TaxTMI 
TaxTMI 
2013 (8) TMI 1046
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....he laws of Parliament. In his submission, the field in this case is occupied by the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949 and the Indian Companies Act, 1956. ( 2. ) The present cases deal with non banking financial company. When such company invites deposits and the depositors invest their monies in them, the grievance of such depositors and investors can be taken note of by the Redressal Mechanism provided in the Indian Companies Act, 1956. They cannot approach the authorities under the State Act and particularly alleging offences punishable thereunder because the Parliament Statute enacts penal provisions as well. Mr.Pradhan submits that this question and issue has not been answered and dealt with by the Honourable Supreme Court in the judgment in Baskaran's case. ( 3. ) Mr .Pradhan submits that now the Petitioners have obtained a clarification from the Honourable Supreme Court on this point and therefore, after being shown the Supreme Court order, we have allowed Mr.Pradhan to elaborate his contentions and have heard him at length. ( 4. ) Hence , Rule. The Respondents waive service. By consent, Rule made returnable forthwith. ( 5. ) We....
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.... Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997. It was, however, observed that if any party wishes to submit that it is not covered by the said Act, it is open to him to take independent proceeding before the forum concerned. ( 8. ) It is stated that in K.K.Baskaran's case the companies under dispute were those which were neither registered under the Reserve Bank of India Act, 1934 or the Indian Companies Act, 1956 nor governed by the Banking Regulation Act, 1949 or the Criminal Law Amendment Ordinance. As against the same, the KIFL was a NBFC registered under the Indian Companies Act, 1956 and governed by the Reserve Bank of India Act, 1934. The distinction being glaring, the Petitioner preferred Review Petition before the Honourable Supreme Court. The Honourable Supreme Court, by the order dated 18th July, 2012, was pleased to observe that no reason for interference was called for. ( 9. ) It is stated that on 25.10.2012, the Petitioner has received summons from the Court of the learned Designated Judge, Pune in MPID Case No.1 of 2004. The Petitioner not being a Director of KIFL on the day on which the deposits matured could by no stre....
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....serve Bank of India Act, 1934. The Bank in order to protect the interest of the Depositors and in the public interest, found it necessary to prohibit the KIFL forthwith from accepting deposits from the public. The Bank felt that if any delay was caused in doing so it would prejudicially affect the public interest and interest of the Depositors. ( 13. ) It is stated that in view of the above, on 13.08.1999 the Reserve Bank of India in exercise of the powers conferred on it under Section 45K (4) r.w. Section 45 MB (1) of the Reserve Bank of India Act, 1934 issued a Notice of Injunction to KIFL thereby (a) Prohibiting with immediate effect, the said Company from accepting public deposits from any person in any form, whether by way of fresh deposits or renewals or otherwise, until further orders. (b) Further in exercise of the powers conferred under the provision of Section 45 MB (2) of the Reserve Bank of India Act, 1934, imposed injunction to sell, transfer, create charge or mortgage or deal in any manner with its property and assets without prior written permission of the Reserve Bank of India. (c) KIFL's attention was also invited to the provisions....
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.... that due to the consequent defaults, several Applications were moved by the Depositors before the Company Law Board seeking its intervention in terms of Section 45 QA of the Reserve Bank of India Act, 1934. The said provision inter alia empowers the Company Law Board to direct repayment of any deposit or part thereof in accordance with the terms and conditions of such deposit if it is satisfied that it is necessary to do so to safeguard the interest of the Company, the depositors or the public in general and, also can frame the scheme for repayment in a time bound programme. ( 16. ) It is stated by the Petitioner that upon considering the Applications received by the Company Law Board, Chennai, it has, in terms of an order dated 21st March 2000, issued directions to KIFL for repayment of the deposits in accordance with the guidelines and the scheme formulated by it. A specific time frame was fixed by the Board for repayment of the Deposits. A fixed rate of interest had been stipulated by the Board and moreover priorities were determined in the matter of refund of deposits and classification was made of different categories of deposits. The Board had directed refunds to be made ....
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....00 preferred by the Reserve Bank of India was allowed thereby vacating the order dated 14.06.2000 passed by the Company Judge staying the proceedings in Company Petition No.2 of 2000 in view of the fact that the proceedings before the Company Law Board and the Appellate Authority declining registration of the Company under Section 451A had been dismissed and hence there was no impediment in pursuing Company Petition No.2 of 2000. It was directed that the Company Petition No.2 of 2000 be proceeded in accordance with law. It was further directed that pending the disposal of an application which the Reserve Bank of India may move before the Company Judge, within the next four weeks, for interim direction, KIFL shall not pay any amount without obtaining the prior written permission from the Special Officers of the Reserve Bank of India except payment of salaries and other establishment expenses. It was further directed that a report regarding expenditure incurred on salaries and establishment expenses shall be submitted to the Officer on a weekly basis. Annexure D is a copy of the judgment and order dated 29.06.2001 passed by the Karnataka High Court in M.F.A.No.1530 of 2000, and M.F.A....
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....d as such other legal work that may be necessary to run the Company. The Committee was permitted to engage Accountants, Chartered Accountants and to employ a Manager and staff on an Adhoc basis to run the day to day functioning of KIFL. The Committee was also granted liberty to take all decisions at their discretion in the interest and the welfare of KIFL and prosecute all litigation for and against KIFL with the help of their own Lawyers to safeguard the interest of KIFL. The Bank accounts had to be operated either by the Chairman or by the Member of the Committee. The Committee was directed to immediately take steps to prune the expenditure and remove the dead wood staff so that some money could be generated for repayment of deposits made by the Depositors. ( 21. ) By the said order the first task to be undertaken was to make payments to all the Depositors on a prorata basis out of the S.L.R. amount that was standing in the name of KIFL with the leave of the Reserve Bank of India. It was observed that the Reserve Bank of India had agreed to give permission. It was also directed that the Depositors shall be paid as expeditiously as possible. In the event of any difficulty the C....
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.... that as and when the recovery and liquidity of funds of the Company improves the Committee will take a decision for the further payment. By the said letter, the intention of the Company and the purpose for which the Committee of Management appointed by the Karnataka High Court clearly reflected in unequivocal terms about the intention for repayment of the deposits to the Depositors. The said Committee of Management under the directions of the Karnataka High Court has taken into account the best of the interest of all concerned including the depositors, the Company and the governmental agencies such as Reserve Bank of India and other secured and unsecured creditors. The repayment process has also begun and the said process is continuing under the guidance of the Karnataka High Court. Annexure G is a copy of the said Order dated November 17, 2001 addressed to the depositors of KIFL signed by Dr. K.Sreenivasan as Member, Committee of Management. ( 24. ) Pursuant to the directions given by the Company Law Board, Chennai and the mandate of Hon'ble High Court, the Committee of Management formulated the Scheme for repayment of deposits from time to time, depending on liquidity of ....
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....Writ Petition No.669 of 2003. In the said Writ Petition, this Court was pleased to issue Rule Nisi and further directed the Commissioner of Police, Pune, to not to take any coercive action against the Petitioner pertaining to the said case disposed off by this Court by virtue of the Full Bench judgment delivered with respect to MPID Act. Annexure I is a copy of the interim order passed by this Hon'ble Court in Writ Petition No.669 of 2003. After the said Petition was admitted, the Petitioner and other ExNonExecutive Directors were called for interrogation by Sahakar Nagar Police Station, Pune. The Petitioner responded to their summons and attended the interrogation by providing all material evidence and information to his knowledge. ( 28. ) It is stated that in the C.C.No.1 of 2004, it is also alleged that the liquidation proceedings pertained to the repayment of deposit money and, MPID Act, 1999 pertained to an offence. That, the Petitioner and the two other NonExecutive Directors have committed the offence much prior to the appointment of the said Committee and that the Petitioner and two other NonExecutive Directors are not entitled to take benefit of the said proceedi....
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....Writ Petition Nos.3801 to 3804/2012 is the same i.e. Mr.Prabhakar Dattatraya Gune. However, it appears that there are different complainants and distinct cases and that is how the Petitioners are required to file separate Writ Petitions. ( 33. ) The Petitioner (Sanjay Chandrakant Kirloskar) in Criminal Writ Petition No.4039/2012 also claims similar reliefs. He has also filed Criminal Writ Petition Nos.4040, 4041 and 4042/2012. ( 34. ) The Criminal Writ Petition No.4043/2012 has been filed by Mr.M.V.Patwardhan and he has been associated with the said KIFL as a Director. He has also filed Criminal Writ Petition Nos.4044, 4045 and 4046/2012. ( 35. ) Thus , these Writ Petitions were heard together as they involve a common question of law. In all these Writ Petitions, Mr.Pradhan, learned counsel appearing for the Petitioners, has taken us through the complaints and has submitted that the matter was before the Company Law Board as well. The Reserve Bank of India has treated the KIFL as Non Banking Finance Corporation, but registered and incorporated as Company under the Indian Companies Act, 1956. Our attention has been invited to the orders and directions of the Company Law Boa....
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....t alleges is that an offence has been committed and which is of not redeeming the deposits and paying the sums with accrued interest to the depositors. Such an act, according to the Complainant, amounts to an offence punishable under the MPID Act, 1999. ( 37. ) Mr .Pradhan submits that in the complaint the Complainant has alleged as under: "12. The Complainant says that the Accused Nos.1 to 4 failed to repay the said deposit amounts and interest as assured on account of impracticable situation of liquidation of the Accused No.1 and failed to comply with the promises made while accepting the said deposits from the complainant. The fact that the Accused No.1 Company was required to be liquidated through RBI, itself shows that the money deposited by the Complainant and other depositors was not deployed or invested by the Accused No.1 in proper manner so as to avoid inherent risk. Thus, the Accused Nos.1 to 4 have committed fraudulent default in repayment of the said deposits as contemplated under Section 3 of the said MPID Act, 1999. 13. The Complainant says that he made complaints to the Hon'ble Collector, Pune and Police Commissioner, Pune, as stated above, ....
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....5I clause (c) and which reads as under: "45I clause (c) "financial institution" means any non banking institution which carries on as its business or part of its business any of the following activities, namely:- (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own; (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature; (iii) letting or delivering of any goods to a hirer under a hirepurchase agreement as defined in clause (c) of section 2 of the HirePurchase Act, 1972 (26 of 1972); (iv) the carrying on of any class of insurance business; (v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto; (vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lump sum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other ....
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....( 41. ) Mr .Pradhan submits that each of the Petitioners have disassociated themselves with the Company prior to the prohibitory order dated 13.08.1999. Thereafter, final orders in winding up proceedings have been passed by the competent court. That is dated 24.12.2010, a copy of the same is at page 253 of the paper book. Our attention is invited to paragraph 56 at page 303 of the said order. Mr.Pradhan submits that once the field is occupied by the Reserve Bank of India Act, 1934 and the Indian Companies Act, 1956, then, the proceedings under the MPID Act, 1999 are wholly untenable being governed by the State Act. Once the State Act itself is inapplicable and in the teeth of the Parliamentary Statute, then, allowing parallel proceedings to go on would be an abuse of the process of the Court. ( 42. ) Mr .Pradhan was at pains to point out that this aspect has not been dealt with by the Honourable Supreme Court in the case of Baskaran . If it is not then the same can be examined by this Court despite the Supreme Court holding that the Maharashtra State Legislature is competent to legislate and enact the Maharashtra Act. For all these reasons, Mr.Pradhan submits that the Writ Petit....
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....99 came into force on the date specified and it is an Act to protect the interest of depositors of the financial establishments and matters relating thereto. The statement of objects and reasons of the MPID Act, 1999 and the Ordinance preceding the same, reads as under: "There is a mushroom growth of Financial Establishments in the State of Maharashtra in the recent past. The sole object of these Establishments is of grabbing money received as deposits from public, mostly middle class and poor on the promises of unprecedented high attractive interest rates of interest or rewards and without any obligation to refund the deposit to the investors on maturity or without any provision for ensuring rendering of the services in kind in return, as assured. Many of these Financial Establishments have defaulted to return the deposits on public. As such deposits run into crores of rupees it has resulted in great public resentment and uproar, creating law and order problem in the State of Maharashtra, specially in the city like Mumbai which is treated as the financial capital of India. It is, therefore, expedient to make a suitable legislation in the public interest to curb the unscru....
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....hit Funds Act, 1982 (40 of 1982); Explanation II "Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be a deposit for the purposes of this clause;" Further Section 2(d) defines "financial establishment" and reads as under: "(d) "Financial Establishment" means any person accepting deposit under any scheme or arrangement or in any other manner but does not include a corporation or a cooperative society owned or controlled by any State Government or the Central Government or a banking company defined under clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)." Section 3 is relevant provision for our consideration and it reads as under: "Section 3. Fraudulent default by Financial Establishment: Any Financial Establishment, which fraudulently defaults any repayment of deposit on maturity along with any benefit in the form of interest, bonus, profit or in any other form as promised or fraudulently fails to render service as assured against the deposit, every person including the promoter partner, director, manager or any other person or an employee respo....
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....andard best suited to India that the Act was enacted. The Act contains several provisions and devided so also spread over Chapters so as to enable the establishment and incorporation of a Reserve Bank, providing for its banking function, collection and furnishing credit information and provisions relating to non banking financial institutions. ChapterIIIB has been brought on the statute book so that a non banking financial company can commence or carry on business after obtaining a certificate of registration issued under this Chapter and on fulfillment of the criteria and requirement prescribed by the Statute. That is an aspect dealt with by Section 45IA. Section 45IB provides for maintenance of percentage of assets and thereafter, there are further provisions enabling the Bank, namely, Reserve Bank of India constituted by the Reserve Bank of India Act, 1934 to monitor, regulate and determine the policy and other matters in relation to non banking financial company and functions of such company. That the Reserve Bank of India is empowered to collect information and give directions not only to non banking institutions, but financial institutions as well and there is an obligation o....
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.... so as to protect the interest of depositors in a financial establishment which is defined to mean a person accepting deposit under any scheme or arrangement or in any other manner excluding the corporation and cooperative society owned and controlled by any State Government or Central Government or Banking Company defined under clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949). Further the term "deposit" is defined in an inclusive manner in Section 2(c) of the MPID Act, 1999. It shall be deemed to have always included any receipt of money or acceptance of valuable commodity by any financial establishment to be returned after a specified period or otherwise either in cash or kind or in the form of specified service with or without any benefit in the form of interest, bonus, profit or in any other form. What is excluded from the definition of deposit as appearing in Section 2 clause (c) of the MPID Act, 1999 are the amounts set out in clauses (i) to (vii). ( 52. ) In the aforementioned circumstances we are of the opinion that the provisions to which our attention is invited by Mr.Pradhan will not enable us to hold that the entire field is occupied by the In....
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....l establishments is a punishable offence in terms of Section 3 and there is an independent power enabling the Government to attach properties on default of return of deposits by the financial establishments after it records its satisfaction in terms of Section 4(1) of the MPID Act, 1999. ( 54. ) The provisions, therefore, cover a financial establishment and which is meant to be any person accepting a deposit under any scheme or arrangement or in any other manner. Section 3 of the MPID Act, 1999 enables the Court to convict and punish a person accepting a deposit including the promoter, partner, director, manager or any other person or an employee responsible for the management of or conducting of the business or affairs of such financial establishments. This coupled with the definitions of terms "financial establishment" and "deposit" leaves us in no manner of doubt that neither the Reserve Bank of India Act, 1934 nor the Indian Companies Act, 1956 would be covering the entire field occupied by the MPID Act, 1999. ( 55. ) It is not necessary to clarify that in order to avoid conflicting orders and directions, in appropriate cases and depending upon the facts and circumstances....
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.... the Banking Regulation Act, 1949 was inapplicable, does not mean that the Honourable Supreme Court has not considered both questions, namely, legislative competence and doctrine of occupied field. Paragraphs 21 to 26 would make this aspect very clear and therefore, we would reproduce paragraphs 21 to 30 of the judgment in Baskaran's case : "21. The doctrine of pith and substance means that an enactment which substantially falls within the powers expressly conferred by the Constitution upon a Legislature which enacted it cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature. The Court must consider what constitutes in pith and substance the true subject matter of the legislation. If on such examination it is found that the legislation is in substance one on a matter assigned to the legislature then it must be held to be valid even though it incidentally trenches on matters beyond its legislative competence vide Union of India vs. Shah Goverdhan L. Kabra Teachers' College (SCC para 7). 22. For applying the doctrine of pith and substance regard is to be had to the enactment as a whole, its main obje....
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....he Tamil Nadu Act is totally different. 26. The Tamil Nadu Act was enacted to ameliorate the conditions of thousands of depositors who had fallen into the clutches of fraudulent financial establishments who had raised hopes of high rate of interest and thus duped the depositors. Thus the Tamil Nadu Act is not focused on the transaction of banking or the acceptance of deposit, but is focused on remedying the situation of the depositors who were deceived by the fraudulent financial establishments. The impugned Tamil Nadu Act was intended to deal with neither the banks which do the business or banking and are governed by the Reserve Bank of India Act and the Banking Regulation Act, nor the nonbanking financial companies enacted under the Companies Act, 1956. 27. The Reserve Bank of India Act, the Banking Regulation Act and the Companies Act do not occupy the field which the impugned Tamil Nadu Act occupies, though the latter may incidentally trench upon the former. The main object of the Tamil Nadu Act is to provide a solution to wipe out the tears of several lakhs of depositors to realize their dues effectively and speedily from the fraudulent financial establishmen....
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....r.Pradhan or the Petitioners in any manner. Mr.Pradhan was vehement in his contention with regard to the provisions of the Banking Regulation Act, 1949 and relied upon the definition of the term "banking company" as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949. However, what we find therein is that the definition is inserted so as to consolidate and amend the law relating to banking. The Banking Regulation Act, 1949 has been amended from time to time and Section 5(c) has been inserted so as to enable the Legislature to apply the regulatory provisions even to a banking company. Thus, the business of banking carried on by the banking companies or banks as understood ordinarily and normally would be covered by the provisions of the Banking Regulation Act, 1949. ( 59. ) Hence , we are of the view that the judgment in Baskaran's case covers the entire controversy including on raised before us. ( 60. ) The judgment of the Honourable Supreme Court which is binding upon us cannot be read in the manner suggested by Mr.Pradhan. That there is a clarification given by the Honourable Supreme Court and which is relied upon by Mr.Pradhan would not carry the mat....
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....ters other than law like facts may have no binding force as the facts of two cases may not be similar. But what is binding is the ratio of the decision and not any finding of facts. It is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision has 'declared law' it cannot be said to be a law when a point is disposed of on concession and what is binding is the principle underlying a decision. A judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. An 'obiter dictum' as distinguished from a ratio decidendi is an observation by Court on a legal question suggested in a case before it but not arising in such manner as to require a decision. Such an obiter may not have a binding precedent as the observation was unnecessary for the decision pronounced, but even though an obiter may not have a bind (binding) effect as a precedent, but it cannot be denied that it is of considerable weight. The law which will be binding under Article 141 wo....