TaxTMI 
TaxTMI 
2007 (3) TMI 783
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....31893, 32469, 33530, 33531, 35425, 36602, 36638, 39409, 40182, 40185, 41787 to 41790, 41939, 42521, 44427, 44428, 44487 of 2006; 14088 and 25767 of 2003, 23344, 23345, and 26452 of 2004, 1714, 3984, 3985, 6988, 8538, 11803, 26108, 26981, 39895 and 41008 of 2005, W.A. No. 536 of 2002, CMA. No. 1161 and 1162 of 2004 , WPMP.Nos.349, 8545, 10378 to 10386, 12093, 13270, 13648, 13701, 13702, 14028, 14228, 16359, 14818, 14822, 14823, 15027, 15041, 15042, 15051, 15052, 15216, 15267, 15268, 15281 to 15284, 15351, 15455, 15456, 15658, 15659, 15686, 15688, 15689, 15690, 15842, 16367, 15899, 15900, 15915, 15958 to 15963, 15964, 15968, 16114, 16167, 16198, 16199, WP.17765/2006, (WP.17953/2006), (WP.19652/2006), (WP.19685/2006), 2 (WP.19686/2006), 2(WP.19687/2006), 1(WP.20290/2006),(WP.No.20291/2006), 1 and 2 (WP.20934/2006), 1 and 2(WP.20944/2006), (WP.21333/2006), 1(WP.21405/2006), 1(WP.21406/2006), (WP.22072/2006), 1(WP.22081/2006), 1(WP.22094/2006), 1(WP.22103/2006), (WP.22223/2006), 1(WP.22420/2006), 1(WP.22462/2006), (WP.22703/2006), (WP.23132/2006), (WP.23134/2006), (WP.23186/2006), 1(WP.23370/2006), (WP.24306/2006), (WP.24323 to 24326/2006), (WP.24392/2006), (WP.24482/2006), 1 and 2(WP.2....
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....alising Court's power to annul the legislation. With this, we propose to experiment, analyze, and render our observation on the constitutional validity of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (for brevity, "Tamil Nadu Act"), which, in fact, had already been upheld by the learned Single Judge of this Court (P.Sathasivam,J.) in Thiru Muruga Finance v. State of Tamil Nadu (2000 (II) CTC 609 = 2000-3-L.W.298), and the same has become final for not having been appealed against. II. Why the Full Bench? 2.1. Attracted by the fabulous rate of interest on the deposit, which of course is not viable commercially, the depositors, day by day started investing their savings in the financial establishments, believing the said promises of the financial establishments for higher rate of interest. The depositors, who mostly belong to the poor, lower middle and middle class, are senior citizens above 80 years, senior citizens between 60 and 80 years, widows, handicapped, driven out by wards, retired Government servants, pensioners, living below the poverty line, etc. As a result, the financial establishments, which set their busines....
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....uga Finance v. State of Tamil Nadu (2000 (II) CTC 609 = 2000-3-L.W.298) upheld the constitutional validity of the Tamil Nadu Act on all fours. 3.1. In the meanwhile, the Reserve Bank of India addressed all the State Governments to enact suitable legislation along the lines of the Tamil Nadu Act, since existing legislation was found to be inadequate to deal with the financial establishments, which have duped large number of depositors and collected crores of rupees on false promise to repay the same with higher rate of interest, which is not viable commercially. 3.2. The Maharashtra Government, therefore, enacted Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (hereinafter referred to as 'the Maharashtra Act') and the Pondicherry Government enacted Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (hereinafter referred to as 'the Pondicherry Act'). 3.3. The Pondicherry Act incidentally was challenged before this Court in C.R.P.(PD) No.1352 of 2005 and W.P.No.1897 of 2006, etc. and the learned Single Judge of this Court (E.Dharma Rao,J.) by a common order dated 23.9.2006 reported i....
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....ew taken in the decision of the Division Bench of the Delhi High Court in Kanta Mehta v. Union of India, referred supra, that the acceptance of deposits amounts to banking, while upholding the constitutional validity of Section 45S of Chapter IIIC read with Section 58B(5A) of Reserve Bank of India Act, 1934, has already been confirmed by the Apex Court in Velayuidhan Achari, T. v. Union of India, referred supra. 5.2. The other predominant contention is that the impugned legislation suffers from want of legislative competency of the State Government as the subject matter in question relates either to the regulation of the trading corporation, including banking, insurance and financial corporation, or relating to the regulation of corporations, whether trading or not, falling within the field of legislation of the Union of India under Entries 43 or 44 of the List I of VII Schedule read with Article 246 of the Constitution of India. In this regard reliance is placed on the decision of the Apex Court in Delhi Cloth and General Mills Co. Ltd. v. Union of India, referred supra. 5.3. The impugned Act is liable to be struck down as the field of legislation is already occupied by the ....
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....d crime by the financial establishments. According to the learned Advocate General, the impugned enactment is intended to ameliorate thousands of depositors from the clutches of financial establishments, who have committed a deliberate and fraudulent default in repayment of the principal and the interest after maturity, and to provide a machinery for attachment of the properties of the financial establishments as well as the mala fide transferees, to bring them for sale for realization of the dues payable to the depositors, speedy recovery of the matured and defaulted amounts due to them. 6.3. According to the learned Advocate General, the State is competent to enact a suitable legislation to meet the urgent need to protect the interest of the innocent depositors, taking into consideration the public interest in the matter by providing appropriate mechanism to operate effective control over the financial establishments and to attach the properties of the financial establishments as well as that of the mala fide transferees and to realise the dues payable to the depositors. 6.4. It was highlighted that the Government of Tamil Nadu is the first in constituting a Special Wing fo....
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....financial companies incorporated under the Companies Act, 1956, as none of the said legislations, said to have occupied the field, provides a solution to wipe the tears of several lakhs of depositors and to realize the dues effectively from the financial establishments, which ramped into public disorder. 6.9. Meeting the point of occupied field, the learned Advocate General contends that the State Government never intended to enact any legislation, the subject matter of which is governed under the existing laws, namely Section 58A of the Companies Act, 1956, which only regulates the acceptance of the deposits and Section 45S of Reserve Bank of India Act, 1934 which prohibits the acceptance of the deposits, but only intended to protect the interest of the depositors for realization of the dues, which they are entitled to, without dragging them for a legal battle from pillar to post. Therefore, the decision of the Apex Court in Delhi Cloth and General Mills Co. Ltd. v. Union of India, referred supra, which deals with Section 58A of the Companies Act, 1956 and Rule 3A of the Companies (Acceptance of Deposits) Rules, as well as the decision of the Delhi High Court in Kanta Mehta v. ....
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....by any of offences scheduled under the Criminal Law Amendment Ordinance, which require mens rea to be satisfied; whereas it is not so in the case of the statutory offence chargeable under Section 5 of the Tamil Nadu Act. The provisions provided under the Ordinance are all subject to the termination of the criminal proceedings of the scheduled offences. But, in the case of the impugned Tamil Nadu Act, the attachment of the properties is intended to provide an effective remedy to the aggrieved depositors, viz., for the realisation of the dues payable to the depositors equitably. 6.14. The learned Advocate General stoutly opposes the contention of the petitioners that the impugned Act is arbitrary, unreasonable and discriminatory, and violative of principles of natural justice, and thereby, offending Articles 14, 19(1)(g) and 21 of the Constitution of India. 6.15. For all these reasons, it is contended that the decision of the Full Bench of the Bombay High Court in Vijay C.Puljal v. State of Maharashtra, referred supra, has no bearing to test the constitutional validity of the impugned enactment. V. NUCLEUS OF THE CONFLICT 7. In the light of the above conflicting contentio....
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....N 58A OF COMPANIES ACT, 1956 AND SECTIONS 45S AND 58B(5a) AND 58B(5b) OF RESERVE BANK OF INDIA ACT, 1934 (g) THE IMPUGNED TAMIL NADU ACT AND SECTIONS 45S AND 58B(5A) OF RESERVE BANK OF INDIA ACT, WITH REFERENCE TO THE DECISION IN Kanta Mehta v. Union of India CASE AND Velayuidhan Achari, T. v. Union of India CASE (h) THE IMPUGNED TAMIL NADU ACT AND SECTION 58A OF THE Companies Act, 1956 WITH REFERENCE TO THE Delhi Cloth and General Mills Co. Ltd. v. Union of India CASE (i) THE IMPUGNED TAMIL NADU ACT WITH REFERENCE TO THE CRIMINAL LAW AMENDMENT ORDINANCE, 1944 as made applicable by the Criminal Law (Tamil Nadu Amendment) Act, 1997 (j) THE IMPUGNED TAMIL NADU ACT AND THE RELEVANT ENTRIES, VIZ., 1, 7 AND 8 IN LIST III OF VII SCHEDULE TO THE CONSTITUTION OF INDIA (k) THE IMPUGNED Tamil Nadu ACT AND ENTRY 32 OF LIST II with reference to the power to regulate (l) THE IMPUGNED TAMIL NADU ACT AND THE CONCEPT OF PUBLIC ORDER AND ENTRY 1 OF LIST II WITH REFERENCE TO THE POWER TO MAINTAIN PUBLIC ORDER VII. Issue: (i) Question of reasonableness, violation of principles of natural justice and violation of Articles 14, 19(1)(g) and 21 of the Constitution of India 9. We here....
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.... to the depositors. The words found in the statement of objects and reasons, viz., "in the public interest, in order to regulate the activities of such Financial Establishments" would mean that the Tamil Nadu Act has been enacted to protect the interests of depositors. VII-A(b). DEFINITIONS UNDER SECTION 2 11.1. Originally, Sections 2(2) and 2(3) define "deposit" and "financial establishments" as follows: (2) "deposit" means the deposit of a sum of money made with the financial establishment for a fixed period, for interest or return in any kind; (3)"financial establishment" means an individual, an association of individuals, a firm carrying on the business of receiving deposits under any scheme or arrangement or in any other manner but does not include a company registered under the Companies Act, 1956 (Central Act 1 of 1956) or a corporation or a co-operative society owned or controlled by any State Government or the Central Government or a banking company as defined in Section 5(c) of the Banking Regulation Act, 1949 (Central Act X of 1949) or a non-banking financial company as defined in clause (f) of Section 45-I of the Reserve Bank of India Act, 1934 (Central Act ....
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....s, a firm or a company registered under the Companies Act, 1956 (Central Act 1 of 1956) carrying on the business of receiving deposits under any scheme or arrangement or in any other manner but does not include a corporation or a co-operative society owned or controlled by any State Government or the Central Government or a banking company as defined in Section 5(c) of the Banking Regulation Act, 1949 (Central Act X of 1949)" (emphasis supplied) 11.4. Thus, by the Amendment Act 30 of 2003, the companies registered under the Companies Act, 1956 and the non banking financial companies, are also brought within the purview of the Act. VII-A(c). ATTACHMENT OF PROPERTIES BY COMPETENT AUTHORITY UNDER SECTION 3 12.1. Section 3 of the Tamil Nadu Act provides for attachment of properties on default of return of deposits and reads as follows: "3. Attachment of properties on default of return of deposits: Notwithstanding anything contained in any other law for the time being in force - (i) where upon complaints received from a number of depositors, that any Financial Establishment defaults the return of deposits after maturity, or fails to pay interest on deposit or fails to ....
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....s that such money or other property is not available for attachment or not sufficient for repayment of the deposits, such other property of the said Financial Establishment or the promoter, manager or member of the said Financial Establishment, as the Government may think fit, and transfer the control over the said money or property to the competent authority." (emphasis supplied) 12.3. Accordingly, by virtue of the Tamil Nadu Act 30 of 2003, the properties of the persons who borrowed money from the financial establishments are also roped in for attachment and sale in public auction for realization of dues payable to the depositors by equitable distribution. 12.4. Section 4 of the Tamil Nadu Act empowers the Government to notify one or more competent authorities to exercise control over the properties attached and the same reads as follows: "4. Competent authority: - (1) The Government may, by notification, appoint one or more authorities for such area or areas or such case or cases as may be specified in the notification hereinafter called 'the competent authority' to exercise control over the properties attached by the Government under section 3. (2) The....
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.... the Competent authority to make an application to any court having jurisdiction to try similar cases or deal with the subject matter pertaining to money or property belonging to a Financial Establishment or any person specified in section 3 situated within the territorial jurisdiction of that court for appropriate orders. By these provisions a comprehensive mechanism has been provided for attaching the properties of not only the financial establishments, but also that of such other persons mentioned under Section 3 of the Tamil Nadu Act, in order to plug the loopholes either siphoning or diverting the funds of the depositors mala fide. VII-A(d). STATUTORY OFFENCE AND PENALTY UNDER SECTIONS 5 AND 5A 13.1. Section 5 creates a statutory offence without contemplating any mens rea and prescribes penalty on every person responsible for the management of affairs of the financial establishment and the same reads as follows: "Section 5. Default in repayment of deposits and interest honouring the commitment- Notwithstanding anything contained in Chapter II, where any financial establishment defaults the return of the deposit or defaults the payment of interest on the....
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....RT AND CONFIRMATION OF INTERIM ATTACHMENT UNDER SECTIONS 6 AND 7 14.1. Section 6(1) of the Act provides for the constitution of the Special Courts in the cadre of District and Sessions Judges and their jurisdiction, and the same reads as follows: "6. Special Court.-- (1) For the purpose of this Act, the Government may, with the concurrence of the Chief Justice of the High Court, by notification, constitute one or more Special Courts for such area or areas or such case or cases as may be specified in the notification in the cadre of a District and Sessions Judge." 14.2. Section 6(2) confers exclusive jurisdiction on the Special Courts in respect of any matter to which the provisions of this Act apply. 14.3. Section 6(3) of the Act provides for the transfer of the pending cases from other Courts to the Special Courts. 14.4. Section 6(2), therefore, clarifies that the power conferred on the competent authority under Section 4(5) to move any Court for appropriate orders, apart from applying for making an ad-interim order of attachment absolute, is subject to the powers of the Special Court conferred under section 6(2) of the Act and as such, we do not see any confl....
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.... Act V of 1908) and any person making an objection shall be required to adduce evidence to show that at the date of attachment he had some interest in the property attached. (6) After investigation under Sub-section (5) the Special Court shall pass an order within a period of one hundred and eighty days from the date of receipt of an application under sub-section (3) of Section 4 either making the ad interim order of attachment absolute or varying it by releasing a portion of the property from attachment or cancelling the ad interim order attachment. Provided that the Special Court shall not release from attachment any interest which it is satisfied that the Financial Establishment or the person referred to in Sub-section (1) has in the property unless it is also satisfied that there will remain under attachment an amount or property of value not less than the value that is required for repayment to the depositors of such Financial Establishment. (7) Where the ad-interim order of attachment is made absolute, on an application by the Competent authority, the Special Court shall direct the Competent authority to sell the properties attached, by public auction and....
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....) Where the assets available for attachment of a Financial Establishment or other person referred to in section 3 are found to be less than the amount or value which such Financial Establishment is required to repay to the depositors and where the Special Court is satisfied by affidavit or otherwise that there is reasonable cause for believing that the said Financial Establishment has transferred (whether after the commencement of this Act or not) any of the property otherwise than in good faith and for consideration, the Special Court may, by notice, require any transferee of such property (whether or not he received the property directly from the said Financial Establishment) to appear on a date to be specified in the notice and show cause why so much of the transferee's property as is equivalent to the proper value of the property transferred should not be attached. (2) Where the said transferee does not appear and show cause on the specified date, or where after investigation in the manner provided in sub-section (5) of Section 7, the Special Court is satisfied that the transfer of the property to the said transferee was not in good faith and for consideration, the Speci....
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....as may be practicable the interest of any business affected by the attachment and in particular in the interest of any partners in such business." 17.3. Section 9 empowers the Special Court to either cancel or refrain from passing any order of attachment after satisfying with the security furnished by the financial establishments in lieu of attachment. Section 10 empowers the Special Court after hearing the financial establishments or other persons interested, to consider the just and reasonable cause to make an appropriate provision for maintenance of the applicants and their family and to safeguard the interest of any business of the applicants affected by the attachment as well as the interest of any partners of such business. 18. Any order passed by the Special Court is appealable in law before the High Court within 30 days from the date of order under section 11 of the Act. VII-b. Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Rules, 1997 19. The Rules framed under the Tamil Nadu Act, viz., The Tamil Nadu Protection of Interests of depositors (In financial establishments) Rules, 1997 empowers the competent authority to require any fi....
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....rd and peaceful adjustment and thus furthering the moral and material progress of the community as a whole. It is for this reason that the Courts have recognised that there is always a presumption in favour of the constitutionality of a statute. The Courts, it is accepted, must presume that the Legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds [vide: Pathumma v. State of Kerala, (1978) 2 SCC 1]. 21. The power conferred under Section 3 on the authority to pass ad interim order of attachment of money or any other property alleged to have been procured either in the name of the financial establishments or in the name of any other person, from and out of the deposits collected by the financial establishments or if it transpires that if such money or other property is not available for attachment or not sufficient for repayment of deposits, such other property of the said financial establishments or the promoter, partner, director, member of the said financial establishments or a person who has borrowed money from the financial est....
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....dly made. They can supplement the law but cannot supplant it. If a statutory provision either specifically or by inevitable implication excludes the application of rules of natural justice then the court cannot ignore the mandate of the legislature. The power conferred on the competent authority under section 3 of the Act for attaching the property of the financial establishments or that of such person mentioned thereunder, is one of such nature. Whether or not the application of principles of natural justice in a given case has been excluded wholly or in part, in exercise of the statutory power, depends upon the language and basic scheme of the provision conferring the power, the nature of the power, the purpose for which it is conferred and the effect of the exercise of that power. The rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is not possible to make an exhaustive catalogue of such rules. The audi alteram partem rule has many facets, (a) notice of the case to be met; (b) opportunity to the party aggrieved to explain. Undoubtedly these rules cannot be sacrificed at the altar of the administrative convenience or celerity....
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....uld be viewed pragmatically as the same satisfies the principles of natural justice with utmost promptitude. The Act therefore provides very flexible hearing giving opportunity to the financial establishments and persons whose properties were attached and procedure provided in this regard is malleable and adaptable to the concept of principles of natural justice. The dispensation of pre-decision opportunity while passing ad interim order of attachment under Section 3 of the Act is inevitable, as the very object of the enactment is to control, regulate and curb the activities of malicious transfer of funds by the financial establishments and to realise the amount from the financial establishments and distribute the same to the depositors equitably and thus, protect the interest of the innocent depositors. 28.1. We, therefore, do not see any justification in the complaint for not affording a reasonable opportunity before attaching the property, as there cannot be any justified reason to fleece the funds that actually belongs to the depositors. 28.2. If that be so, can't the State rush-in to bring out necessary enactment in order to provide a stabilised socio-economic justic....
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....conflict is between public interest and private interest. In the instant case, the interest of the depositors who are more than 19 Lakhs in number constitutes public interest prevailing over the private interest of the financial establishments and therefore, the presumption must necessarily be in favour of the public interest. In such case, the urgency requires a preemptive action as a strategic necessity. Then, there may be no question of observing pre-decision hearing, as in the case of preemptive action, it is deemed appropriate to postpone the hearing of principles of natural justice by providing a post-decision opportunity which is rightly satisfied in the instant case. 33.1. However, where the assets available for attachment of a financial establishment or other persons referred to in section 3 are found to be less than the amount or value which such establishment is required to pay to the depositors, the competent authority is empowered to make an application to the Special Court under Section 8(1) of the Act for attaching the properties of mala fide transferees. If the Special Court is satisfied by affidavit or otherwise that there is a reasonable cause that the said fin....
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....rtner, director, manager or member of the said Financial Establishment or a person who has borrowed money from the Financial Establishment to the extent of his default. 35.1. The contention that the inclusion of the words, "fails to provide the service for which deposit has been made" under Section 3 of the Act, and the words "fails to render service for which the deposit has been made" under Section 5 of the Act is unreasonable, is liable to be rejected, because in judging the reasonableness of such restrictions, the Court must bear in mind that the legislature is the best judge for what is good for the community, by whose suffrage it comes into existence (State of Bihar v. Sri Kameshwar Singh, AIR 1952 SC 252). Even though ultimately it is for the Court to test the reasonability, and the Court must not shirk its solemn duty, the test of reasonableness has to be applied to each individual statute impugned but not on the basis of abstract standard or general pattern of reasonableness. 35.2. Testing the inclusion of words "fails to provide the service for which deposit has been made" under Section 3 of the Act, and the words "fails to render service for which the deposit has b....
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....wn malady that the financial establishments were exploiting the weaker sections of the society. Hence, sections 3, 5 and 8 are intended to assure a checkmate on the abuse of the tactics adopted by the financial establishments and we do not see any arbitrariness or unreasonableness or violation of Articles 14, 19(1)(g) and 21 of the Constitution of India. 37.1. We hold, a. The cardinal principles of natural justice are not violated; b. There is no arbitrariness or unreasonableness in the procedure prescribed under Sections 3, 5 and 8 of the Act, nor there is unguided power conferred on the competent authority or the Special Court in this regard; and c. There is no violation to Articles 14, 19(1)(g) and 21 of the Constitution of India. 37.2. In view of the above, issue (i) is answered in the affirmative. VIII Issue (ii) Question of Legislative Competency 38. Having discussed in detail the object and reasons for enacting the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997, and the grounds of vires challenged, viz., test of reasonableness, arbitrary exercise of unguided powers conferred, and violation of principles of natural just....
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....itutionally valid; and (ii) Velayuidhan Achari, T. v. Union of India, referred supra affirming the reasoning in the decision of the Delhi High Court in Kanta Mehta v. Union of India, referred supra, in which Section 45S and 58B(5A) of the Reserve Bank of India Act, 1934 were held as constitutionally valid. 39.3. Even though there may be some differences between the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 and the Maharashtra Act, in our considered opinion, the same are negligible and do not matter much for the purpose of testing the legislative competency of the State in enacting Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997, in view of the statement of reasons and objects and the overall scheme of both the Acts. Therefore, it is appropriate to straight away refer to the decision of the Full Bench of the Bombay High Court in Vijay C.Puljal v. State of Maharashtra, referred supra: " 33.This is not a case where a state law is essentially and in substance with respect to a matter in the State List. Were it to be, an incidental encroachment on a subject reserved for the Union would no....
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....r constitutional scheme. It may appear tautological to say that legislation on public order must in substance be based upon public order. The point is of significance because numerous problems of law enforcement and of maintaining public order have their genesis in diverse and complex societal issues. If the State, in the process of enacting legislation on public order, were to legislate by regulating substantive areas which fall in the Union List, that would lead to the destruction of the basic scheme envisaged in the distribution of legislative powers. Legislation on public order must address public order. Otherwise, in the guise of legislating on public order,substantive areas which are reserved to Parliament in the Union List would be subject to regulation by the States. This is impermissible. A law on public order must truly and essentially address itself to the preservation and maintenance of public order. That is not what the State law does in the present case. The essential nature of the State law in the present case is not public order, but subjects which fall within the Union List. 35. In these circumstances, we hold that : (i) The provisions of Section 58A of....
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....red to be ultra vires." (emphasis supplied) 39.4. But, with respect, we are not in a position to agree with the reasons that weighed the Full Bench of the Bombay High Court for holding that the State Government has no legislative competency to enact the Tamil Nadu Act, in the public interest and in order to regulate the activities of the financial establishments. VIII-B. THE PRINCIPLES GOVERNING THE TEST OF LEGISLATIVE COMPETENCY 40. Before considering the conflicting contentions made on behalf of both sides, it is the necessity of judicious prudence to refer the well settled principles governing the test of legislative competency. 41. Undoubtedly, the Indian Constitution provides plenary power of legislation to the legislatures whether Union or State, in spite of division of legislative powers mentioned in the Entries in the Lists conferring respective powers on the Union and the States. But, such legislative powers of the Union and States also often overlap and consequently, create a conflict regarding the legislative competency. It is, under such circumstances, the Court is shouldered with responsibility to examine the legislation in question in its pith and substanc....
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....he whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Article 246. Subject-matter of laws made by Parliament and by the legislatures of States.- (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the "Union List") (2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the maters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List") (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the "State List") (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such ma....
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....ch failures does not have the effect of augmenting the powers of the other level of Government. This is the true meaning and effect of the exclusivity in the distribution of the legislative powers enumerated in List I and II. The constitution does not countenance the delegation of legislative powers, either expressly or by abstinence in exercise of the legislative powers by appropriate legislature. 48. However, in respect of the matters enumerated in the concurrent List, it is possible that the laws made by the Union and State could co-exist. In the distribution of legislative powers under the Concurrent List (List III), Article 246(2) enacts that notwithstanding anything in clause (3), Parliament and subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in the Concurrent list. But, the conflict arose under such circumstance can be resolved by a doctrine of occupied field or repugnancy taking recourse under Article 254 of the Constitution of India, as, Article 254 sets out principles for resolution of conflicts relating to inconsistency between the laws made by Parliament and the laws made by the Legislatu....
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....on account of which it would be impossible to prevent overlapping by a clear cut division. The overlapping also occurs in several cases where exclusive field is in favour of the State, but the same is made subject to an exclusive field carved out which is reserved in favour of the Union. When it appears to the court that there is apparent overlapping between the two entries the doctrine of pith and substance has to be applied to find out the true nature of a legislation and the entry within which it would fall. It is only when an apparent overlapping occurs that the doctrine of pith and substance has to be applied to find out the true nature of legislation and the entry within which it would fall. When different entries in the same list crop up for consideration, the usual principle followed is that each particular entry should relate to a separate subject or group of subjects and every attempt should be made to harmonise different entries and to discard a construction which will render any of the entries ineffective. [vide: ITC Ltd. v. Agricultural Produce Market Committee,(2002) 9 SCC 232]. VIII-B(d). APPLICATION OF THE DOCTRINE OF PITH AND SUBSTANCE, THE DOCTRINE OF ANCILLARY....
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....l trenching in exercise of ancillary powers into a forbidden legislative territory is permitted as a matter of privileged encroachment not amounting to usurpation. 54.2. The doctrine of incidental and ancillary powers simply means that each head of legislative power, whether Union or State, authorises all provisions that have a rational connection to the exercise of that head of power. If the apparent trenching into a prohibited field is not a camouflage, or the trenching is a serious usurpation of the forbidden legislative territory, or such trenching does not gravely intrude or derogatorily impact the effective exercise of legislative power by the other and appropriately authorised level of Government, the trenching would be termed incidental and therefore, such trenching would not, by itself, invalidate the legislation. 55. It is a settled law that laws made in derogation or in excess of that power would be ab initio void wholly or to the extent of the contravention as the case may be. Of course, the Doctrine of Eclipse can be invoked in the case of a law valid, but still a shadow is cast on it by supervening constitutional inconsistency or supervening existing statutory i....
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....he Reserve Bank of India under the provisions of the Banking Regulation Act, 1949 and therefore, it cannot be said that the field is occupied by the Reserve Bank of India Act, 1934 read with the provisions of the Banking Regulation Act. On the other hand, the impugned Act only aids the said Parliamentary Acts, viz., Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949 and does not in any manner whatsoever entrench thereupon. 59. To identify the dominant feature and the pith and substance of the law, all the tests are to be applied. These matters are not a mere technical or formalistic exercise. The court will look beyond the direct legal effects of the law to enquire into these factors, particularly in the case of social and economic legislation, as the one in hand. Because socio economic legislation must be considered more organic as a whole, but not as a mere collection of sections. It requires a more pragmatic approach rather than a pedantic. 60. The Court is also required to consider the effect of the statute. The effect in the sense is merely not legal effect, but the effect of the statute on the societal realities, more so, when it concerns with economics. T....
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.... be held to be valid in its entirety even though it might incidentally trench on matters which are beyond its competence. In order to examine the true character of the enactment, the entire Act, its object, scope and effect, is required to be gone into. [vide: Union of India v. Shah Goverdhan L. Kabra Teachers' College,(2002) 8 SCC 228]. 64. The Court has to ascertain the true nature and character of the enactment, i.e.,the result of the investigation, not the form alone. The legislation must be scrutinized in its entirety. 65.1. Then the questions that follow are, (i) whether the law claimed to be within the incidental or ancillary area of the authorised legislative field, substantially impact the essential area or the core of the exclusive legislative field of the other level of Government?; and (ii) whether the extent and degree of invasion would substantially impair the effective exercise of an extent or potential legislation by the other level of the Government? 65.2. The question of invasion into the territory of another legislature must be determined not by the degree but by substance, because the extent of invasion though forbidden, but not altogether. If an Ac....
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....ame. Similarly, if any matter is within the exclusive competence of the Union, it becomes a prohibited field for the State Legislatures. 69. In State of U.P. v. Synthetics and Chemicals Ltd. (1991)4 SCC 139, while dealing with the legislative competence of the U.P. Sales of Motor Spirit, Diesel Oil and Alcohol Taxation (Amendment) Act, 1976, as to whether it would fall under Entry 52 of list-I or under Entry 54 of List II, the Apex Court held that the control exercised by the Central Government by virtue of Section 18-G of the Industries (Development and Regulation) Act, 1951 is in a field far removed from the taxing power of the State under Entry 54 of List II and so long as the impugned legislation falls in pith and substance within the taxing field of the State, the control of the Central Government in exercise of its power under the Industries (Development and Regulation) Act, 1951 in respect of a controlled industry falling under Entry 52 of List I cannot in any manner prevent the State from imposing taxes on the sale or purchase of goods which are the products of such industry and which are referable to Entry 33 of List III. 70. It is trite that both the Acts can operat....
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....eties doing banking business have fallen under Entry 32 of list II. 72. The touch-stone for application of the doctrine of Pith and Substance, as observed earlier, is that while interpreting the conflicts between the Union and the State, an organic, but not pedantic approach of interpretation must guide the judicial process. The healing art of harmonious construction not the tempting game of hair splitting would alone promote the rhythm of rule of law, as every enactment is presumed to be constitutionally valid and it is only for the legislature to determine the urgent need of the public taking into consideration the societal realities and the public interest, and the Court should be more cautious in testing the enactment in the teeth of legislative competency, particularly, when the respective fields of legislation overlap with each other. Therefore, while applying the harmonious construction to reconcile the relevant entries of the respective Government, every attempt should be made to harmonise the apparently conflicting entries not only of different lists but also the same list and to reject the construction which would make the legislation nugatory. 73. When an entry is ....
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....armonising them, then the Central legislation must prevail. [vide: I.T.C. Ltd. v. State of Karnataka, 1985 Supp SCC 476]. 76.1. It is also an essential rule that, when the vires of enactment is challenged, the court primarily presumes the constitutionality of the statute by putting the most liberal construction upon the relevant legislative entry so that it may have the widest amplitude and the substance of the legislation will have to be looked into. To sustain the presumption of constitutionality, consideration may be had even to the matters of common knowledge; the history of the times; and every conceivable state of facts existing at the time of legislation which can be assumed. It is also permissible to look into the historical facts and surrounding circumstances for ascertaining the evil sought to be remedied [vide Shashikant Laxman Kale v. Union of India, (1990) 4 SCC 366]. 76.2. It is settled that in order to sustain the presumption of constitutionality, the Court may take into consideration matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation, vide Rama Krishna Dalmia v. Just....
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....-------------------------------------------------------------------------- CONCURRENT LIST III -------------------------------------------------------------------------------- Entry 1 Criminal law, including all matters included in the Indian Penal Code at the commencement of the Constitution but excluding offences against laws with respect to any of the matters specified in List I or List II and excluding the use of naval, military or air forces or any other armed forces of the Union in aid of the civil power. Entry 7 Contracts, including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land. Entry 8 Actionable wrongs -------------------------------------------------------------------------------- VIII-B(f). THE impugned Tamil Nadu ACT WITH REFERENCE TO SECTION 58A OF Companies Act, 1956 AND SECTIONS 45S AND 58B(5a) AND 58B(5b) OF Reserve Bank of India Act, 1934 78. The main plank of argument advanced on behalf of the petitioners is that the subject matter of the impugned enactment, viz., "to regulate the activities of the financial establishments" falls within the field o....
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....erties of mala fide transferees, nor provide for sale of those properties attached and to distribute the sale proceeds equitably to the depositors. However, the impugned Act, under Sections 3 and 8 provides for attachment of properties of the financial establishments and persons mentioned in Section 3 and also malafide transferees, sale as well as equitable distribution among the depositors, in the interest of the public at large. Therefore, it cannot be stated that the impugned Act attempts to supplant or supplement parliamentary legislation and seeks to cure the deficiencies in the parliamentary legislations, viz., Companies Act, 1956 or Reserve Bank of India Act, 1934. Therefore, the contention that the shortfall or the deficiency in the parliamentary legislation cannot be cured by the Tamil Nadu Act is not sustainable. 81. Similarly, since the object of the impugned enactment is not the same as that intended under Section 58A of the Companies Act, 1956 and under Section 45S of the Reserve Bank of India Act, 1934, the penalties envisaged under those Acts for any contravention cannot either be compared or contrasted with the penalties prescribed in the impugned enactment, beca....
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....ion of India, referred supra. 84. Before analyzing the contentions made on behalf of the petitioners, in the light of the decisions in Kanta Mehta v. Union of India, referred supra and Velayuidhan Achari, T. v. Union of India, referred supra, in this regard, we propose to refer Sections 45I, 45MB, 45S, 58B(5A) and 58B(5B) of the Reserve Bank of India Act, 1934, which read as follows: " 45-I. Definitions In this chapter, unless the context otherwise requires- (a) "business of a non-banking financial institution" means carrying on of the business of a financial institution referred to in clause (c) and includes business of a non-banking financial company referred to in clause (f); (aa) "company" means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) and includes a foreign company within the meaning of section 591 of that Act; (b) "corporation" means a corporation incorporated by an Act of any Legislature; (bb) "deposit" includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form, but does not include,- (i) amounts raised by way of share capital; (ii) amounts contributed as cap....
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....sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,- (a) agricultural operations; or (aa) industrial activity; or; (b) the purchase or sale of any goods (other than securities) or the providing of any services; or (c) the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons; Explanation : For the purposes of this clause, "industrial activity" means any activity specified in sub-clauses (i) to (xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964 (18 of 1964); (d) "firm" means a firm as defined in the Indian Partnership Act, 1932; (e) "non-banking institution" means a company, corporation or co-operative society. (f) "non-banking financial company" means- (i) a financial institution which is a company; (ii) a no....
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....atisfied on an application made by any person to the bank that such person is unable to pay a part of the deposits for reasons beyond his control or such repayment shall cause extreme hardship to him, it may, by an order in writing, extend such period by a period not exceeding one year subject to such conditions as may be specified in the order. (3) On and from the lst day of April, 1997, no person referred to in sub-section (1) shall issue or cause to be issued any advertisement in any form for soliciting deposit. Explanation: For the purposes of this section, a person shall be deemed to be a relative of another if, and only if- (i) they are members of a Hindu undivided family; or (ii) they are husband and wife; or (iii) the one is related to the other in the manner indicated in the List of relatives below: List of relatives 1. Father, 2. Mother (including step-mother), 3. Son (including step-son), 4. Son's wife, 5. Daughter (including step-daughter), 6.Father's father, 7. Father's mother,8. Mother's mother,9. Mother's father,10. Son's son, 11. Son's son's wife, 12. Son's daughter, 13. Son's daughter's husband, 14. D....
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....-banking financial companies. Similarly, unincorporated bodies have also been totally prohibited from accepting deposits for the purpose other than personal use. Accordingly, the unincorporated bodies have been specifically prohibited from issuing any advertisement in any form for the acceptance of deposits. But still, there were reports that several financial companies and unincorporated bodies had failed to comply with such directions and repay the deposits collected from unsuspecting depositors, who had been tempted by attractive returns and incentives offered. In this backdrop, the above said directions were inserted in Section 45S of the Reserve Bank of India Act, 1934. 86.1. Even though the word "bank" is defined under Section 2(aii) of the Reserve Bank of India Act, 1934 to mean the Reserve Bank of India constituted by this Act, there is no definition for "banking" in the Reserve Bank of India Act, 1934. However, "banking" and "banking company" are defined in Banking Regulation Act, 1949 as follows: "Section:5. Interpretation. In this Act, unless there is anything repugnant in the subject or context, (a) ... (b) "banking" means the accepting, for the purpose of l....
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.... any banking company or its books and accounts. Section 35A of the Banking Regulation Act, 1949 empowers the Reserve Bank of India, if satisfied in the public interest or in the interest of the banking policy, that the conduct of the banking company is prejudicial to the interest of the banking company, and if it is necessary to secure proper management of the banking company and to issue necessary directions, as it may deem fit. Under section 36 of the Banking Regulation Act, 1949 the Reserve Bank of India is vested with residue powers mentioned therein to have a control on the banking companies. Section 36AA empowers the Reserve Bank of India to remove the managerial and other persons from office and Section 36AB empowers the Reserve Bank of India to appoint the additional directors. 86.7. It is, therefore, clear that by virtue of the provisions of the Banking Regulation Act, 1949 all the banking companies are brought under the direct control of the Reserve Bank of India and no banking company shall conduct a business in banking without the license of the Reserve Bank of India. The provisions of the Banking Regulation Act, 1949 shall be in addition to, and not, save as hereina....
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....ccept public deposits are all, in our considered opinion, not a remedy to the depositors. Those provisions may be an answer to check the big black money bosses, but will not in any way be a remedy to the loss of the poor depositors, who deserve the protection of the State by appropriate legislation. Therefore, as there is no effective remedy in the Central legislation to regulate and control either incorporated or unincorporated companies in the matter of depositors, who have deposited their hard earned money with the financial establishments, the State Government is competent enough to bring out impugned legislation to suit the need of the public, to protect the interest of the depositors as well as in the public interest. 87.6. Similarly, neither the prohibition, prohibiting the non-banking companies from accepting the deposits, nor the direction not to sell, not to transfer, nor to create a charge or mortgage or deal in any manner with the property and assets without prior permission of the Reserve Bank of India for a period not exceeding six months from the date of the prohibition order under Section 45MB of the Reserve Bank of India Act, 1934, can be a solution for the grie....
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....rmit any trespass on a field forbidden to the legislation; and in examining the necessity of economic legislation, the Court should be prepared to accept the reality that weighed the legislature. 88.5. However, where no license has been obtained from Reserve Bank of India, as in the instant case, the question of applicability as well as violation of the directions issued under Section 45S of the Reserve Bank of India Act, 1934 by Reserve Bank of India remains silent and unanswered. Further, the power of the Reserve Bank of India to undertake a periodical inspection in such cases and to proceed further in the matter will not be sufficient to safeguard the interest of the depositors, which has assumed greater importance under a vulnerable situation, where unhealthy features and malpractices have come to surface in acceptance of deposits from the innocent public promising higher rate of interest, even though the same is not commercially viable, which necessitated the legislature to undertake great pains to find suitable machinery for the recovery. 88.6. Therefore, even though the Reserve Bank of India Act, 1934 prohibits acceptance of deposits and prescribes the penalty for any ....
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....ablishments and the inaction on the part of Reserve Bank of India in this regard cannot be a ground for the State Government to trespass into the field of legislation, but we are unable to agree with the same, as the Reserve Bank of India could not possibly be faulted for not looking into the alleged hardship faced by the depositors for the simple reason that, concededly, none of the petitioners had obtained licence from the Reserve Bank of India, nor the business of financial establishments in accepting deposits can be strictly construed to be banking as defined under the Banking Regulation Act, 1949. However, any possible attempt of the financial establishments to escape from the clutches of Reserve Bank of India Act, 1934 with respect to the acceptance of the public deposit by not getting licence contemplated under the provisions of Banking Regulation Act, 1949 cannot be ruled out and therefore, the insertion of Section 45S or 58B(5A) of the Reserve Bank of India Act, 1934, whereunder there is no provision for realisation, cannot, by itself, be a solution to the aggrieved depositors. 91. The mere absence of exercise of such power conferred under section 58B(5A) or 58G of t....
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....te the sale proceeds equitably among the depositors. Therefore, neither the Doctrine of occupied field nor that of the repugnancy is attracted. 96. Thus, a conscious effort to give remedy to unwary depositors' is the theme of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997. The depositors who are vulnerable to the temptation of earning high rate of interest were found victimized by these financial establishments fraudulently. The Government having seen the acute and distressing pain of the depositors has rightly come out with the legislation to protect their interest, so that their dues can be realised by following due process of law under the relevant provisions of the Tamil Nadu Act, as discussed above. 97. Of course, the impugned Act may incidentally trench by way of order of attachment on the powers of Reserve Bank of India conferred under Section 45MB of the Reserve Bank of India Act, 1934 which is permissible in law. In any event, such incidental infringement as well as repugnancy alleged is cured by the assent of the President obtained for the impugned enactment. 98. We have already held that the impugned legislation ....
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....s self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaptation of remedy are not always possible and that judgment is largely a prophecy based on meagre and uninterpreted experience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. At page 706, para 19 it is held: ... That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of....
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....'t the State bring out an enactment to evolve a foolproof statute for realisation of the dues payable to the depositors in the public interest and to regulate the activities of the financial establishments? VIII-B(h). THE impugned Tamil Nadu act AND SECTION 58A OF THE Companies Act, 1956 WITH REFERENCE TO THE Delhi Cloth and General Mills Co. Ltd. v. Union of India CASE 100. The alternative argument advanced on behalf of the petitioners is based on the decision of Delhi Cloth and General Mills Co. Ltd. v. Union of India, referred supra where the validity of section 58A of the Companies Act, 1956 read with Rule 3A of the Companies (Acceptance of Deposits) Rules, 1975 was upheld. 101. It is contended that if the Tamil Nadu Act is relating to the incorporation of the financial establishments, the same should fall under Entry 43 of the List I which deals with incorporation and therefore, the State legislature has no competency to enact the impugned Act. According to the petitioners, there is already an enactment viz., Companies Act, 1956 which occupies the field. 102.1. Section 58A of the Companies Act, 1956 prescribes the condition under which the deposits may be invit....
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....in accordance with the terms and conditions of such deposit. (4) Where any deposit is accepted by a company after the commencement of the Companies (Amendment) Act, 1974, in contravention of the rules made under sub-section (1), repayment of such deposit shall be made by the company within thirty days from the date of acceptance of such deposit or within such further time, not exceeding thirty days, as the Central Government may, on sufficient cause being shown by the company, allow. (5) Where a company omits or fails to make repayment of a deposit in accordance with the provisions of clause (c) of sub-section (3), or in the case of a deposit referred to in sub-section (4), within the time specified in that sub-section,- (a) the company shall be punishable with fine which shall not be less than twice the amount in relation to which the repayment of the deposit has not been made, and out of the fine, if realised, an amount equal to the amount in relation to which the repayment of deposit has not been made, shall be paid by the Court, trying the offence, to the person to whom repayment of the deposit was to be made, and on such payment, the liability of the....
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....a. Provided that the [Tribunal] may, before making any order under this sub-section, give a reasonable opportunity of being heard to the company and the other persons interested in the matter. (9) Where a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the [Tribunal] may, if it is satisfied, either on its own motion or on the application of the depositor, that it is necessary so to do to safeguard the interests of the company, the depositors or in the public interest, direct, by order, the company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order: (10) Whoever fails to comply with any order made by the [Tribunal], under sub-section (9) shall be punishable with imprisonment which may extend to three years and shall also be liable to a fine of not less than rupees five hundred for every day during which such non-compliance continues. (11) A depositor may, at any time, make a nomination and the provisions of sections 109A and 109B shall, as far as may be, apply to the nomination made under this sub-section. Ex....
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....d to check the abuse by corporate sector and to protect the depositors, and rejected the contention that the State alone is competent to protect the socially and economically weaker sections of society against exploitation by receiving deposits from them, and ultimately upheld the legislative competency of the Parliament to enact Section 58A of the Companies Act, 1956. It is further held that as the acceptance of deposits is well within the field of legislation under Entries 43 and 44 of the Union List, the same cannot be brought under Entry 30 of List II which deals with money-lending. The Apex Court also held that neither section 58A Companies Act, 1956 nor Rule 3A of the Companies (Acceptance of Deposits) Rules 1975, referred to above, violates Article 14, 19(1)(g) and 21 of the Constitution of India, because Section 58A of the Companies Act, 1956 and Rule 3A of the Companies (Acceptance of Deposits) Rules 1975 are intended to regulate the acceptance of the deposits from the public and also to provide liquid finance to the company to enable it to meet its obligation on maturity of deposits. It is further held that the amount deposited to meet the obligation under Rule 3A means a....
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....ance enables the State Government or the Central Government, as the case may be, to make an application to attach the money or other property of any person, to the District Judge, within whose jurisdiction such person commits any of the scheduled offences, if there are reasons to believe that such money or other property is procured by means of any of the scheduled offences or if such money or other property cannot, for any reason, be attached, to attach other property of the said person of value as nearly as may be equivalent to that of the aforesaid money or other property. The provisions of Code of Civil Procedure shall apply for execution of such order of attachment as per Section 3(2). Section 3(3) contemplates that the application should contain the grounds of reasons to believe for invoking Section 3(1) and also other details relating to money, property and value of the same, the interest and title of such person, etc. 104.4. Section 4(1) empowers the District Judge to pass an appropriate order of ad interim attachment, as stated therein; Section 4(2) provides a post decision opportunity to such person before making the ad interim order of attachment absolute; and Sections 4....
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....f any such Government or department or authority or corporation or body or Government company or society. 3.An offence punishable under Section 411 or section 414 of the Indian Penal Code, where the stolen property in respect of which the offence is committed is property such as is described in the preceding item and in respect of which an offence punishable under Section 406 or section 408 or section 409 of the said Code has been committed. 4.An offence punishable under Section 417 or section 420 of the Indian Penal Code, where the person deceived is His Majesty's Government in the United Kingdom or in any part of His Majesty's dominions or the Central or a State Government or a department of any such Government or a local authority or a corporation established by or under a Central, Provincial or State Act, or an authority or a body owned or controlled or aided by Government or a Government company as defined in section 617 of the Companies Act, 1956 or a society aided by such corporation, authority, body or Government company or a person acting on behalf of any any such Government or department or authority or corporation or body or Government company or society. ....
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....th the mass of people illiterate and below poverty line, the State should be armed with powers to secure social and economic justice. While exercising such power for enacting appropriate legislation , it is a common knowledge that a rule of strict liability or absolute liability should be imposed without insisting mens rea to deal with such socio-economic crimes. 104.10. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the community. A disregard for the interest of the community can be manifested only at the cost of forfeiting the trust and faith of the community in the system to administer justice in an even-handed manner without fear of criticism from the quarters which view white-collar crimes with a permissive eye, unmindful of the damage done to the national economy and national interest, [vide State of Gujarat v. Mohanlal Jitamalji Porwal, (1987) 2 SCC 364]. The community acting through the State is also entitled to justice. The community or the State is not a persona non grata whose cause may be treated with disdain. Economic offenders who ruin the economy of the State are therefor....
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....ople promising higher rate of interest, thought it fit to bring out an appropriate legislation to curb the activities of such financial establishments, finding solution to the tragedy of these depositors not only by attaching the properties of the financial establishments and the properties of mala fide transferees, but also realising the sale proceeds and distributing the same equitably among the depositors and thus, the subject matter of the impugned Act is not in any way comparable with the Criminal Law Amendment Ordinance, 1944, as made applicable to the State of Tamil Nadu by the Criminal Law (Tamil Nadu Amendment) Act, 1997. In any event, there cannot be any bar for the State legislature to enact a special legislation, viz. the impugned Tamil Nadu Act, which not only deals with the penal offence of the defaulters, but also provides for recovery machinery, akin to that of Civil Code. VIII-B(j). THE impugned Tamil Nadu Act AND THE RELEVANT ENTRIES, VIZ., 1, 7 AND 8 IN LIST III OF VII SCHEdule TO THE CONSTITUTION OF INDIA 106. The alternative argument advanced by the learned Advocate General is that the State has the legislative competency under Entries 1, 7 and 8 of the C....
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....the Act impugned cannot be said in pith and substance to be one against banking regulation, but it deals with special species of contracts with sinister features, wherein the innocent depositors were wooed with higher rate of interest and ultimately cheated. As can be seen from the provisions of the Tamil Nadu Act referred to earlier, the Tamil Nadu Act is not intended to regulate the transactions between the depositors and deposit mobilisers and borrowers, but it is only intended to recover the amounts due to the depositors, as agreed to between the parties and in case of default, to enforce the terms of contract between the parties and to recover such amounts, in addition to other machineries available under the law. The impugned Tamil Nadu Act is therefore referable to Entry 7 of the Concurrent List. 110. As already observed, the Tamil Nadu Act is intended to provide relief to the middle, lower middle and poor people who form part of the socio-economic weaker sections of the society, by means of attachment of properties of the financial establishments or other persons mentioned in section 3 of the Act as well as attachment of properties of mala fide transferees and hence, the....
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....mmercial world and in ordinary meaning. Moreover, trade cannot be confined to the movement of the goods but may also extend to transactions linked with merchandise or the flow of goods or the promotion of buying and selling or advances, borrowings, discounting bills and mercantile documents, banking and other forms of supply of funds. Therefore, the business undertaken by the financial establishments herein, accepting the deposits on a promise of wooing to pay a higher rate of interest, and then circulate the money to third parties for higher rate of interest, and thereafter, deceit the depositors, in our considered opinion, be brought under the meaning of "unincorporated trading" found in entry 32 of List II. 115.1. When a general evil is sought to be suppressed some martyrs may have to suffer, for the legislature cannot easily make meticulous exceptions and it has to proceed on broad categorizations and not singular individualization, vide. Srinivasa Enterprises v. Union of India, (1980) 4 SCC 507. 115.2. Quoting again from Srinivasa Enterprises v. Union of India, [(1980) 4 SCC 507, at page 516], 'judicial validation of a social legislation only keeps the path clear for....
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....ourse under Entries 1 and 32 in the List II of the Constitution of India in this matter. 116.1. In the instant case, the efforts taken by the State by enacting the impugned Act seeks to plug the loopholes in the existing socio economic scenario as the prevailing legal system is not able to cure the mischief. There is not even a semblance of conflict, what to talk of direct conflict, between the impugned State Act and the Central Acts, viz., Section 45S and 58B(5A) of Reserve Bank of India Act, 1934 or Section 58A of the Companies Act, 1956, as the case may be, to bring about the situation where one cannot be obeyed without disobeying the others. Both the Acts can operate simultaneously as they do not occupy the same field. As the enactments operate in two different fields without encroaching upon each others field, there is no repugnancy. That apart, the Court is required to look at the substance by taking into account the entire enactment as a whole and the main objects and the scope and effect of the provisions and incidental and superficial encroachments are to be disregarded. The doctrine of occupied field applies only when there is clash between the Union and the State List....
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....lic order and therefore, in the guise of legislating on "public order", the State had entered into the substantive area which was reserved for parliament in Union List. It is also observed that law on public order must truly and essentially address itself to the preservation and maintenance of public order. 120. In our considered opinion, on the question, whether the impugned enactment can be sustained under Entry 1, viz. Public Order, it should be remembered that public order is an expression of wide connotation intended to take care of the public safety for the members of the political society. Therefore, the public order need not in every case be traced either to the security of the State or to the law and order. 121. Public Order has a comprehensive meaning so as to include public safety in its relation to the maintenance of the public order and the maintenance of the public order involves consideration of the public safety. The Public order, public safety, public tranquility and the public interest are all overlapping terms with each other. The expression public order therefore requires the very wide connotation. The public order is the basic need in any organised societ....
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....of the depositors is the problem of the public and it cannot be decided numerically. 125. A serious contention was raised to the effect that public order is one as stated in the statement of objects and reasons in Act 14 of 1982 and therefore, public order is totally a different concept; that there should be actual physical force to danger to life and property or there should be threat to life and property; and that since the framers of Constitution originally included preventive detention, but the same was subsequently taken away and in that context, public order should be looked into. But, we are unable to appreciate such contention, because the Apex Court in State of U.P. v. Sanjai Pratap Gupta,(2004) 8 SCC 591, following its earlier decision in Arun Gosh v. State of West Bengal, referred supra, held that Public order, law and order and the security of the State fictionally draw three concentric circles, the largest representing law and order, the next representing public order and the smallest representing security of the State. Every infraction of law must necessarily affect order, but an act affecting law and order may not necessarily also affect public order. Likewise, an....
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...., or an affray. But whatever ends the impugned Act may have been intended to sub-serve, and whatever aims its framers may have had in view, its application and scope cannot, in the absence of limiting words in the statute itself, be restricted to those aggravated forms of prejudicial activity which are calculated to endanger the security of the State. Nor is there any guarantee that those authorised to exercise the powers under the Act will in using them discriminate between those who act prejudicially to the security of the State and those who do not." (emphasis supplied) 127. The malady of the thousands and thousands of depositors ramped into a public disorder on account of the resentment caused by the financial establishments, who had accepted the deposits on the promise to repay the same with fabulous, but commercially not viable, rate of interest, however could not keep up the promise. The fraudulent default of the petitioners forms a unique class of organised and white-collared crime. 128. A systematic conspiracy was attempted by these financial establishments, which not only committed fraud on the depositors, but also siphoned of or diversified the funds of the deposit....
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....regulate the unincorporated trading and finance. This leads to the next question whether public order includes public interest and public safety. 131. The sad situation of the depositors is that the high priority promise of independence laws directed to agrarian reforms rolled out from State legislatures in quick succession. Urban elite found it disadvantageous to invest their savings in agricultural land. It is said that Rent Restriction Acts were a disincentive for investment in urban house property. Gold Control measures dried up gold as a venue of investment of savings. Bank interests were discouraging. Social security in old age being niggardly or non-existent, there was fascinating attraction for deposits in non-banking companies. 132. On the other hand, the attempt of the financiers exploiting the anguish of the depositors, is nothing but a notorious abuse of the innocent desire of the depositors for higher rate of interest for the small savings that they invested, for which they have been given a small passbook as a token of their acknowledgment, which they consider as a passport for their children higher education in some cases, or wedding of daughters in some other,....
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.... this gruesome plague. The State therefore had to awake and protect the vulnerable sector from the evil hands of the financiers, who have no social responsibility, but with a lustful desire of easy money making promising attractive returns for the poor investors. The noxious net cast by the financial establishments was large and the State was rightly moved to stop this menace. Many a little makes a mickle, and those small sums collected from a substantial number of subscribers accumulated into huge resources for the financiers, who ultimately diverted their collections and converted the deposited amounts as assets in the names of third parties, and finally one day attempted to close the financial establishments, disappointing the innocent depositors. The grim picture of the entire episode enacted by financiers is nothing but to gamble upon the appetite of the innocent depositors for higher rate of interest and to steal out the entire sterilized savings of the innocent depositors diplomatically under the banner of white collar financial establishments, out of their appetite for higher rate of interest and finally to siphon of them in entirety. In the name of attractive rate of inter....
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....omething supposed to be inherent in the constitution itself. The spirit of Constitution therefore cannot prevail as against its letter. [vide: A.K.Gopalan v. State of Madras, AIR 1950 SC 27]. The legislative competence should be tested by the spirit of the enactment which vivifies but not by mere letter. The Courts are not at liberty to declare an act void based on elusive and unsafe guide. 139. The State, invoking the field of legislation under Public Order, Entry 1, List II, as a parent of the country, applying the doctrine of parens patriae, is obligated to shoulder with the responsibilities in exercise of its sovereign power and to discharge its duties to protect the public interest. 140. Our constitution makes it imperative to secure for the State to secure to all its citizens the rights guaranteed by the Constitution. Where the citizens are not in a position to assert and secure their rights, the State must come into picture and to protect and fight for the right of the citizens. Otherwise, the rights conferred on the citizen and the duty on the State would remain as dead letters. It is a protective measure to which the social welfare state is committed. It is therefore....
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....Bank of India Act, 1934 or Companies Act, 1956, there is no provision to deal with the financial establishments, particularly for the recovery of amounts due to the depositors, viz., to attach, sell, realise and distribute equitably. 144. In the impugned enactment, the Government has rightly provided special machinery and judicious mechanism to attach the properties of the financial establishments or the persons mentioned under Section 3 of the Act as well as that of the mala fide transferees and to bring them for sale and thereafter to distribute the sale proceeds equitably among the depositors, of course, in compliance of the principles of natural justice, as discussed above in detail, while considering the issue (i). 145. Therefore, the State Government rightly in order to protect the interest of the public and to regulate the activities of the financial establishments, enacted the impugned Act to meet the urgent need. The State Government has, thus, rightly, in order to plug certain loopholes in the existing system and in the public interest, tracing the field of legislation under Entries 1 and 32 of the State List, enacted the impugned Act. 146. What form a regulatory....
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....e Union List (List-I); and c. though there is trenching, the same is only incidental, which is permissible in law. 149.2. Issue (ii) is answered in the affirmative. IX. CHALLENGE AGAINST THE CONSEQUENTIAL PROCEEDINGS UNDER THE TAMIL NADU ACT 150. When the competent authority initiated action under Sections 3, 4, 5, 6, 7, 8, 9 or 10 of the Act against the financial establishments or any other person to achieve the awesome objects of the Tamil Nadu Act, the same were challenged either by way of Writ Petitions, Civil Miscellaneous Appeals, Crl.O.Ps., Crl.R.C., on the ground that the impugned Tamil Nadu Act is unconstitutional, and some of the cases are included in the batch and some of them are still pending before this Court. Since we have declared that the Tamil Nadu Act does not suffer any legislative competency; nor its provisions are arbitrary and unreasonable, violative of principles of natural justice; nor offends Articles 14, 19(1)(g) and 21 of the Constitution of India, all these Writ Petitions and Civil Miscellaneous Appeals stand dismissed and consequently, the Special Court or the Competent Authority, as the case may be, shall proceed to enforce the law with right....