anything which is in good 
faith done or intended to be done under this Act.  
 

Power to make rules 
 20.(1) The Government may, by notification in the Official Gazette, make rules for 
carrying out the provisions of this Act.  
 
      (2) All rules made and notifications issued under this Act shall be published in 
the Official Gazette and unless they are expressed to come into force on a particular 
day, shall come into force on the day on which they are so published.  
 
      (3) Every rule made or notification issued under this Act shall, as soon as possible 
after it is made or issued, be placed on the Table of the Legislative Assembly, and if 
before the expiry of the session in which it is so placed or the next session the 
Legislative Assembly agrees in making any modification in any such rule or notification 
or the Legislative Assembly agrees that the rule or notification should not be made or 
issued, the rule or notification shall, thereafter have effect only in such modified form or 
be of no effect, as the case may be, so, however, that any such modification or 
annulment shall be without prejudice to the validity of anything previously done under 
that rule or notification.  

Power to remove difficulties 
 21.(1) If any difficulty arises in giving effect to the provisions of this Act, the 
Government may, as occasion arises, by order, do anything, not inconsistent with the 
provisions of this Act, which appears to it to be necessary to remove the difficulty:  
 
  Provided that no such order shall be made after the expiry of a period of two 
years from the date of commencement of this Act.  
 
      (2) Every order made under this section shall, as soon as may be after it is made, 
be laid before the Legislative Assembly of Puducherry.  

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STATEMENT OF OBJECTS AND REASONS FOR ACT NO.1 OF 2005 
 The last few years have witnessed a rapid growth of non-banking Financial 
Establishments and deposit taking unincorporated bodies not covered under the Reserve Bank 
of India, Act, 1934 in different parts of the country. In the recent past, certain financial 
institutions have also sprung up in this Union Territory with the sole object of receiving 
deposits from the public (primarily middle class and the poor) on the promise of unprecedented 
high rate of interest but without any obligation to refund the deposits to the investors at the 
time of maturity. Many of these Financial Establishments have in fact defaulted in the return of 
such deposits to the investors thus paving way for public resentment and insecurity. The 
Reserve Bank of India have in fact been seized of the situation prevalent in the country and 
have therefore addressed all State Governments and Union Territory Administrations to protect 
the interests of such depositors by having a legislation enacted in the matter.   
 Since this Union Territory has also seen the mushroom growth of such Financial 
Establishments in question in the last few years, it is proposed to undertake a legislation which 
seeks to protect the deposits made by the public in Financial Establishments not being a 
company registered under the Companies Act, 1956, or a corporation or a co-operative society 
owned or controlled by the State Government or the Central Government or a banking 
company under Banking Regulation Act. The more salient features of the proposed draft 
legislation cover the following:  
 Attachment by the Government of moneys or properties of such Financial 
Establishments who default in return of deposits;   
 Constitution of a Designated Court with powers, among others, to pass orders or issue 
directions for the equitable distribution among the depositors of the money realised out of the 
property attached.    
 
  The Bill seeks to achieve the above objects.   
 

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