2013 (8) TMI 1046 - HC - Companies Law

Summary

Issues Involved:
1. Legislative Competence and Doctrine of Occupied Field
2. Applicability of MPID Act, 1999
3. Jurisdiction of MPID Special Court
4. Conflict Between MPID Act and Other Central Laws
5. Factual Issues Regarding Petitioners' Involvement

Summary of Judgment:

1. Legislative Competence and Doctrine of Occupied Field:
The petitioners contended that the MPID Act, 1999 encroaches upon the field occupied by the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, and the Indian Companies Act, 1956. However, the court held that the Honourable Supreme Court in K.K. Baskaran v/s State of Tamil Nadu, 2011 3 SCC 793, has already upheld the constitutional validity of a similar State Act, and the doctrine of occupied field does not apply here. The Supreme Court clarified that the Tamil Nadu Act, and by extension the MPID Act, 1999, aims to protect depositors from fraudulent financial establishments, which is a distinct objective from the central laws.

2. Applicability of MPID Act, 1999:
The petitioners argued that the MPID Act, 1999 should not apply to non-banking financial companies (NBFCs) like KIFL, which are regulated by the Reserve Bank of India (RBI) and the Indian Companies Act. The court rejected this argument, stating that the MPID Act, 1999 is designed to protect depositors and can coexist with central laws. The court emphasized that the MPID Act, 1999 covers fraudulent defaults by financial establishments, including NBFCs, and provides mechanisms for attachment and sale of properties to repay depositors.

3. Jurisdiction of MPID Special Court:
The petitioners contended that the MPID Special Court cannot try offences under the Indian Penal Code (IPC) along with MPID Act offences. The court disagreed, noting that the MPID Act, 1999 does not contain a provision similar to Section 4(3) of the Prevention of Corruption Act, 1988, which allows a Special Judge to try IPC offences. However, the court held that the MPID Special Court has jurisdiction to try offences under the MPID Act, 1999 and can consider related IPC offences.

4. Conflict Between MPID Act and Other Central Laws:
The petitioners argued that the MPID Act, 1999 conflicts with the Indian Companies Act, 1956, particularly regarding the attachment of properties of a company under liquidation. The court held that the MPID Act, 1999 does not usurp the powers of the Company Court or the Official Liquidator. The court clarified that the MPID Act, 1999 and the Indian Companies Act, 1956 can coexist, and the designated court under the MPID Act should consider the orders of the Company Court in winding-up proceedings.

5. Factual Issues Regarding Petitioners' Involvement:
The petitioners claimed that they had resigned from KIFL before the defaults occurred and were not responsible for the company's day-to-day affairs. The court noted these factual issues but stated that they should be raised before the Special Court during the trial. The court emphasized that the factual contentions regarding the petitioners' involvement and the attachment of properties should be addressed in the pending Special Case.

Conclusion:
The court dismissed the writ petitions, holding that the MPID Act, 1999 is constitutionally valid and applicable to the petitioners. The court discharged the rule and continued the interim order for six weeks to allow the petitioners to challenge the judgment in a higher court.