Model Charge Under BUDS Act for Unregulated Deposits

In today's financial landscape, unregulated deposit schemes pose significant risks to investors, often leading to massive frauds and public losses. The Banning of Unregulated Deposit Schemes (BUDS) Act, 2019, was enacted to curb such practices by imposing a complete ban on these schemes. But how do courts frame charges against perpetrators? A common query from legal professionals and investigators is: provide a model charge for framing charge under the banning of unregulated deposit scheme. This post breaks down the essentials, provides a ready-to-adapt model, and draws from judicial precedents to guide you.

Whether you're a lawyer, compliance officer, or affected party, understanding charge framing under the BUDS Act is crucial for effective enforcement. Let's dive into the legal framework and practical application.

What is an Unregulated Deposit Scheme?

An Unregulated Deposit Scheme (UDS) is defined under Section 2(17) of the BUDS Act as any scheme where deposits are accepted by a deposit taker in a manner not authorized or regulated by existing laws. This excludes regulated schemes under RBI, SEBI, or other statutes. L. Prakash VS Union of India, Represented by its Joint Secretary-cum-Central Registrar for Cooperative Societies, Department of Agriculture and Cooperation, Ministry of Agriculture, New Delhi - 2019 0 Supreme(Mad) 1660

The Act's core provision, Section 3, states: the Unregulated Deposit Schemes shall be banned; and no deposit taker shall, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrollment in or accept deposits in pursuance of an Unregulated Deposit Scheme. Aibitha Beevi Ancharapattil VS District Collector, Kannur - 2024 0 Supreme(Ker) 1418

Key point: Even schemes started before the Act's commencement on February 21, 2019, become illegal if continued afterward. Admittedly, the business was not stopped and the deposits were not returned as on the date of commencement of the Act, but carried on even after its commencement. There is a complete ban in the conduct of 'Unregulated Deposit Scheme' under Section 3(a) of the Act. P. Raveendran Pilla, Advocate, S/o. Parameshwara Pilla VS State Of Kerala - 2020 Supreme(Ker) 813

Elements Essential for Framing Charges

Framing a charge under Section 3 requires proving specific elements:

• Identification of the Scheme: It must qualify as a UDS per Section 2(17) and Schedule 1. L. Prakash VS Union of India, Represented by its Joint Secretary-cum-Central Registrar for Cooperative Societies, Department of Agriculture and Cooperation, Ministry of Agriculture, New Delhi - 2019 0 Supreme(Mad) 1660
• Prohibited Conduct: Post-commencement promotion, operation, advertising, or acceptance of deposits. Aibitha Beevi Ancharapattil VS District Collector, Kannur - 2024 0 Supreme(Ker) 1418
• Intent: Knowingly violating the ban, often inferred from continued operations. Mohammed Abdul Jabbar VS State of Kerala - 2023 0 Supreme(Ker) 551

The offence is a continuing one if the scheme persists. Courts emphasize specifying the scheme's nature and post-2019 timeline. Aibitha Beevi Ancharapattil VS District Collector, Kannur - 2024 0 Supreme(Ker) 1418

Legal Principles from Precedents

Judicial rulings reinforce these elements. In cases involving money circulation akin to Prize Chits and Money Circulation Schemes (Banning) Act, 1978—deemed UDS under BUDS—courts have upheld charges for deposit-taking post-ban. HIGH RICH ONLINE SHOPPE PRIVATE LIMITED vs STATE OF KERALA - 2026 Supreme(Online)(Ker) 6953

Prima facie evidence of fraud suffices to initiate proceedings, even without a regulator's complaint for certain offences. The court found sufficient prima facie evidence showing petitioners' involvement in soliciting unregulated deposits, rendering the proceedings against them valid. SMT. RAKSHA T vs THE STATE OF KARNATAKA - 2025 Supreme(Online)(Kar) 38506YALLAPPA SHAM MANAGUTAKAR vs STATE OF KARNATAKA - 2025 Supreme(Online)(KAR) 8157

Another ruling clarified: proceedings against deposit takers under the BUDS Act can commence based on prima facie evidence of fraud, even if the initial complaint did not originate from the regulatory authority. SMT. RAKSHA T vs THE STATE OF KARNATAKA - 2025 Supreme(Online)(Kar) 38506

Model Charge Under BUDS Act

Here's a model charge incorporating all essentials:

That the accused, Name, on or after the 21st day of February, 2019, and continuing thereafter, did knowingly promote, operate, advertise, or accept deposits in respect of an 'Unregulated Deposit Scheme,' as defined under Section 2(17) of the Banning of Unregulated Deposit Schemes Act, 2019, in violation of Section 3 of the said Act, with the intent to unlawfully collect deposits from the public, thereby committing an offence punishable under Section 3 of the Act. Mohammed Abdul Jabbar VS State of Kerala - 2023 0 Supreme(Ker) 551

This template specifies:- Date: Post-commencement (Feb 21, 2019).- Scheme Nature: Explicitly as UDS.- Conduct: Promotion, operation, etc.- Violation: Section 3 reference.

Adapt it with case-specific details like scheme name or amounts.

Integrating Additional Offences

If wrongful inducement via false promises is involved, add Section 5 charges. For instance, schemes promising high returns mirroring banned chit funds trigger dual liability. HIGH RICH ONLINE SHOPPE PRIVATE LIMITED vs STATE OF KERALA - 2026 Supreme(Online)(Ker) 6953

Courts have denied settlement schemes until BUDS proceedings resolve, prioritizing statutory claim processes. The court ruled that a Settlement Scheme cannot be processed until legal proceedings under the BUDS Act are resolved. HIGH RICH ONLINE SHOPPE PRIVATE LIMITED vs STATE OF KERALA - 2026 Supreme(Online)(Ker) 6953

Property attachment and seizure are common; police authority to seize assets pending investigation is upheld. The decision reinforced police authority to seize property pending investigation under the BUDS Act. SALEEL KUMAR V.S vs STATE OF KERALA - 2023 Supreme(Online)(KER) 15354

Case Law Insights on Charge Sustainability

High Courts have dismissed quashing petitions where prima facie UDS evidence exists:

• Burden of Proof: Prosecution needs only prima facie material; defense must rebut. Burden of Proof - It is essential for the prosecution to establish prima facie material to proceed with the case. Yallappa Sham Managutakar vs State of Karnataka - 2025 Supreme(Online)(Kar) 26672
• Complaint Source: Private complaints suffice for Section 3; Section 27 limits apply only to Section 4. The prohibition under Section 27 only applies to offences under Section 4, not to the current circumstances. Yallappa Sham Managutakar vs State of Karnataka - 2025 Supreme(Online)(Kar) 26672

In investment frauds totaling crores, courts sustained charges under BUDS alongside IPC sections like 420 (cheating). SMT. RAKSHA T vs THE STATE OF KARNATAKA - 2025 Supreme(Online)(Kar) 38506

Even pre-Act schemes become prosecutable if continued: It is contended that under Section 3 of the BUDS Act, it is only Unregulated Deposit Scheme which has been banned under Section 3 of the BUDS Act, 2019. RAVIRAJ S/O JEEVANRAO vs THE STATE OF KARNATAKA

Exceptions and Best Practices

• Pre-Act Schemes: Lawful if fully discontinued pre-2019; specify continuation in charge.
• Knowledge/Intent: Assume unless disproven; adapt if evidence lacks.

Recommendations for framing:- Explicitly label as UDS per Act definitions.- Detail violation period (post-21.02.2019).- List accused conduct (e.g., ads, collections).- Reference Sections 3 (ban) and 5 (if inducement). Mohammed Abdul Jabbar VS State of Kerala - 2023 0 Supreme(Ker) 551

Related laws like APPDFE Act complement BUDS in state contexts, with charges upheld for similar deposit frauds. The allegations in the charge sheet would attract the essential ingredients of offences under Ss. 406 and 420 IPC and further Sec. 5 of the APPDFE Act. Quest Net Enterprises Private Limited VS State of A. P. - 2023 Supreme(AP) 447

Conclusion and Key Takeaways

Framing charges under the BUDS Act demands precision to withstand scrutiny. Use the model above as a starting point, ensuring all elements align with facts. Courts prioritize investor protection, sustaining cases on prima facie evidence while allowing defenses at trial.

Key Takeaways:- Ban applies strictly post-February 21, 2019. Aibitha Beevi Ancharapattil VS District Collector, Kannur - 2024 0 Supreme(Ker) 1418- Model charge must detail UDS, conduct, and intent.- Integrate Section 5 for fraud elements.- Prima facie proof sustains proceedings. Yallappa Sham Managutakar vs State of Karnataka - 2025 Supreme(Online)(Kar) 26672

Note: This is general information based on legal provisions and cases. It is not specific legal advice. Consult a qualified lawyer for case-specific guidance. Always verify with latest judgments.

References:1. Mohammed Abdul Jabbar VS State of Kerala - 2023 0 Supreme(Ker) 551: Offences and scheme details.2. Aibitha Beevi Ancharapattil VS District Collector, Kannur - 2024 0 Supreme(Ker) 1418: Prohibition and powers.3. L. Prakash VS Union of India, Represented by its Joint Secretary-cum-Central Registrar for Cooperative Societies, Department of Agriculture and Cooperation, Ministry of Agriculture, New Delhi - 2019 0 Supreme(Mad) 1660: UDS definitions.4. P. Raveendran Pilla, Advocate, S/o. Parameshwara Pilla VS State Of Kerala - 2020 Supreme(Ker) 813: Continuation post-commencement.5. Various High Court rulings on prima facie evidence and proceedings. SMT. RAKSHA T vs THE STATE OF KARNATAKA - 2025 Supreme(Online)(Kar) 38506HIGH RICH ONLINE SHOPPE PRIVATE LIMITED vs STATE OF KERALA - 2026 Supreme(Online)(Ker) 6953 etc.