A "Loan" Can Still Be a "Deposit" Under Maharashtra's Depositor Protection Law, Rules Supreme Court
A Division Bench of the Supreme Court holds that the nomenclature “loan” cannot exclude a transaction from the wide definition of “deposit” under the MPID Act, restoring the appellants’ right to proceed under the statute.
The Supreme Court has held that a transaction labelled a “loan” does not escape the definition of “deposit” under Section 2(c) of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act). A Division Bench of Justice Manoj Misra and Justice N.V. Anjaria, deciding Criminal Appeal No. 2537 of 2026 on 15 May 2026, set aside a Bombay High Court order that had dismissed the appellants’ criminal revision application and imposed costs of Rs. 5,00,000 on them.
The Court found that what matters is not the name given to a transaction but whether its essential attributes satisfy the statutory definition. It further held that private individuals who accept such money assume the character of a “financial establishment” under Section 2(d) of the Act, and that a failed attempt to establish IPC offences creates no bar to invoking the MPID Act.
How the Dispute Reached the Supreme Court
The appellants, five family members and two companies, alleged that in 2016, respondent No. 2 approached them through one Mr. Vedant Prakash Agrawal and induced them to invest money for setting up a resort at Tadoba, Maharashtra. The inducement was a promise of interest at 24% per annum, payable quarterly in advance. Acting on those representations, the appellants collectively advanced Rs. 2.51 crore to respondent Nos. 2 to 6 by cheque or bank transfer. The amounts were to be repaid by 31 December 2019.
The breakdown of payments was detailed: appellant Nos. 6 and 7 paid Rs. 25,00,000 each to respondent Nos. 5 and 6; appellant No. 1 advanced Rs. 95,00,000, Rs. 45,00,000 and Rs. 30,00,000 to respondent Nos. 2, 4 and 3 respectively; appellant No. 2 paid Rs. 10,00,000 to respondent No. 4; appellant No. 5 paid Rs. 4,25,000 to respondent No. 3; appellant No. 4 paid Rs. 6,75,000 to respondent No. 3; and appellant No. 3 paid Rs. 10,00,000 to respondent No. 3.
Neither the interest nor the principal was repaid by the agreed date. The appellants sent a legal notice on 8 May 2021 demanding Rs. 2.51 crore with unpaid interest, and filed a complaint before the Commissioner of Police, Nagpur on 13 May 2021. In their reply dated 22 May 2021, respondent Nos. 2 to 6 admitted receipt of the amounts but attributed non-payment to the COVID-19 financial crisis, while denying any obligation to pay interest or to repay by a fixed date.
A cheque drawn by respondent No. 4 was subsequently dishonoured with the remark “payment stopped by drawer,” prompting a notice under Section 138 of the Negotiable Instruments Act, 1881. Respondent No. 4 admitted receiving Rs. 45,00,000 from appellant No. 1 but again denied any interest liability.
The appellants pursued multiple avenues. They filed summary suits in civil courts, sought FIR registration under Sections 420, 409 and 405 read with Section 34 of the Indian Penal Code, 1860, and filed a complaint before the District Collector, Nagpur under the MPID Act. Each attempt was rebuffed.
The Chief Judicial Magistrate, Nagpur had initially directed registration of an offence on 28 January 2022, but that order was reversed by the Additional Sessions Judge on 4 March 2022. The High Court dismissed the appellants’ criminal application on 5 April 2022, characterising the transaction as a civil loan. An Economic Offence Wing report dated 9 March 2023 also found no cognizable offence.
The appellants then filed Criminal Miscellaneous Application No. 158 of 2023 under Section 156(3) of the Code of Criminal Procedure, 1973 before the Sessions Judge, Nagpur, seeking FIR registration under Section 3 of the MPID Act. That application was dismissed on 22 November 2023. The High Court’s Nagpur Bench dismissed the resulting Criminal Revision Application No. 64 of 2024 on 14 August 2025, imposing costs of Rs. 5,00,000. The appellants then obtained special leave and the Supreme Court granted leave.
The High Court’s Three-Pronged Reasoning
The High Court rested its dismissal on three grounds. First, it characterised the transactions as a “loan transaction” falling outside the definition of “deposit” under Section 2(c) of the MPID Act and described the dispute as civil in nature. Second, it held that respondent Nos. 2 to 6 did not qualify as a “financial establishment” under Section 2(d). Third, it treated the present application as effectively identical to the earlier Criminal Application No. 404 of 2022 in which the IPC offences had been found not made out, and used that outcome as a reason to reject the MPID Act claim as well.
What the Supreme Court Held on the Definition of “Deposit”
The Court began with the text of Section 2(c) of the MPID Act. The provision defines “deposit” to include “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.” The Court identified three cumulative ingredients: receipt of money or a valuable commodity by a financial establishment; an obligation to return it after a specified period or otherwise; and return in cash, kind or as a service, with or without interest.
Applying those ingredients to the facts, the Court found all three satisfied. Rs. 2.51 crore was received by respondent Nos. 2 to 6; it was to be returned by 31 December 2019; and it was to be returned with quarterly interest at 24% per annum. The Court held that all necessary ingredients to constitute a “deposit” within Section 2(c) were present.
On the “loan” argument, the Court was direct: “Nomenclature of the transaction is not relevant.” What matters is whether the basic attributes of the transaction satisfy the statutory definition. Even if the money was called a loan, it remained a “deposit” in the hands of respondent Nos. 2 to 6 once the definitional ingredients were met. The Court drew support from the Constitution Bench decision in State of Maharashtra v. 63 Moons Technologies Ltd., (2022) 9 SCC 457, which had observed that the expression “deposit” in Section 2(c) is “conspicuously broad in its width and ambit” and that the word “any” appears five times in the substantive part of the definition. The 63 Moons decision had also noted that the phrase “includes and shall be deemed always to have included” creates a legal fiction making the term inclusive rather than restrictive.
Private Individuals as “Financial Establishments”
The Court turned to Section 2(d), which defines “Financial Establishment” as “any person accepting deposit under any scheme or arrangement or in any other manner.” The only exclusions are corporations or cooperative societies owned or controlled by a State or the Central Government, and banking companies under the Banking Regulation Act, 1949.
The Court held that the definition’s use of “any person” and “in any other manner” is deliberately broad. Private individuals who accept money satisfying the definition of “deposit” and then fraudulently default on repayment fall squarely within the definition of “Financial Establishment.” Respondent Nos. 2 to 6, as recipients of the Rs. 2.51 crore, therefore assumed the character of a “Financial Establishment” for the purposes of the Act. The respondents’ argument that they had not floated any public scheme or invited deposits from the public at large was rejected as inconsistent with the plain text of Section 2(d).
IPC Failure Does Not Bar the MPID Act
The Court addressed the High Court’s third ground squarely. The appellants had previously failed to establish cognizable offences under Sections 420, 409 and 405 read with Section 34 of the IPC. The High Court had treated that failure as a reason to reject the MPID Act complaint. The Supreme Court rejected this reasoning entirely.
The Court held that the IPC and the MPID Act operate in distinct statutory fields. The MPID Act is a self-contained code with its own machinery, including attachment of properties, a Competent Authority, a Designated Court, and penal consequences under Section 3 for fraudulent default. Section 3 makes fraudulent default by a Financial Establishment punishable with imprisonment extending to six years and a fine extending to one lakh rupees. The concepts under the IPC and the MPID Act carry distinct and separate legal connotations. Non-establishment of IPC offences cannot be equated with non-applicability of the MPID Act, and a complaint under Section 3 of the MPID Act is an independent recourse under a specific law.
The Court also rejected the argument that the dispute was purely civil in nature. Once the transaction satisfies the essentials of Section 2(c) read with Section 2(d) of the MPID Act, the civil character of the underlying dispute becomes irrelevant to the question of whether the MPID Act machinery can be invoked.
Outcome
The Supreme Court set aside the judgment and order dated 14 August 2025 passed by the High Court of Judicature at Bombay, Nagpur Bench, in Criminal Revision Application No. 64 of 2024, along with the reasons supplied therein. The Court held that the amounts advanced by the appellants to respondent Nos. 2 to 6 constitute “deposit” within Section 2(c) of the MPID Act and that respondent Nos. 2 to 6 qualify as a “Financial Establishment” under Section 2(d). The appellants are entitled to invoke Section 3 of the MPID Act and to pursue the remedies available under the statute. The appeal was allowed. Any pending interlocutory applications were held not to survive in view of the disposal of the main appeal.