Legislative competence and pith and substance control deposit-default laws already covered by central legislation.

The Maharashtra Protection of Interests of Depositors Act, 1999 was held beyond State legislative competence because its true substance regulated deposit-taking, penalised defaults in repayment, and provided for attachment and distribution of assets in a field already occupied by central legislation under the Companies Act and the RBI Act. The Court rejected the argument that the law was referable to public order, holding that public resentment caused by defaults did not change the Act's core character. Severability was also rejected because the provisions concerning individuals and unincorporated bodies were likewise covered by the central enactment. The Act could not therefore be sustained as a valid State law.

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Issues: Whether the Maharashtra Protection of Interests of Depositors (In Financial Establishments) Act, 1999 was within the legislative competence of the State Legislature, and whether it could be sustained as a law referable to public order or, alternatively, in part by severability.

Analysis: The challenge turned on the true nature and character of the enactment. The Act created offences for fraudulent default in repayment of deposits, authorized attachment of properties, provided for appointment of a competent authority and designated court, and enabled realization and equitable distribution of attached assets among depositors. Those provisions substantially overlapped with the field occupied by Parliament through section 58A, section 58AA and section 58AAA of the Companies Act, 1956, and Chapter III-C of the Reserve Bank of India Act, 1934. The Court held that the State law was not, in pith and substance, a law on public order merely because defaults had caused public resentment; its core was regulation and punishment of deposit defaults, a subject already covered by central legislation and falling within Union List entries 43, 44 and 45, or in any event the residuary power of Parliament. The severability submission was rejected because the provisions regulating individuals and unincorporated bodies were also already covered by the central enactment upheld by the Supreme Court.

Conclusion: The Act was beyond the competence of the State Legislature and could not be saved as a public order measure or by severance.

Ratio Decidendi: A State law whose true substance regulates deposit-taking and penalises defaults in repayment, when that field is already occupied by valid central legislation, cannot be justified as a law on public order or upheld by incidental encroachment on Union subjects.

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