Torres Ponzi Scam and MPID Act

February 20, 2025

Investors affected by the Torres Ponzi scam are expected to receive approximately Rs 40 crore over the next six months. The Mumbai Police’s Economic Offences Wing (EOW) has initiated the auctioning of properties seized from the accused under the Maharashtra Protection of Interest of Depositors (MPID) Act. This follows a crisis that began in late December 2024 when the company halted interest payments, leading to widespread protests from thousands of investors.

About Torres Ponzi Scam

The Torres company attracted investors with schemes promising high returns, some up to 500% annually. They offered incentives like luxury gifts to entice deposits. The sudden cessation of payments in December 2024 triggered panic and protests, denoting the vulnerabilities of investors, particularly from lower economic backgrounds.

The Maharashtra Protection of Interest of Depositors Act

The MPID Act was enacted in 1999 to protect depositors from fraudulent financial establishments.
It was designed to address the rising number of scams targeting the middle and lower classes.
The Act allows for the attachment of assets from financial establishments that default on repayments.
This swift procedure aims to provide a remedy for aggrieved depositors.

Key Provisions of the MPID Act

The Act holds promoters and managers of fraudulent establishments accountable.
If found guilty of defaulting on deposits, they face imprisonment for up to six years and fines of up to Rs 1 lakh.
The law also empowers the government to attach and sell assets of fraudulent firms, ensuring equitable distribution of recovered funds among depositors.

Legal Challenges and Supreme Court Rulings

The constitutionality of the MPID Act faced scrutiny. In 2005, the Bombay High Court deemed it unconstitutional, citing conflicts with the Companies Act. However, this ruling was overturned by the Supreme Court in 2011, which upheld the MPID Act as valid. The Court recognised the need for state laws to address issues not covered by central legislation, particularly for unlicensed financial establishments.

Recent Developments and Future Implications

The ongoing auction of seized properties signifies a critical step towards restitution for victims of the Torres Ponzi scam. The EOW’s actions reflect a broader commitment to enforcing the MPID Act. As legal interpretations continue to evolve, clarity around what constitutes a deposit or financial establishment remains essential for future cases.

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