Introduction:

The Andhra Pradesh High Court has held that the applicability of the Banning of Unregulated Deposit Schemes Act, 2019, or BUDS Act, is prima facie doubtful where the accused does not fall within the statutory concept of a “deposit taker”. The Court made the observation while granting anticipatory bail to a doctor who had been booked for cheating and offences under the BUDS Act in connection with an alleged financial transaction involving more than ₹1 crore.

Justice Maheswara Rao Kuncheam passed the order in Dr Rayagada Santosh Patnaik v. State of Andhra Pradesh, Criminal Petition No. 4501 of 2026. The petitioner had been arrayed as Accused No. 1 and was facing allegations under Section 318(4) of the Bharatiya Nyaya Sanhita, 2023, along with Sections 21(1), 21(2) and 21(3) of the BUDS Act, read with Section 3(5) of the BNS.

The petitioner was a final-year D.M. Super Specialty student in Nephrology at Andhra Medical College and was also working as a resident doctor at King George Hospital, Visakhapatnam. According to the allegations placed before the Court, he became acquainted with Accused No. 2, who was an attendant of a patient suffering from Chronic Kidney Disease. The petitioner alleged that Accused No. 2 used this acquaintance to persuade him to invest money by claiming familiarity with a financial institution and assuring him of attractive returns.

Believing those representations, the petitioner transferred approximately ₹1.06 crore to Accused No. 2 in several instalments. The amount was allegedly arranged by the petitioner through borrowings from different financial institutions at high rates of interest. He later realised that he had allegedly been cheated and approached the police seeking registration of a case against Accused No. 2.

The petitioner’s case took a further turn when, according to his submissions before the High Court, the police initially did not register his complaint. He thereafter approached higher police authorities, following which an FIR was registered against Accused No. 2. The petitioner also approached the High Court through a writ petition complaining of police harassment.

While that writ petition was pending, another FIR came to be registered against the petitioner at the same police station. He was himself implicated as an accused in relation to the same broad financial controversy. The petitioner contended that the subsequent prosecution was a retaliatory measure and a counter-blast to his earlier complaint and writ proceedings.

The principal statutory issue before the High Court concerned the BUDS Act. The legislation was enacted to prohibit unregulated deposit schemes and protect depositors from fraudulent financial arrangements. Section 3 prohibits unregulated deposit schemes and restricts deposit takers from directly or indirectly promoting, operating, advertising, soliciting participation in or accepting deposits pursuant to such schemes.

The penal provisions under Section 21 prescribe punishment for contraventions involving unlawful acceptance or solicitation of deposits. The statutory scheme therefore principally targets persons or entities who function as “deposit takers” in connection with prohibited or unregulated deposit schemes.

The petitioner argued that he could not fall within the statutory framework because, on the prosecution’s own allegations, he was not a deposit taker. He claimed to have been a person who invested or transferred money and, in fact, was himself a victim of the alleged financial fraud. His contention was that the essential statutory foundation for invoking the BUDS Act was therefore absent.

The State opposed the application for anticipatory bail. It submitted that the case involved several alleged victims and numerous financial transactions and therefore required a detailed investigation. The prosecution also pointed out that Accused No. 2 had already been arrested and sought to resist the petitioner’s claim for pre-arrest protection.

The High Court ultimately found substance in the petitioner’s argument concerning the BUDS Act. It noted that, in light of the specific statutory language, the petitioner did not prima facie appear to fall within the category of a deposit taker. The Court also considered the surrounding circumstances, including the fact that the petitioner had himself been the de facto complainant in the earlier FIR against Accused No. 2.

The Court further noticed that the earlier complaint and writ proceedings preceded the registration of the FIR against the petitioner. In that factual setting, the Court found sufficient grounds to exercise its jurisdiction in favour of pre-arrest protection.

Arguments of the Parties:

The petitioner’s principal argument was that the criminal proceedings against him were fundamentally misconceived and that he had himself been a victim of the alleged financial fraud. His counsel submitted that Accused No. 2 had approached him in the context of his association with a Chronic Kidney Disease patient and represented that he was well acquainted with a financial institution.

According to the petitioner, Accused No. 2 induced him to part with substantial amounts by making assurances regarding investment and returns. Acting upon those representations, the petitioner transferred approximately ₹1.06 crore in different instalments. The petitioner asserted that the money had been arranged through loans and borrowings from several financial institutions at high rates of interest.

The petitioner contended that these circumstances were inconsistent with the prosecution theory that he himself was operating or participating in an unregulated deposit scheme. Rather, his conduct, according to his version, demonstrated that he was the person who had parted with money after being induced by Accused No. 2.

The defence placed particular emphasis on the statutory definition and operation of the BUDS Act. It was argued that the legislation is directed at “deposit takers” who promote, operate or accept deposits under prohibited unregulated schemes. The petitioner maintained that he did not satisfy that statutory description.

His counsel therefore argued that merely alleging a financial transaction or cheating could not automatically attract the BUDS Act. The prosecution had to demonstrate the essential ingredients of the special statute, including the petitioner’s connection with an unregulated deposit scheme in the capacity contemplated by the legislation.

The petitioner further submitted that there was a serious chronological circumstance supporting his claim that the FIR against him was retaliatory. He had initially approached the police against Accused No. 2 after allegedly discovering that he had been cheated. When the police allegedly failed to register his complaint, he approached higher police authorities, following which an FIR was registered against Accused No. 2.

The petitioner thereafter instituted a writ petition before the High Court complaining of police harassment. While that proceeding was pending, the present FIR was registered against him at the same police station.

According to the defence, this sequence of events strongly suggested that the criminal case against him was a counter-blast intended to deter him from pursuing his complaint and proceedings against Accused No. 2. The defence therefore urged the Court to consider not merely the allegations contained in the FIR but also the surrounding circumstances and chronology.

The petitioner also relied upon his professional and personal circumstances. He was a final-year D.M. Super Specialty student in Nephrology at Andhra Medical College and was serving as a resident doctor at King George Hospital, Visakhapatnam. The defence submitted that his custodial arrest was unnecessary, particularly when the prosecution material itself raised a substantial question regarding the applicability of the BUDS Act.

The State, represented by the Public Prosecutor, opposed the anticipatory bail petition. The prosecution maintained that the allegations involved serious financial transactions and that the investigation was still required to be undertaken in detail.

The State submitted that the case was not an isolated financial dispute but involved multiple victims and transactions among doctors. According to the prosecution, the nature and extent of the alleged financial activity required a comprehensive investigation before the Court could grant pre-arrest protection.

The State also informed the Court that Accused No. 2 had already been arrested. The prosecution sought to rely upon this circumstance to demonstrate that the investigation was actively proceeding and that the role of the petitioner also needed to be examined in the context of the larger allegations.

The State’s opposition effectively proceeded on the premise that the seriousness of the allegations and the financial magnitude involved justified allowing the investigating agency sufficient freedom to investigate the petitioner’s role. The prosecution therefore urged the Court not to assess the factual dispute finally at the anticipatory bail stage.

The State also disputed, in substance, the petitioner’s attempt to characterise himself solely as a victim. The prosecution’s case was that the allegations against the petitioner required investigation and that the existence of several transactions and alleged victims made the matter more complex than an ordinary private dispute.

The Court was thus presented with two competing narratives. The petitioner claimed that he was an investor who had himself been cheated and had initiated proceedings against the person responsible, while the prosecution sought to investigate whether the petitioner had any role in the alleged financial arrangement and whether the provisions of the BUDS Act and cheating provisions were attracted.

The defence, however, did not merely rely upon a factual denial. It raised a specific statutory objection concerning the BUDS Act and argued that the petitioner did not fall within the category of persons to whom the relevant penal provisions applied. This statutory objection became an important factor in the Court’s assessment.

Court’s Judgment:

The Andhra Pradesh High Court allowed the anticipatory bail petition filed by Dr Rayagada Santosh Patnaik and granted him pre-arrest protection subject to conditions. Justice Maheswara Rao Kuncheam found that the petitioner had established circumstances justifying such relief, particularly in view of the apparent ambiguity concerning the applicability of the BUDS Act.

A significant part of the Court’s reasoning concerned the statutory structure of the Banning of Unregulated Deposit Schemes Act, 2019. The Court examined the petitioner’s contention that he did not fall within the statutory category of a “deposit taker”.

Section 3 of the BUDS Act prohibits unregulated deposit schemes and places restrictions upon deposit takers. The statutory framework is directed towards preventing persons or entities from promoting, operating, advertising, soliciting participation in or accepting deposits pursuant to prohibited unregulated schemes.

The Court found that the specific language of the provision raised a prima facie question regarding whether the petitioner could be brought within the scope of the BUDS Act at all. In particular, the Court noted the petitioner’s contention that he did not satisfy the statutory concept of a deposit taker.

This was not treated as a final determination of the petitioner’s innocence or as a definitive ruling that the BUDS Act could never apply to the facts. Rather, the Court identified a significant ambiguity at the stage of considering pre-arrest bail.

The Court observed that, “more particularly” in view of the language of the statutory provision, the petitioner would not come within the purview of a deposit taker. This finding substantially weakened the prosecution’s reliance upon Sections 21(1), (2) and (3) of the BUDS Act for the purpose of opposing anticipatory bail.

The Court then considered the nature of the remaining allegations. It observed that, apart from the offences under the BUDS Act, the other alleged offences were punishable with imprisonment of up to seven years. This circumstance was relevant to the Court’s overall assessment of whether custodial protection was warranted.

The Court found that there was “any amount of ambiguity” as to whether the penal provisions under Section 21 of the BUDS Act would actually apply to the crime in question. The uncertainty surrounding the special statute therefore became a significant consideration in favour of the petitioner.

The Court also considered the factual circumstances surrounding the registration of the FIR. It noted that the petitioner was himself the de facto complainant in the earlier case registered against Accused No. 2. The petitioner had approached the authorities after allegedly losing ₹1.06 crore and had pursued legal remedies when his complaint was initially not registered.

The Court further noticed that the petitioner’s writ petition concerning police harassment was pending when the present FIR was registered against him. This sequence was relevant because the petitioner had specifically alleged that the subsequent case was a counter-blast to his earlier complaint and proceedings.

While the High Court did not finally pronounce upon the allegation of mala fide or retaliation, the chronology was considered as part of the circumstances relevant to the exercise of discretion in an anticipatory bail application.

The Court’s approach is consistent with the established principle that proceedings for anticipatory bail do not ordinarily require a final adjudication of disputed facts. The Court is required to consider the nature of the accusation, the material circumstances, the seriousness of the allegations, the possibility of misuse of custodial powers and the necessity of arrest.

In the present case, the Court found that the statutory foundation of the BUDS Act allegations was itself prima facie uncertain. At the same time, the petitioner’s version that he had transferred a substantial sum to Accused No. 2 and had himself approached the police was a relevant circumstance.

The Court therefore concluded that the petitioner had made out a case for pre-arrest bail. The relief was granted subject to conditions intended to ensure his cooperation with the investigation.

The decision is particularly noteworthy for its treatment of the BUDS Act. The Court did not assume that every financial transaction involving several persons or substantial amounts necessarily constitutes an offence under the special legislation. The statutory ingredients must be examined, including the identity and role of the person alleged to be a deposit taker.

The distinction is important. The BUDS Act was enacted to address the specific mischief of unregulated deposit schemes and to protect individuals from fraudulent arrangements involving deposits. Its penal provisions therefore operate within the definitions and structural requirements of the legislation.

If an accused person is merely alleged to have invested money, or is himself shown prima facie to have parted with funds in response to another person’s representations, the question whether he can simultaneously be treated as a deposit taker may require careful examination. The Andhra Pradesh High Court’s order underscores that this question cannot simply be assumed without reference to the statutory language.

The Court’s reasoning also demonstrates why a prima facie statutory ambiguity can be relevant at the anticipatory bail stage. Where a special penal statute is invoked and there is a substantial question concerning whether its foundational ingredients are satisfied, the Court may take that circumstance into account while determining whether custodial arrest is necessary.

Importantly, the Court did not hold that the allegations of cheating were automatically extinguished merely because the BUDS Act provision was doubtful. The petitioner continued to face allegations under the general criminal law, including the offence of cheating under Section 318(4) of the BNS. The Court’s finding was directed principally towards the uncertainty surrounding the additional offences under the special legislation.

The prosecution’s concern regarding multiple victims and financial transactions was therefore not ignored. However, the Court balanced those concerns against the statutory ambiguity and the petitioner’s own conduct as reflected in the record.

The Court also took note of the fact that Accused No. 2 had already been arrested. While arrest of a co-accused does not automatically entitle another accused to anticipatory bail, the circumstance formed part of the overall factual background placed before the Court.

The petitioner’s status as a doctor and final-year D.M. student was also part of the factual circumstances considered by the Court, although the grant of bail principally rested upon the statutory ambiguity and the surrounding circumstances of the case rather than professional status alone.

The decision thus reflects the limited but important role of the High Court at the anticipatory bail stage. The Court did not conduct a mini-trial or determine whether the petitioner had actually been cheated. Nor did it conclusively decide whether the BUDS Act would ultimately fail at trial. Instead, it examined whether the allegations, viewed at the preliminary stage, justified the extraordinary step of custodial arrest.

On that assessment, the Court found sufficient grounds to protect the petitioner’s liberty while permitting the investigation to continue.

The grant of anticipatory bail also does not prevent the investigating agency from examining the financial transactions or questioning the petitioner in accordance with law. The conditions imposed by the Court are intended to balance the petitioner’s right to personal liberty with the investigative needs of the State.

The order is therefore significant for two reasons. First, it reiterates that statutory ingredients must be carefully examined before invoking special penal legislation. Secondly, it demonstrates that where an accused prima facie appears to fall outside the statutory category upon which the offence is founded, such ambiguity can become an important consideration while deciding an application for anticipatory bail.

The High Court ultimately allowed Criminal Petition No. 4501 of 2026 and granted pre-arrest bail to Dr Rayagada Santosh Patnaik subject to conditions. The proceedings concerning the underlying allegations remain subject to investigation and further legal proceedings.

The decision serves as a reminder that the seriousness of an allegation does not eliminate the requirement of satisfying the statutory ingredients of the offence. A financial dispute involving substantial sums may attract criminal law where the necessary ingredients are established, but the invocation of a specialised enactment such as the BUDS Act must correspond with the role and conduct contemplated by that statute.

In the present case, the High Court found that the petitioner’s alleged status as a person who had himself transferred money and complained of being cheated raised a substantial question as to whether he could be treated as a “deposit taker”. Combined with the chronology of the competing FIRs and the pending writ proceedings, this persuaded the Court that pre-arrest protection was justified.

The ruling therefore reinforces a basic principle of criminal jurisprudence: statutory offences must be founded on their essential ingredients, and personal liberty cannot be curtailed mechanically where the very applicability of a penal provision is prima facie doubtful.