TaxTMI 
TaxTMI 
2019 (9) TMI 828
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....e purpose of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 (Act No.XVI, 2000) (hereinafter referred to as 'the MPID Act'). 2. The aforesaid question crops up for consideration in the backdrop of the following facts and the challenge raised in the petition : (a) Birla Power Solutions Ltd. is a public listed company, registered under the Companies Act, 1956. It was initially registered as 'Birla Yamaha Ltd.'. During the period 2009 to 2013, the company had accepted the deposits; including a deposit of Rs. 1 crore from Shri Hajarimal Somani Memorial Trust, on 9th March 2012 to be repaid along with interest @ 10.75 % per annum. The date of maturity was 8th March 2013. The Company committed default in repayment of the said amount along with interest. It is alleged that the Company had accepted deposits from thousands of investors, including the companies. Hence, Shri Bhagwan Suryakant Seth lodged a first information report against the Company and its Chairman, Managing Director and other Directors for the offences punishable under sections 409, 420, 477(A), 120(B) of Indian Penal Code, 1860 and section 3 of MPID Act. The petitio....
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....osit". As the inter­corporate deposits are specifically excluded from the term "deposit" under the provisions of the Companies Act and Rules framed thereunder, the provisions of MPID Act cannot be made applicable to such deposits. The petitioner asserts that the inclusion of the inter­corporate deposits in the outstanding amount and the consequent issuance of the attachment orders in respect of various properties, by taking into account the said outstanding amount, is legally impermissible. Thus, the petitioner seeks a declaration that the inter­corporate deposits do not come under the purview of the definition of 'deposit' under section 2(c) of the MPID Act and a consequential direction to delete and/or quash the names of the inter­corporate deposit holders/lenders from the list of the depositors in MPID Case No.4 of 2014. SUBMISSIONS : 3. In the light of the aforesaid challenge, we have heard Shri Setalvad, the learned Senior Counsel for the petitioner and Shri Prakash Salsingekar, Special P.P. for the respondent No.1­State at a considerable length. With the assistance of the learned counsels for the parties, we have also perused the material on record e....
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....nclusion of inter­corporate debts/deposits within the purview of the MPID would run counter to the clear and unambiguous intent of the legislature. 5. In opposition to this, the learned Special PP stoutly submitted that the challenge raised by the petitioner is devoid of substance. Firstly, since no property of the petitioner has been attached, the petitioner cannot be said to have any locus to challenge the inclusion of the inter­corporate deposits in the repayment of which the company has committed default fraudulently. Secondly, the amounts which do not fall within the purview of the term 'deposit' under clause (c) of section 2 of the MPID Act have been specifically enumerated therein in sub­clauses (i) to (vii). Thus, according to the learned Special P.P., legislature has taken care to exclude the amounts which do not come within the purview of term, 'deposit' for the purpose of the MPID Act. It cannot be said that the legislature was not aware of the transactions in the nature of inter­corporate deposits. Thus, the Court cannot supplant the exclusion clause by adding an item which has not been specifically included by the legislature in clause (c) of section....
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....ent covered under the guidelines given, and regulations made, by the SEBI, established under the Securities and Exchange Board of India Act, 1992 (15 of 1992) ; (ii) amounts contributed as capital by partners of afilm ; (iii) amounts received from a Scheduled bank or Co­operative Bank or any other banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (iv) any amount received from-- (a) the Industrial Development Bank of India ; (b) a State Financial Institution ; (c) any financial institution specified in or undersection 6­A of Industrial Development Bank of India Act, 1964 (18 of 1964) ; or (d) any other institution that may be specified by the Government in this behalf ; (v) amounts received in the ordinary course of business by way of -- (a) security deposit; (b) dealership deposit; and (c) earnest money; (vi) any amount received from an individual or afirm or an association or individuals not being a body corporate, registered under any enactment relating to money lending which is for the time being in force in the....
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....of the MPID Act and the other governing provisions of the Central legislation need to be borne in mind to determine as to whether the inter­corporate deposits fall within the ambit of the term 'deposit' under section 2(c). 11. In the aforesaid view of the matter, the pivotal question which wrenches to the fore is whether the definition of 'deposit' under section 2(c) of the MPID Act covers in its fold 'inter­corporate deposits' and can the MPID Act be said to have been enacted to protect the interest of the corporate depositors as well? 12. A brief historical reference to the regulation of acceptance of deposits by the Companies would be apposite at this juncture. By virtue of the Act, No. 41 of 1974, section 58A came to be inserted in the Companies Act, 1956. Sub­section (1) of section 58A empowered the Central Government to prescribe the limits up to, and the manner in, and the conditions subject to, which the deposits may be invited or accepted by a company either from the public or from its members. Sub­section (2) thereof provided the conditions subject to fulfillment of which a company could accept the deposits. Further provisions regulating the return o....
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.... of the depositors, and by compelling limited liquidity in resources, the society at large was sought to be protected from the ever haunting spectre of sickness in industry often conveniently resorted to by the private sector companies. Sec. 58A must receive its legitimate construction in the back­drop of this fact situation. Viewed from this angle, Sec. 58­A will enable the Central Government to prescribe conditions subject to which deposits can be accepted and one such condition would be how to readily make, a small portion of the deposit, available for repayment because while inviting and accepting deposits, it is implicit therein that repayment would be assured on the date of maturity." (emphasis supplied) 16. To make the narration as regards legislative prescription complete, it may be necessary to note that the Companies Act, 2013, under section 2(c), defines 'deposit' to include any receipt of money by way of deposit or loan or any other form by company but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. 17. The Companies Act, 2013, in section 73 proscribes invitation, acceptance or renewal of t....
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....the substantive provisions of a statute, but it is permissible to make a gainful reference to the statements of objects and reasons for the purpose of understanding the background of the legislation, the state of affairs that preceded the enactment, the attendant and surrounding circumstances in relation to the statute and the mischief which the statute sought to curb. Thus, it would be necessary to note the statements of objects and reasons of MPID Act. It gives insight into the then prevailing circumstances, which necessitated the enactment of MPID Act, the evil it sought to remedy, and the object it sought to achieve. It 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 defau....
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....e Supreme Court upheld the constitutional validity of the MPID Act. 25. The observations of the Supreme Court in the case of K.K. Baskaran (Supra) in paragraphs 24, 25, 26, 31, 32, and 33 expound the object behind the enactment of the Tamil Nadu Act and underscore the necessity of the legislative measure. They read as under :­ "24. The Tamil Nadu Act was enacted to find out a solution for the problem of the depositors who were deceived on a large scale by the fraudulent activities of certain financial establishments. There was a disastrous consequence both in the economic as well as social life of such depositors who were exploited by false promise of high return of interest. These financial institutions/establishments did not come either under the Reserve Bank of India Act or the Banking Regulation act, and hence they escaped from public control. By the impugned Act the State not only proposed to attach the properties of such fraudulent establishments and the mala fide transferees, but also provided for the sale of such properties and for distribution of the sale proceeds amongst the innocent depositors. Hence, in our opinion, the doctrine of occupied field or repu....
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....elow the poverty line constituted the bulk of the depositors. Without the aid of the impugned Act, it would have been impossible to recover their deposits and interest thereon. 32 The conventional legal proceedings incurring huge expenses of court fees, advocates' fees, apart from other inconveniences involved and the long delay in disposal of cases due to docket explosion in Courts, would not have made it possible for the depositors to recover their money, leave alone the interest thereon. Hence, in our opinion the impugned Act has rightly been enacted to enable the depositors to recover their money speedily by taking strong steps in this connection. 33 The State being the custodian of the welfare of the citizens as parens patriae cannot be a silent spectator without finding a solution for this malady. The financial swindlers, who are nothing but cheats and charlatans having no social responsibility, but only a lust for easy money by making false promise of attractive returns for the gullible investors, had to be dealt with strongly. 33 The small amounts collected from a substantial number of individual depositors culminated into huge amounts of money. T....
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....f this case. We have to bear in mind that the validity of the Tamil Nadu Act and the Maharashtra Act have been upheld by the Madras High Court and this Court. The objects of the Tamil Nadu Act, the Maharashtra Act and the Pondicherry Act being the same and/or similar in nature, and since the validity of the Tamil Nadu Act and the Maharashtra Act have been upheld, the decision of the Madras High Court in upholding the validity of the Pondicherry Act also be affirmed. We have to keep in mind the beneficial nature of the three legislations which is to protect the interests of small depositors, who invest their life's earnings and savings in schemes for making profit floated by unscrupulous individuals and companies, both incorporated and unincorporated. More often than not, the investors end up losing their entire deposits. We cannot help but observe that in the instant case although an attempt has been made on behalf of the Appellant to state that it was not the Appellant Company which had accepted the deposits, but M/s PNL Nidhi Ltd., which had changed its name five times, such an argument is one of desperation and cannot prima facie be accepted. This appears to be one of such cases....
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....ate 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. 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. 30. The objects of the aforesaid enactments, including the MPID Act, were expounded with more clarity, and in unequivocal words, in the case of New Horizon Sugar Mills Limited (Supra). The Supreme Court observed that the object of the three enactments were identical, namely, to protect the interests of small depositors from fraud perpetrated on unsuspecting investors, who entrusted their life's savings to unscrupulous and fraudulent persons. It was further observed that those enactments were framed to safeguard the interests of the common citizens against exploitation by unscrupulous financial establishments mushrooming all over the country. That was stated to be the main object indicated in the Statement of Objects and Reasons of the three different enactments. The Supreme C....
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....der the Companies Act be attributed with the same amount of credulity, innocence and unsuspecting animus which an ordinary person may exhibit in the face of an irresistible offer of financial benefit. The nature and structure of the corporate governance suggests otherwise. The decision making process of a corporate entity is expected to be of a more formal and informed nature. A corporate entity is supposed to have the feel of the financial market. While making a business decision, the company is expected to weigh in a number of factors, including creditworthiness of another company with which it enters into a transaction, the viability of the business model of the later, the overall financial position and the corporate structure and governance of such company, and, ultimately, whether the said company would have the wherewithal to honour the financial commitment. 35. With key personnel, like directors and professional managers, a company is not expected to be easily lured by a mere promise of a higher percentage of return on investments, unlike an unsuspecting small time depositor. Th nature, structure and personnel equip a company to take an informed decision whether to enter ....
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....o the detriment of the small time depositors. If a corporate depositor has made a huge and bulk deposit with a financial establishment, which commits a fraudulent default in repayment of the said deposit, along with the deposits of other small depositors, and the properties of such financial establishment are attached and ultimately disposed of for realization of those deposits, in that event, if the corporate depositor competes with the small depositors and claims pari passu distribution, then the small depositors would be deprived of realization of their money to full potential. 39. In our considered opinion, obliterating the distinction between the corporate depositor and ordinary depositor would render the provisions of the other enactments, like Companies Act, redundant, which provide various remedies for the enforcement of the rights of the corporate depositors, ranging from a petition for winding up to a suit for recovery of the amount, and the corporate depositor may not be required to exhaust the remedies provided in the other enactments. The summary remedy provided in the MPID Act does not seem to have been conceived by the State legislature as the remedy for enforceme....