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of <h1>Pondicherry Depositors Protection Act Validated: Upheld by Court, Ensuring Financial Safeguards</h1> <h3>New Horizon Sugar Mills Versus Government of Pondicherry</h3> New Horizon Sugar Mills Versus Government of Pondicherry - 2012 (10) SCC 575, [2012] 116 SCL 80 (SC), [2012] 175 COMP. CAS. 475 (SC) Issues Involved:1. Challenge to G.O.Ms.No.12 dated 18.2.2006 issued by the Government of Pondicherry.2. Validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (Act 1 of 2005).3. Legislative competence of the Pondicherry Government in enacting Act 1 of 2005.4. Applicability of the decision in K.K. Baskaran v. State of Tamil Nadu to the Pondicherry Act.5. Whether the subject matter of the Pondicherry Act is referable to Entries in the Union List or the State List.6. The impact of the President's assent on the Pondicherry Act under Article 254(2) of the Constitution.Issue-wise Detailed Analysis:1. Challenge to G.O.Ms.No.12 dated 18.2.2006:The main issue relates to the challenge thrown to G.O.Ms.No.12 dated 18.2.2006 issued by the Department of Revenue and Disaster Management, Government of Pondicherry, ordering attachment of properties acquired by Pondicherry Nidhi Ltd. The attachment was ordered following allegations of misappropriation of funds by the Directors of M/s New Horizon Sugar Mills Pvt. Ltd., who were also major shareholders in Pondicherry Nidhi Ltd. The attachment prevented M/s Parry Ltd. from registering the Sale Certificate for the auctioned property.2. Validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (Act 1 of 2005):The Pondicherry Act was enacted to protect the interests of depositors in financial establishments in the Union Territory of Pondicherry. The Division Bench of the Madras High Court upheld the validity of the Act, observing that it was in pari materia with the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997, which had been upheld by the courts. The challenge to the legislative competency and jurisdiction of the Government of Pondicherry in enacting the impugned Act was rejected.3. Legislative Competence of the Pondicherry Government:The legislative competence of the Pondicherry Government to enact Act 1 of 2005 was questioned. It was argued that the Act was referable to Entries 43, 44, 45, and 97 of the Union List and not Entries 1, 30, and 32 of the State List. However, the court held that the subject matter of the Pondicherry Act could be traced to Entries 1, 30, and 32 of the State List, which involve the business of unincorporated trading and money-lending.4. Applicability of the Decision in K.K. Baskaran v. State of Tamil Nadu:The decision in K.K. Baskaran's case, which upheld the validity of the Tamil Nadu Act, was considered relevant. The court noted that the objects of the Tamil Nadu Act, the Maharashtra Act, and the Pondicherry Act were identical, aimed at protecting the interests of small depositors from fraud. The court affirmed that the decision in K.K. Baskaran's case would be applicable to the Pondicherry Act as well.5. Subject Matter Referable to Union List or State List:The court examined whether the subject matter of the Pondicherry Act was referable to Entries 43, 44, 45, and 97 of the Union List or Entries 1, 30, and 32 of the State List. It concluded that the Pondicherry Act could be traced to Entries 1, 30, and 32 of the State List, which involve public order, money-lending, and incorporation, regulation, and winding up of corporations other than those specified in List I.6. Impact of the President's Assent under Article 254(2):The Pondicherry Act had received the assent of the President, attracting the provisions of Article 254(2) of the Constitution. This provision allows a State law to prevail over a conflicting Central law if it has received the President's assent. The court held that the Pondicherry Act was saved by virtue of Article 254(2) and would prevail in the Union Territory of Pondicherry.Conclusion:The appeals were dismissed with costs, and the validity of the Pondicherry Act was upheld. The court emphasized the beneficial nature of the legislation aimed at protecting the interests of small depositors from fraudulent financial establishments.
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