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2012 (11) TMI 206 - SC - Indian LawsAttachment of properties acquired by Pondicherry Nidhi Ltd - challenge powers conferred under the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 - Held that - Clause (1) of Article 254 provides that when there are two laws enacted by the Parliament and the State Legislature in which certain inconsistencies occur, then subject to the provisions of clause (2), the law made by the Parliament would prevail and the law made by the State Legislature to the extent it is repugnant to the Central law, shall be void. Clause (2), however, also provides that in a given situation where a law of a State is in conflict with the law made by Parliament, the law so made by the State Legislature shall, if it has received the assent of the President, prevail in that State. In the instant case, the Pondicherry Act had received the assent of the President attracting the provisions of Article 254(2) of the Constitution. The power to enact the Pondicherry Act could be traced to Entries 1, 8, 13 and 21 of the Concurrent List. Although, it has been argued by Mr. Ganguli (Advocate for Appellant) that the provisions of the Companies Act would not be attracted, cannot be overlooked that the amendment to the definition of financial establishment included in the Tamil Nadu Act and as defined in the Pondicherry Act. The definition of the expression financial establishment in Section 2(d) of the Pondicherry Act includes any person or group of individuals or a firm carrying on business of accepting deposits under any scheme or arrangement or in any other manner, but does not include a Corporation or a cooperative society owned or controlled by either the Central Government or the State Government or a banking company as defined under Section 5 of the Banking Regulation Act, 1949. Thus the expression any person is wide enough to cover both a natural person as also a juristic person, which would also include a Company incorporated under the Companies Act, 1956. In that view of the matter, the definition in Section 2(d) of the Pondicherry Act would also include a Company such as the Appellant Mill, which accepts deposits from investors, not as shareholders of such Company, but merely as investors for the purpose of making profit. In this regard, reference may also be made to Section 11 of the Indian Penal Code which defines a person to include a Company or Association or body of persons, whether incorporated or not. Accordingly, we are inclined to accept Mr. Venkataramani's submissions that the expression person in the Pondicherry Act includes both incorporated as well as unincorporated companies. As observed 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 where funds have been collected from the gullible public to invest in projects other than those indicated by the front company. It is in fact the specific case of the Respondents that the funds collected by way of deposits were diverted to create the assets of the Appellant Mill. In such circumstances, the submissions made by Mr. Ganguli cannot be accepted as there is little difference between the provisions of the Tamil Nadu Act and the Pondicherry Act, which is to protect the interests of depositors who stand to lose their investments on account of the diversion of the funds collected by M/s PNL Nidhi Ltd. for the benefit of the Appellant Mill, which is privately owned by Shri V. Kannan and Shri V. Baskaran, who are also Directors of M/s PNL Nidhi Ltd - appeals dismissed with costs assessed at ₹ 1,00,000/-.
Issues Involved:
1. Challenge to G.O.Ms.No.12 dated 18.2.2006 issued by the Government of Pondicherry. 2. Validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (Act 1 of 2005). 3. Legislative competence of the Pondicherry Government in enacting Act 1 of 2005. 4. Applicability of the decision in K.K. Baskaran v. State of Tamil Nadu to the Pondicherry Act. 5. Whether the subject matter of the Pondicherry Act is referable to Entries in the Union List or the State List. 6. The impact of the President's assent on the Pondicherry Act under Article 254(2) of the Constitution. Issue-wise Detailed Analysis: 1. Challenge to G.O.Ms.No.12 dated 18.2.2006: The main issue relates to the challenge thrown to G.O.Ms.No.12 dated 18.2.2006 issued by the Department of Revenue and Disaster Management, Government of Pondicherry, ordering attachment of properties acquired by Pondicherry Nidhi Ltd. The attachment was ordered following allegations of misappropriation of funds by the Directors of M/s New Horizon Sugar Mills Pvt. Ltd., who were also major shareholders in Pondicherry Nidhi Ltd. The attachment prevented M/s Parry Ltd. from registering the Sale Certificate for the auctioned property. 2. Validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (Act 1 of 2005): The Pondicherry Act was enacted to protect the interests of depositors in financial establishments in the Union Territory of Pondicherry. The Division Bench of the Madras High Court upheld the validity of the Act, observing that it was in pari materia with the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997, which had been upheld by the courts. The challenge to the legislative competency and jurisdiction of the Government of Pondicherry in enacting the impugned Act was rejected. 3. Legislative Competence of the Pondicherry Government: The legislative competence of the Pondicherry Government to enact Act 1 of 2005 was questioned. It was argued that the Act was referable to Entries 43, 44, 45, and 97 of the Union List and not Entries 1, 30, and 32 of the State List. However, the court held that the subject matter of the Pondicherry Act could be traced to Entries 1, 30, and 32 of the State List, which involve the business of unincorporated trading and money-lending. 4. Applicability of the Decision in K.K. Baskaran v. State of Tamil Nadu: The decision in K.K. Baskaran's case, which upheld the validity of the Tamil Nadu Act, was considered relevant. The court noted that the objects of the Tamil Nadu Act, the Maharashtra Act, and the Pondicherry Act were identical, aimed at protecting the interests of small depositors from fraud. The court affirmed that the decision in K.K. Baskaran's case would be applicable to the Pondicherry Act as well. 5. Subject Matter Referable to Union List or State List: The court examined whether the subject matter of the Pondicherry Act was referable to Entries 43, 44, 45, and 97 of the Union List or Entries 1, 30, and 32 of the State List. It concluded that the Pondicherry Act could be traced to Entries 1, 30, and 32 of the State List, which involve public order, money-lending, and incorporation, regulation, and winding up of corporations other than those specified in List I. 6. Impact of the President's Assent under Article 254(2): The Pondicherry Act had received the assent of the President, attracting the provisions of Article 254(2) of the Constitution. This provision allows a State law to prevail over a conflicting Central law if it has received the President's assent. The court held that the Pondicherry Act was saved by virtue of Article 254(2) and would prevail in the Union Territory of Pondicherry. Conclusion: The appeals were dismissed with costs, and the validity of the Pondicherry Act was upheld. The court emphasized the beneficial nature of the legislation aimed at protecting the interests of small depositors from fraudulent financial establishments.
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