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TMI Blog2019 (9) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... e a distinction between the corporate and ordinary deposit. In fact, the MPID Act only defines deposit . It does not define depositor . Albiet, section 4 of the Act provides for issuance of an order of attachment of the properties on default in return of deposits upon complaints received from the depositors or otherwise. The constitutional validity of the MPID Act has been upheld, including the legislative competence of the State legislature to enact MPID Act. We are also conscious of the fact that it is neither permissible, nor do we propose, to delve into the said aspect of the matter. Thus, the inter corporate deposit/loan, i.e., a loan advanced / deposit made by a company with another company registered under the provisions of the Companies Act would not amount to a deposit within the meaning and for the purpose of the MPID Act. It is hereby declared that the inter corporate deposit/loan, i.e., a loan advanced/deposit made by a company with another company registered under the provisions of the Companies Act, 1956/2013 would not amount to a deposit within the meaning and for the purpose of the Maharashtra Protection of Interest of Depositors (In Financial Establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as C.R. No.168 of 2013. After completion of investigation, the charge sheet came to be lodged on 29th March 2014, followed by a supplementary charge sheet on 21st December 2016. MPID Special Case No.4 of 2014 is pending before the Special Court. (b) In the meanwhile, two attachment orders dated 19th March 2016 and 24th November 2016 have been issued by the State in exercise of the powers under sections 4, 8 and 12 of the MPID Act and various properties of the said company and other related and unrelated companies have been attached. Pursuant to the orders of the Court, forensic audit in relation to money and/or amount accepted by the said company has been conducted. The forensic audit report came to be submitted on 14th December 2017. The said report, inter alia, contains the executive summary of the outstanding dues of the said company as under : Summary of outstanding ICDs as on Dec.12, 2017 Company Outstanding Amount (Rs.in crore) Birla Power Solutions Ltd. (BPSL) (Refer pg.no.8) 89.86 Zenith Birla (India) Ltd. (Z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a considerable length. With the assistance of the learned counsels for the parties, we have also perused the material on record especially the charge sheet and the forensic audit report. 4. Shri Setalvad, the learned Senior Counsel for the petitioner mounted a multi pronged attack to inclusion of the inter corporate deposits as the deposits, in the repayment of which, the petitioner committed default fraudulently, within the mischief of section 3 of the MPID Act. First and foremost, the learned Senior Counsel drew our attention to the object of enactment of MPID Act. It was strenuously urged that the stated object of the Act was to address the mischief of swindling the deposits collected from public, mostly middle class and poor people, on the promise of unprecedented higher rates of interest or rewards. The MPID Act, according to the learned Senior Counsel, was never intended to govern the inter corporate debts or transactions, which form a class apart by themselves. Secondly, it was submitted that the said area of inter corporate transactions has not been left unregulated. There are efficacious and adequate provisions in the Companies Act, 2013 ( Act 2013 ). Chapter V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an item which has not been specifically included by the legislature in clause (c) of section 2 of MPID Act. The learned Special P.P. further submitted that the very purpose of the MPID Act was to provide an effective mechanism to ameliorate the plight of hapless investors who are duped by the financial establishments. A distinction between the depositors as corporate depositors or otherwise cannot be made as it would defeat the purpose of the enactment of MPID Act, urged the learned Special P.P. 6. We have given our anxious consideration to the rival submissions canvassed across the bar. To begin with, we are not persuaded to throw the challenge overboard on the count of locus of the petitioner, raised by the learned Special P.P. Indisputably, the petitioner has been arraigned as an accused in Special MPID case No.4 of 2014. 7. In the charge sheet, copy of which is annexed to the petition, it is alleged that the petitioner Ashish Mahendrakar was an authorized signatory, in the accused Financial Establishments namely Birla Power Solutions Ltd., Birla Shloka Edutech Ltd., Zenith Birla (India) Ltd., and Birla Cotsyn (India) Ltd. and has executed important document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not being a body corporate, registered under any enactment relating to money lending which is for the time being in force in the State ; and (vii) any amount received by way of subscriptions in receipt of a Chit. Explanation I Chit has the meaning as assigned to in clause (b) of Section 2 of the Chit Funds Act, 1982 (40 of 1982); Explanation II . Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be a deposit for the purposes of this clause. Whereas clause (d) of section 2 defines Financial Establishment as : (d) Financial Establishment means any person accepting deposit under any scheme or arrangement or in any other manner but does not include a corporation or a cooperative society owned or controlled by any State Government or the Central Government or a banking company defined under clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949). 9. The definitions of deposit and financial establishments are rather expansive. The inclusive definition of deposit covers any recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided the conditions subject to fulfillment of which a company could accept the deposits. Further provisions regulating the return of the deposits, renewal thereof, the consequences of failure to repay the deposits, acceptance of deposits in contravention of the provisions therein and the redressal mechanism were provided therein. For the purpose of section 58A, deposit was defined to mean any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India. By Act No.53 of 2000, Special Provisions were made to protect the interest of small depositors by inserting section 58AA. Section 58AAA was also introduced by the said Amendment Act to make the offences connected with or arising out of acceptance of deposits under section 58A or 58AA cognizable. 13. In exercise of the powers conferred by section 58A read with section 642 of the Companies Act, 1956, the Central Government had framed the Companies (Acceptance of Deposits) Rules, 1975. Rule 2(b) defined a deposit to mean any deposit of money with, and includes any amount borrowed by, a company b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed in consultation with the Reserve Bank of India. 17. The Companies Act, 2013, in section 73 proscribes invitation, acceptance or renewal of the deposits from the public except in the manner provide in Chapter V thereof. The prescription, however, does not apply to a banking company and non banking financial company as defined in the Reserve Bank of India Act, 1934 and to such other company as the Central Government may, after consultation with the Reserve Bank of India, specify. Sub section (2) of section 73 regulates the acceptance of deposits from the members of the company. Section 76 provides that an eligible Public Company may accept deposits from the persons other than its members subject to compliance with the requirements provided in subsection (3) of section 73 and subject to such rules as the Central Government may in consultation with the Reserve Bank of India prescribe. 18. Section 76 A of the Companies Act, 2013 provides punishment for contravention of the provisions contained in section 73 or section 76 or Rules made thereunder and upon failure to repay the deposits or part thereof or any interest due thereon within the time specified or suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors on maturity or without any provision for ensuring rendering of the services in kind in return, as assured. Many of these Financial Establishments have defaulted to return the deposits on public. As such deposits run into crores of rupees it has resulted in great public resentment and uproar, creating law and order problem in the State of Maharashtra, specially in the city like Mumbai which is treated as the financial capital of India. It is, therefore, expedient to make a suitable legislation in the public interest to curb the unscrupulous activities of such Financial Establishments in the State of Maharashtra. As both the Houses of the State Legislature are not in Session and the Governor of Maharashtra is satisfied that the circumstances exist which render it necessary for him to take immediate action to make a law, for the purposes aforesaid, this Ordinance is promulgated. 22. The constitutional validity of the MPID Act was challenged before this Court. A Full Bench of this Court in the case of State of Maharashtra Vs. Vijay C. Puljal Ors. ( 2012) 10 SCC 599 held that the provisions of MPID Act were ultra vires for want of legislative competenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 repugnancy, has no application in the present case. 25 The object of the Tamil Nadu Act was to give a speedy remedy to the innocent depositors who were vulnerable to the temptation of earning high rates of interest and were victimized by the financial establishments fraudulently. 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. 26 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omise 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. These collections were diverted in the name of third parties and finally one day the fraudulent financers closed their financial establishments leaving the innocent depositors in the lurch . (emphasis supplied) 26. A profitable reference can also be made to the judgment of the Supreme Court in the case of New Horizon Sugar Mills Limited Vs. Government of Pondicherry through Additional Secretary Anr. (2012) 10 SCC 575, wherein the validity of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 came up for consideration. The Supreme Court dealt with the issues of the objects behind the enactment of, and the legislative competence to enact, the three Acts, namely, the Tamil Nadu Act, Maharashtra Act and the Pondicherry Act and enunciated the same in the following terms : 49 The Entries relating to the State List referred to above, and in particular Entry 30, appear to be a more appropriate so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 27. The validity of certain provisions of Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999 arose for consideration before the Supreme Court in the case of Soma Suresh Kumar Vs. Government of Andhra Pradesh Ors. (2013) 10 SCC 677. After referring to the previous pronouncements, including K.K. Baskaran (Supra), the Supreme Court repelled the challenge to the Andhra Pradesh Act observing as under : 16 We notice in New Horizon Sugar Mills Ltd. s case (supra), this Court held that the objects of the Tamil Nadue Act, Maharashtra Act and the Pondicherry Act are the same and/or of similar nature. In our view, the object and purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Court went on to observe that the beneficial nature of the three legislations which is to protect interests of small depositors, who invest their life s savings in schemes for making profit floated by unscrupulous individuals and companies, both incorporated and unincorporated, needs to be kept in mind while testing the vires the provisions of the said enactments. 31. Can it be said that the aforesaid object of MPID Act equally professes to protect the interest of corporate depositors? 32. For an answer, in our view, the legislative prescription, needs to be carefully appreciated in the backdrop of the object of the MPID Act. Indubitably, the MPID Act does not make a distinction between the corporate and ordinary deposit. In fact, the MPID Act only defines deposit . It does not define depositor . Albiet, section 4 of the Act provides for issuance of an order of attachment of the properties on default in return of dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 into a business transaction, be it in the nature of advancement of a loan or making a deposit with another company. In our view, the exclusion of the receipt of money by one company from another company from the purview of the deposit needs to be appreciated in the aforesaid perspective, and that seems to be the rationale behind excluding the said transactions from regulation, under the provisions of the Companies Act and the Rules thereunder. 36. To put it in other words, in our view, the persuasive compulsion of an irresistible offer does not lead to a blindfold investment by one company in another company. Nor a company is afflicted by the same degree of lack of information which an individual depositor may have to suffer. The company, which operates in a fiercely competitive financial market, is supposed to be equipped to make a prudent business decision. Viewed through this prism, and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 enforcement of the rights of one corporate entity against another. A corporate entity cannot claim to suffer from the vagaries which a small time depositor would encounter in realising the amount, in an ordinary manner, and for whom the summary remedy is provided. 40. In the aforesaid view of the matter, we are impelled to hold that the the inter corporate deposit/loan, i.e., a loan advanced / deposit made by a company with another company registered under the provisions of the Companies Act would not amount to a deposit within the meaning and for the purpose of the MPID Act. 41. Reverting to the facts of the case, it would be necessary to note that it was submitted on behalf of the petitioner that an amount of ₹ 24 crores has already been secured by the Competent Authority and it has been kept in an interest bearing fixed deposit. It was further submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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