Case: K.K. Baskaran Vs. State Rep By Its Secretary,Tamilnadu&amp;Ors

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 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. Hence, the decision of this Court in Delhi Cloth Mills (supra) has no bearing on the constitutional validity of the Tamil Nadu Act. 36. In the case of the Tamil Nadu Act, the attachment of properties is intended to provide an effective and speedy remedy to the aggrieved depositors for the 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. Laxmi Devi (2008) 4 SCC 720 . 39. We fail to see how there is any violation of Article 14, 19(1)(g) or 21 of the Constitution. The Act is a salutary measure to remedy a great social evil. A systematic conspiracy was effected by certain fraudulent financial establishments which not only committed fraud on the depositor, but also siphoned off or diverted the depositors funds mala fide. We are of the opinion that the act of the financers in exploiting the depositors is a notorious abuse of faith of the depositors who innocently deposited their money with the former for higher rate of 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 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 taking strong steps in this connection. 41. The State being the custodian of the welfare of the citizens as parens patriae cannot be a silent spectator without finding a solution for this malady. The financial swindlers, who are nothing but cheats and charlatans having no social responsibility, but only a lust for easy money by making false promise of attractive returns for the gullible investors, had to be dealt with strongly. 42. 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. 43. Learned counsel for the appellant submitted that the appellant was only a bona fide purchaser of some plots of land from one Arun Kumar and Smt. Sulochana, and not from any financial establishment. We are not going into this question as it can be raised in appropriate proceedings. In this case we are only concerned with the constitutional validity of the Tamil Nadu Act. 44. We are of the opinion that there is no merit in this petition. The impugned Tamil Nadu Act is constitutionally valid. In fact, it is a salutary measure which was long overdue to deal with these scamsters who have been thriving like locusts in the country.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]9. We are of the opinion that none of these submissions have any merit10. 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 speedily18. Learned counsel for the appellant relied on the Full Bench decision of the Bombay High Court in Vijay C. Punjals case (supra) in support of his contention that the Tamil Nadu Act, like the Maharasthra Act, was unconstitutional being beyond the legislative competence of the State Legislature. We do not agree21. 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 Act22. 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 Schedule23. It often happens that a legislation overlaps both Lists I as well as List II of the Seventh Schedule. In such circumstances, the doctrine of pith and substance is applied. We are of the opinion that in pith and substance the impugned State Act is referable to Entries 1, 30 and 31 of List II of the Seventh Schedule and not Entries 43, 44 and 45 of List I of the Seventh Schedule24. It is well-settled that incidental trenching in exercise of ancillary powers into a forbidden legislative territory is permissible vide Constitution Bench decision of this court in State of West Bengal etc. vs. Kesoram Industries Ltd & Ors etc. (2004) 10 SCC 201 (vide paras 31(4), (5) 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 limits26. 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 competence37. 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 realities44. We are of the opinion that there is no merit in this petition. The impugned Tamil Nadu Act is constitutionally valid. In fact, it is a salutary measure which was long overdue to deal with these scamsters who have been thriving like locusts in the country