Kerala to tighten curbs on illegal deposit schemes under BUDS Act    

Indian rupee
A man displays new 2000 Indian rupee banknotes after withdrawing them from a State Bank of India (SBI) branch in Kolkata, India, November 10, 2016. Reuters/Rupak De Chowdhuri/Files

Thiruvananthapuram: The Kerala government has decided to give vast powers to a state government-appointed authority to carry out raids and seize money from the firms and financial organisations who have taken deposits from people by giving false promises. The state's Home Department issued a notification in this regard by amending the existing rules with effect from Thursday.

The new rules were implemented as part of enforcing the BUDS (Banning of Unregulated Deposit Scheme) Act. This Union law is aimed at curbing collection of deposits illegally from the public without having the sanction of the government or its agencies. 

On November 23, 2020, the High Court of Kerala asked the State Government to speed up the process of amending the rules so as to curb the illegal collection of deposits from the investors.   

The current practice is that the investors approach the police with the complaint after they lose money. The police or the Crime Branch then register a case and start investigation. But now the newly-appointed Authority can intervene at any time, even during the time of receiving deposits by the financial firms. If anything is found wrong,  the Authority can take action swiftly. 

The Authority,  if needed,  can temporarily confiscate the assets and deposits of those who run such financial firms and those who are behind them. Once the fraud is confirmed, the Authority can depute an official to quantify the assets and deposits being held by such fraudsters.  

The Authority will also have the powers of a civil court to order both investigation and raid if necessary. It has also the power to dismiss frivolous petitions. The Authority can summon anyone and ask him or her to testify in connection with the case. The Authority can also entrust the inquiry with either police or a new inquiry team.

 The follow-up steps after the investigation will be taken by the court which has the jurisdiction to act. Such cases would be handled by an Additional Sessions Court in each district. 


The deposit, either by way of single payment or through instalment, to be made in a self-help group is capped at Rs7 lakh. 

There is no bar for the commercial establishments to receive advance for commercial dealings. The deposit schemes that are approved and controlled by agencies such as Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Insurance Regulatory Development Authority of India, Pension Fund and Regulatory and Development Authority, Employment Provident Fund Organisation (EPFO), National Housing Bank and the office of the Central Cooperative Registrar are legal. The deposit schemes of the financial organisations approved by the Central and the State Governments are also lawful. 


The offences coming under the BUDS Act are non-bailable. As per the law, anyone who induces a person to make illegal investment can get an imprisonment up to five years and a fine of Rs10 lakh.

 Anyone who receives illegal deposits will get up to seven years of imprisonment and a fine of Rs10 lakh. The person who fails to give back the deposit to the investor will get 10 year of imprisonment. A person who repeats the same offence will be charged with a fine of Rs 50 crore.


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