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TMI Blog2012 (11) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic as well as social life of such depositors who were exploited by false promise of high return of interest - 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 establishments which duped them or their vendees, without dragging them in a legal battle from pillar to post - there is no merit in this petition -The impugned Tamil Nadu Act is constitutionally valid. - Civil Appeal No. 2341 of 2011 - - - Dated:- 4-3-2011 - MARKANDEY KATJU GYAN SUDHA MISRA, JJ. JUDGMENT 1. Delay condoned. Leave granted. 2. Heard learned counsel for the appellant. 3. Financial swindling and duping of gullible investors/depositors is not unique to India. It has been referred to in Charles Dicken's novel `Little Dorrit', in which Mr. Merdle sets up a Ponzi scheme resulting in loss of the savings of thousands of depositors including the Dorrits and Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nadu Amendment) Act, 1977. It was also contended that the Tamil Nadu Act was arbitrary, unreasonable and violative of Articles 14, 19(1)(g) and 21 of the Constitution. 9. We are of the opinion that none of these submissions have any merit. 10. A perusal of the Statement of Objects as well as the relevant provisions of the Tamil Nadu Act shows that its object was to ameliorate the situation of thousands of depositors from the clutches of financial establishments who had duped the investor public by offering high rates of interest on deposits and committed deliberate fraud in repayment of the principal and interest after maturity of such deposits. The Act provides for measures for attachment of the properties of the financial establishments as well as mala fide transferees and to bring these properties for sale for realization of the dues payable to the depositors speedily. 11. As per the statistics of July 2002, about Rs. 1945 crores were collected from over 19 lakhs of depositors. These depositors were either poor or middle class persons, retired government servants and pensioners and their dependants, senior citizens or economically backward sections of society etc. The dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 15. An amendment was brought to the Tamil Nadu Act by the Protection of Interests of Depositors (In Financial Establishments) Amendment Act, 2003, Tamil Nadu Act 30 of 2003, the object being: "The Tamil Nadu Protection of Interest of Depositors (in financial establishments) Act, 1977 (Tamil Nadu Act 44 of 1997) was enacted by the Government of Tamil Nadu to protect the interest of the depositors who have lost their hard earned money with the financial institutions. At present, there is no provision in the said Act for attaching the properties of the persons who borrowed money from the financial establishments and for the sale of attached property in public action and for the equitable distribution of the sale proceeds to the depositors. In order to overcome the shortcomings and to make the said Tamil Nadu Act 44 of 1997 more effective, the Government have decided to amend the said Act so as to- (1) bring a company registered under the Companies Act, 1956 (Central Act 1 of 1956) and non- banking financial company within the purview of the Act; (2) make the non-payment of interest and failure to render service for which deposit has been made, as offences under the Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so apply in relation to the Maharashtra Act. 21. The Bombay High Court has taken the view that the Maharashtra Act transgressed into the field reserved for Parliament. We do not agree. It is true that Section 58A of the Companies Act has been upheld by this Court in Delhi Cloth Mills Ltd vs. Union of India (1983) 4 SCC 166 and the provisions of Chapter IIIC of the Reserve Bank of India Act, 1934 was upheld by this Court in T. Velayndhan Achari vs. Union of India (1993) 2 SCC 582. However, we are not in agreement with the Full Bench decision of the Bombay High Court that the subject matter covered by the said Act falls squarely within the subject matter of Section 58A and 58AA of the Companies Act. 22. We are of the opinion that the impugned Tamil Nadu Act enacted by the State Legislature is not in pith and substance referable to the legislative heads contained in List I of the Seventh Schedule to the Constitution though there may be some overlapping. In our opinion, in pith and substance the said Act comes under the entries in List II (the State List) of the Seventh Schedule. 23. It often happens that a legislation overlaps both Lists I as well as List II of the Seventh Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers College (supra) (para 6), ITC Ltd. vs. State of Karnataka (supra) (para 17). 29. Learned counsel for the appellant submitted that the subject-matter of the Tamil Nadu Act being banking, falls within the legislative competence of Parliament under Entry 45 of List I. We do not agree. Admittedly, none of the financial companies in question obtained any licence from the Reserve Bank of India. Hence they are not governed by the Reserve Bank of India Act or the Banking Regulation Act. The activities of these financial companies do not, in our opinion, come within the meaning of the term `banking' as defined in the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934. 30. 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 esca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he realization of their dues. The offences dealt with in the impugned Act are unique and have been enacted to deal with the economic and social disorder in society, caused by the fraudulent activities of such financial establishments. 37. Under Section 3 4 of the Tamil Nadu Act, certain properties can be attached, and there is also provision for interim orders for attachment after which a post decisional hearing is provided for. In our opinion this is valid in view of the prevailing realities. 38. The Court should interpret the constitutional provisions against the social setting of the country and not in the abstract. The Court must take into consideration the economic realities and aspirations of the people and must further the social interest which is the purpose of legislation, as held by Justices Holmes, Brandeis and Frankfurter of the U.S. Supreme Court in a series of decisions. Hence the Courts cannot function in a vacuum. It is for this reason that Courts presume in favour of constitutionality of the statute because there is always a presumption that the legislature understands and correctly appreciates the needs of its own people, vide Govt. of Andhra Pradesh vs. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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