What is the MPID Act, Maharashtra law governing probe into Rs 100-crore Torres jewellery scam?

The Torres scam came to light when hundreds of investors gathered at the Torres Vastu Centre in Dadar

The Mumbai police's Economic Offences Wing (EOW), which is probing the Torres investment case, has received information that the accused in the case have launched similar investment schemes in Bulgaria. The procedure has begun to commence auctioning the seized properties of the accused parties, under the Maharashtra Protection of Interest of Depositors (MPID) Act.

According to PTI, police have arrested six persons in the case till now, while nine others are wanted - eight of them from Ukraine and one from Turkey.

What is the Torres case?

Torres, a jewellery store with showrooms in six locations across Maharashtra, was incorporated in April 2023.  On January 6, scores of investors gathered outside Torres stores after the company defaulted on paying returns on their investments.

It was alleged that the company lured people to invest by buying jewellery, mainly moissanite stones (American diamonds), and earn a weekly interest ranging between 3-7 percent for one week. The moissanite stones were reportedly shown as real diamonds.

Initially, the company regularly gave promised returns to investors and encouraged them to reinvest the profit.

After regularly giving payouts till November 2024, the company suddenly shut its doors in the last week of December.  The firm also reportedly promised a 6 percent return on the invested amount, to be paid out over 52 weeks.

An FIR was registered at the Shivaji Nagar police station citing a fraud amount of Rs 13.48 crore from 66 different investors. This case is the latest to be registered under the MPID Act.

Over 10,000 investors have filed complaints in connection with the case and the total amount of fraud reported in the case has reached Rs 117. 63 crore, the Mumbai Police told a special court recently.

What is MPID Act?

The MPID Act was enacted in 1999 to protect the interests of depositors in financial establishments that default on their obligations. It received the President’s assent on January 21, 2000.

It is a state-specific law aimed at protecting the interests of depositors in financial institutions that might default on their obligations.

Any financial establishment which fraudulently defaults repayment of deposit on maturity along with benefit in the form of interest can be held responsible under the Act. If found guilty, they can be sentenced to imprisonment for a maximum term of six years and fined up to Rs 1 lakh.

The government can issue an order attaching the money or other property believed to have been acquired by the financial establishment.

Once an order is passed, the court can issue directions for the sale of the assets and its equitable distribution of the amount among the depositors. The proceeds from the sale are then equitably distributed among depositors.

Why was the MPID Act enacted in Maharashtra?

According to The Indian Express, when the Bill was introduced, it identified the growth of certain financial establishments in the state which intended to defraud the public.  These investors reportedly belonged to the middle class and had poor economic backgrounds. They were lured with the promise of high returns.

Even in the Torres case, the investors reportedly included vegetable vendors, small business owners, and professionals.

Supreme Court’s take on MPID Act

In 2005, the Bombay High Court ruled that the MPID Act was unconstitutional. According to the court, the Act’s provisions were at variance with the central law under the Companies Act, 1956.

However, the Supreme Court in 2011 held both the MPID Act and the Tamil Nadu Act constitutionally valid. The court observed that the existing central laws do not occupy the field of these state laws. It also upheld the validity of the Act in 2022.