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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 ..... or even foreign countries leaving the depositors as well as the State police high and dry. 5. This appeal has been filed against the impugned judgment and order of the Full Bench of the Madras dated 02.03.2007 in writ petition No. 26108/2005. 6. By means of the aforesaid writ petition, the petitioner and others challenged the constitutional validity of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (for short the Tamil Nadu Act). By the impugned judgment the Full Bench of the Madras High Court has held the aforesaid Act to be constitutional. Hence, this appeal. 7. Learned counsel for the appellant has relied on the Full Bench decision of the Bombay High Court in Vijay C. Punjal vs. State of Maharashtra (2005) 4 CTC 705 by which a similar Act of Maharashtra, being the Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act, 1999 was held to be unconstitutional. We are of the opinion that the impugned judgment of the Full Bench of the Madras High Court is correct, while the judgment of the Full Bench of the Bombay High Court in Vijay's case (supra) is not correct. 8. The main submission of the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative returns on deposits and then disappear with the depositors' money or refuse to return the same with interest. In our opinion, the impugned Tamil Nadu Act is in pith and substance relatable to Entries 1, 30 and 32 of the State List (List II) of The Seventh Schedule. 13. The Statement of Objects And Reasons of the Tamil Nadu Act states : "There is mushroom growth of Financial Establishments not covered by the Reserve Bank of India Act, 1934 (Central Act II of 1934) in the State in the recent past with the sole object of grabbing money received as deposits from the public, mostly middle class and poor, on the promise of unprecedented high rates of interest and without any obligation to refund the deposits to the investors on maturity. Many of these Financial Establishments have defaulted to return the deposits on maturity to the public running to crores of rupees and thereby inviting the public resentment, which created law and order problems in the State. The Government has, therefore, decided to undertake suitable legislation, in the public interest, in order to regulate the activities of such Financial Establishments, other than those covered by the Reserve Bank of India Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale proceeds among the depositors. 2. The Bill seeks to give effect to the above decision." 16. By section 2 of the Tamil Nadu Act 30 of 2003, the definitions of "deposit" and "financial establishments" were amended as follows: (1)....... (2)" deposit means the deposit of money either in one lump sum or by installments made with financial establishments for a fixed period, for interest or for return in any kind or for any service; (3)"financial establishment" means an individual, an association of individuals, a firm or a company registered under the Companies Act, 1956 (Central Act 1 of 1956) carrying on the business of receiving deposits under any scheme or arrangement or in any other manner but does not include a corporation or a co-operative society owned or controlled by any State Government or the Central Government or a banking company as defined in Section 5(c) of the Banking Regulation Act, 1949 (Central Act X of 1949)" 17. Thus, by the Amendment Act 30 of 2003, the companies registered under the Companies Act, 1956 and the non-banking financial companies, were also brought within the purview of the Act. 18. Learned counsel for the appellant relied on the Full Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (6) and 129 (5). Sharp and distinct lines of demarcation are not always possible and it is often impossible to prevent a certain amount of overlapping vide ITC Ltd. vs. State of Karnataka, 1985 (Supp) SCC 476 (para 17). We have to look at the legislation as a whole and there is a presumption that the legislature does not exceed its constitutional limits. 25. The `financial companies' in the present case had not obtained any licence from the Reserve Bank of India. Hence they are not governed by the Reserve Bank of India Act nor the Banking Regulation Act, 1949. 26. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mized by the financial establishments fraudulently. 33. As regards Section 58A of the Companies Act, this prescribes the conditions under which the deposits may be invited or accepted by the companies. On the other hand, the aim and object of the Tamil Nadu Act is totally different. 34. 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 Banking Regulation Act, nor the non-banking financial companies enacted under the Companies Act, 1956. 35. 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 tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. These depositors were often given a small pass book as a token of acknowledgment of their deposit, which they considered as a passport of their children for higher education or wedding of their daughters or as a policy of medical insurance in the case of most of the aged depositors, but in reality in all cases it was an unsecured promise executed on a waste paper. The senior citizens above 80 years, senior citizens between 60 and 80 years, widows, handicapped, driven out by wards, retired Supreme Court government servants and pensioners, and persons living below 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. 40. 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 taki ..... X X X X Extracts X X X X X X X X Extracts X X X X
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