STATE REPRESENTED BY THE PRJNCIPAL SECRETARY TO  GOVERNMENT, HOME (POLICE XIX) DEPARTMENT AND  OTHERS versus K. S. PALANICHAMY AND ORS.
[2017] 4 S.C.R. 34, Supreme Court of India, 2017
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
[2017] 4 S.C.R. 34 
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GOVERNMENT, HOME (POLICE XIX) DEPARTMENT AND 
OTHERS 
v. 
K. S. PALANICHAMY AND ORS. 
(Criminal Appeal No. 933of2017) 
MAY09,2017 
[N. V. RAMANA AND PRAFULLA C. PANT, JJ.) 
Tamil Nadu Protection of Interests of Depositors (In Financial 
Establishments) Act, 1997: 
ss. 3 and 4 -Ad-interim order u/s. 3 -Attaching the immovable 
properties of the partners of a financial institution (respondents) -
Passed by State Government - On the basis of complaint against 
the financial establishment filed by the depositors - Petition uls. 482 
Cr.P.C. by the respondents - High Court set aside the order u!s. 3 
holding that before passing order u/s. 3, the Government is required 
to· take steps u/s. 4 by identifying the properties - On appeal, held: 
As per the procedure u/ss. 3 and 4, the State Government has power 
to set the process into motion by passing ad-interim attachment and 
thereafter appoint competent authority uls. 4(1) to take further 
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recourse uls. 4(3) and (4) - Therefore, the order of the State 
Government is in consonance with the provisions of the Act. 
Words and Phrases: 
'Financial establishments' - Meaning of, in the context of 
Tamil Nadu Protection of Interests of Depositors (In Financial 
Establishments) Act, 1997. 
Allowing the appeal, the Court 
HELD: 1.The Statement of Objects as well as the relevant 
provisions of the Tamil Nadu Protection of Interests of Depositors
(In Financial Establishments) Act, 1997 shows that its object was 
to ameliorate the situation of thousands of depositors from the 
clutches of.Financial Establishments which deceives the investors 
by offering high rates' of interest on deposits and committed 
deliberate fraud in repayment of the principal and interest after 
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STATE REP. BY THE PRINCIPAL SECRETARY TO GOVT. v. 
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K. S. PALANICHAMY 
maturity of such deposits. Sub-section (3) of Section 2 defines 
the Financial Establishments. It is an undisputed fact that the 
present respondents very much fall within the ambit of financial 
establishment as defined under the Act. (Para 10] [39-B-C] 
2. It is clear from the reading of Section 3(i) of the Act, that 
whenever complaints are received from a number of depositors 
against a Financial Establishment, which defaults or fails to return 
the deposits or fails to provide services for which the deposits 
have been made by the depositors, then the State Government is 
empowered to initiate proceedings by passing (l</-illterim order 
for attachment of the properties of the Financial Establishment 
. or any other persons as mentioned there under. The present 
case falls under Section 3(i) of the Act. Thereafter the 
Government is at liberty to transfer the. cc;mtrol of tJie aforesaid 
money or property to the competent authority. [Para 12] [40-E-F] 
3. As per the procedure envisaged under Section 3 and 4 
of the Act, unequivocally the power. to set the process into motion 
vests with the State Government by passing an (l</-interim 
attachment order and thereafter the Act mandates appointment 
of competent authority under Sub-section (1) of Section 4 of the 
Act, to take further recourse as per the procedures laid down 
under Section 4 of the Act. (Para 14] (41-C-D] 
4. It is not correct to say
that before passing an order under 
Section 3 of the Act, Government has to take steps under Section 
4 of the Act by identifying the properties. The language employed 
under Sections 3 and 4 of the Act is plain, unambiguous. While 
enacting the provisions, the legislature has consciously given 
the discretion for passing an (l</-interim order. It is evident from 
the language used in the section by inserting "Government may". 
In the present case, even before the other provisions are 
complied with, the High Court erroneously interfered with the 
(Id-interim orde! which defeats the very purpose of the p;ovision 
which is incorporated to safeguard the interest of the investors. 
(Para 15] (41-E-F] 
5. The order passed by the State Government under Section 
3 of the Act attaching the immovable properties standing in the 
name of respondents, basing on the complaint of investors and 
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SUPREME COURT REPORTS 
[2017] 4 S.C.R. 
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directing the competent authority to take recourse as per the 
procedures contemplated under Sub-section (3) and (4) of Section 
4 of the Act is valid and is very much in consonance with the 
provisions of the Act. [Para 16] (41-G-Ii; 42-A] 
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 
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933 of2017. 
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From the Judgment and Order dated 19 .03.2014 of the High Court 
of Judicature at Madras in Cr!. 0. P. (MD) No. 6607 of2013. 
Subramonium Prasad, AAG, M. Yogesh Kanna, Ms. Nithya, 
Ms. Maha Lakshmi, Partha Sarathi, Advs. for the Appellant. 
G. Sivabalamurugan, L. K. Pandey, Ms. Theepa, Advs. for the 
Respondents. 
The Judgment of the Court was delivered by 
N. V. RAMANA, J. 1. Leave granted. 
2. Appellant is before us questioning the order passed by the High 
Court in Crl.0.P. (MD) No. 6607 of 2013, dated I 9.03.2014, whereby 
the High Court has set aside an ad-interim order (G.0. Ms. No. 989) 
[hereinafter referred to as 'G.O' for brevity], dated 24.12.2012, 
attaching the immovable properties of the partners of Financial 
Establishment(Global Capital Trading Services) i.e. respondents herein 
under Section 3 of the Tamil Nadu Protection oflnterests of Depositors 
(In Financial Establishments) Act, I 997 [hereinafter' Act' for brevity]?~ 
3. Brief facts of the case which are necessary for adjudication of 
dispute before us are, on 01.11.2010, a complaint was registered with 
Deputy Superintendent of
Police against the respondents herein alleging 
that, respondents were c.onjointly running a Financial Establishment in 
the naine of Global Capital Trading Services atMadurai, offering high 
rate of returns on investments in their Financial Establishment. Basing· 
on the assurance given by the respondents herein, the complainant along 
with his relatives deposited huge sums of money with the Financial 
Establishment, administered by the respondents herein. Furthermore it 
is alleged that respondent no. I has returned back only a part ()f the 
deposited amount to the complainant and thereafter absconded. In light 
of the above averred facts, complaint was registered /as 
(FIR No. 06/2010) was registered on 02.11.2010.under Section 406, 420
STATE REP. BY THE PRINCWAL SECRETARY TO GOVT. v. 
K. S. PALANICHAMY [N. V. RAMANA, J.] 
oflndian Penal Code, 1860 read with Section 5 of the Act. Based on the 
afotesaid complaint, G.O, dated 24.12.2012, was issued attaching the 
immovable properties of the respondents herein who are the partners of 
the financial institution under Section 3 of the Act. 
4. Challenging the aforesaid G.O, respondents herein filed Criminal 
Original Petition under Section 482 of the Code of Criminal procedure, 
1973 before the Madurai bench ofThe High Court of Madras in Crl.O.P. 
(MD) No. 6607 of2013. TheHigh Court has allowed the Criminal Original 
Petition, by setting aside the Government Order dated 24.12.2012 and 
directed the competent authority to initiate fresh proceedings in tenns of -
Section 3 and 4 of the Act. 
5. Aggrieved by the impugned Judgment of the High Court, State 
represented by its Principal Secretary to Government, Home (Police 
XIX) Department and others are before us. 
6. The contention of the learned counsel appearing on behalf of 
the State is that, under Section 3 of the Act, the State Government is 
empowered to attach the properties belonging to a Financial Establishment 
which defaults in returning the deposits after maturity or fails to pay 
interest on deposit or fails to provide any service for which the deposit 
has been made. Sub-section (ii) of Section 3 of the Act confel'S the 
power on the Government to fake up suo moto complaint in order to 
prevent
fraud against the depositors. Further it empowers the State 
Government to pass ad-interim attachment orders subject to its 
satisfaction. In the present case, according to the learned senior counsel, 
on receiving the complaints from the depositors, Government being 
satisfied with the same, appointed the Revenue District Officer of Madurai 
as the competent authority in exercise of its power under sub-section 
( 1) of Section 4 of the Act. 
7. Furthermore he states that Sub-section (3) of Section 4 provides 
that, after passing an ad-interim attachment order, the competent authority, 
designated by the Government, has to approach the, Special Court 
constituted under the Act, within stipulated period, for making the ad-
interim order of attachment absolute and for further directions to sell the 
attached property by way of public auction and realize the sale proceeds. 
According to him, in the present case, the High Court even before 
reaching such a stage has set aside the proceedings on a wrong 
interpretation of law. Moreover he contends that the High Court has 
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SUPREME COURT REPORTS 
(2017] 4 S.C.R. 
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Case (MD) No. 242 of 2011 passed by the. Madurai Bench of Madras 
High Court, which has been extracted in para 6 of the impugned 
judgment, which reads thus :-
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"6. The only grievance of the petitioners is that under Section 
3 of the Act, the competent authority has to recommend for 
attachment and the Government has to pass an order of attachment 
by way of passing Government Order. After passing such 
Government Order, the provision of Section 4 and 7 of the Act, 
will come into play. However, the competent authority is a person 
appointed under Section 4 of the Act, who is presently the District 
Revenue Officer, Madurai. By an order dated 29.06.2011, while 
disposing 0f the connected Criminal Re.vision in Crl.R.C.(MD) 
No. 242 of201 l this Court has passed an order and the relevant 
portion reads as follows :-
"22. The Investigating Agency is also at liberty to proceed 
further to find out as to whether the petitioner and his relatives 
own any other properties also and in that event, the Investigating 
Agency shall take effective steps to attach the properties in terms 
of the provisions of the Tamil Nadu Protection of Interests of 
Depositors (In Financial Establishments) Act 1997 ." 
8. He summoned up his arguments by stating that such a 
procedure was never contemplated under the Act. At this stage it is 
important to note.
that the High Court allowed the Criminal Original 
Petition and set aside the impugned G.O., issued by the Government, 
even before initiation of the proceedings under Section 4 of the Act. 
9. Per contra learned counsel for the respondents submitted that 
Section 3 of the Act is ambiguous as it does not indicate any procedure 
to be followed while passing an ad-interim order. He further states that 
before taking any action under Section 3 of the Act, the competent 
authority, has to initiate proceedings and identify the properties in terms 
of Section 4 of the Act. Furthermore he contends that the power of the 
Government to pass ad-interim attachment order is contingent upon 
identification of property by the competent authority. In view of that, he 
submits that the High Court has rightly quashed the Government Order. 
10. Having heard learned counsel for the parties and after perusing 
the impugned G.0.; it would be appropriate to bestow our attention to
STATE REP. BY THE PRINCIPAL SECRETARY TO GOVT. v. 
K. S. PALANICHAMY [N. V. RAMANA, J.] 
the relevant statutory provisions under the Act. 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 ofFinancial Establishments which deceives 
the investors by offering high rates ofinterest on deposits and committed 
deliberate fraud in repayment of the principal and interest after maturity 
of such deposits. Sub-section (3) of Section 2 defines the Financial 
Establishments. It is an undisputed fact that the present respondents 
very much fall within the ambit of financial establishment as defined 
under the act. 
11. It would be appropriate to extract section 3 and 4 of the Tamil 
Nadu Protection oflnterests of Depositors (In Financial Establishments) 
Act, 1997 which reads as under 
3) Notwithstanding anything contained in any other law for the 
time being in force:-
(i). Where, upon complaints received from a number of depositors, 
that any financial establishment defaults the written of deposits 
after maturity, are 
(ii). Where the government have reason to believe that any financial 
establishment is acting in a calculated manner with an intention 
to defraud the depositors. 
and if the government are satisfied that such financial 
establishments is not likely to return the deposits, the 
government may, in order to protect the
interests of the 
depositors of such financial establishment pass an ad-interim 
order attaching the money or other property alleged to have 
been procured either in the name of the financial establishment 
or in the name of any other person from and out of the deposits 
collected by the financial establishment, or if it transpires that 
such money or other properties is not available for attachment 
are not sufficient for repayment of the deposits, such other 
property of the said financial establishment or the promoter, 
manager or member of the said financial establjshment, as 
the government may think fit and transfer the control over 
the said money or property to the competent authority. 
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4)(1) The government may, by notification appoint an authority 
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herein after called "the competent authority" to exercise control 
· ··over the properties attached by the government under section 3 
(2) The competent authority shall have such other powers as 
may be necessary for carrying out the purposes of this act. 
{3} Upon receipt of the orders of the government under section 
3, the competent authority shall apply within 15 days to the special 
court constituted under this act for making the ad-interim order of 
attachment absolute. 
(4) An application under sub section(3) shall be accompanied 
by one or more affidavits, stating the grounds on which the ,belief 
that the financial establishment has committed any default or is 
likely to defraud, is founded, the amount of money or value of 
their property believed to have been procured by means of the 
deposit, and the details, if any, of persons in whose name such . 
property is believed to have been invested or purchased out of the 
deposits or any other property attached under section 3. 
12. It is clear from the reading of Section 3(i) of the Act, that 
whenever complaints are received from a number of depositors against 
a Financial Establishment, which defaults or fails to return the deposits 
or fails to provide services for which the deposits have been made by 
the depositors, then the State Government is empowered to initiate 
proceedings by
passing ad-interim order for attachment of the properties 
of the Financial Establishment or any other persons as mentioned there 
under. It is riot in dispute that the present case falls under Section 3(i) of 
the Act. Whereas under Section 3(ii) of the Act, Government has the 
suo motto power to initiate proceedings and pass an order of ad-interim 
injunction. Thereafter the Government is at liberty to transfer the control 
of the aforesaid money or property to the competent authority. 
13. Sub-section ( 1) of Section 4 of the Act empowers the 
Government to appoint competent authority. Whereas Sub-section (2) 
of Section 4 confers necessary power on the competent authority for 
carrying out the purposes of the Act. Sub-section (3) of Section 4 
mandates the competent authority to apply before the Special Court 
within a stipulated period for making the ad-interim order of attachment 
absolute and for further directions.pertaining to the selling of the attached 
property by public auction and realization of the sale proceeds.
STATE REP. BY THE PRINCIPAL SECRETARY TO GOVT. v. 
K. S. PALANICHAMY [N. V. RAMANA, J.] 
Sub-section ( 4) of Section 4 of the Act clarifies that an application under 
sub-section (3), before the Special Court, has to be accompanied with 
affidavits stating the grounds or reasons on which the belief that the 
Financial Establishment is going to commit a default or defraud the 
depositors are founded . .The application should also contain other 
particulars and details as to the persons in whose name the properties 
vest. 
14. It is clear from the relevant statutory scheme that in order to 
curb the malady of financial swindlers and to deal with such problems 
effectively, The State of Tamil Nadu enacted this statute to protect the 
interest of innocent investors. Therefore as per the procedure envisaged 
·under Section 3 and 4 of the Act unequivocally the power to set the 
process into motion vests with the State Government by passing an ad-
interim attachment order and thereafter act mandates appointment of 
competent authority under Sub-section (I) of Section 4 of the Act, to 
take further recourse as per the procedures laid down under Section 4 
of the Act. 
15~ We are not able to appreciate the reasoning recorded by the 
High Court and the contention put forth byJhe learned counsel appearing 
for the respondents that before passing an order under sectionJ of the 
act government has to take steps under section 4 of the act by identifying 
the properties. The language
employed under section 3 and 4 of the act 
is plain, unambiguous and it does not call for any interpretation as sought 
to be placed by the learned counsel appearing for the respondents. While 
- enacting the provisions the legislature has consciously given the discretion 
for passing an ad-interim order. it is evident from the language used in 
the section by inserting "Government may''. In the case on hand even 
before the other provisions are complied with the High Court erroneously 
interfered with the ad-interim order which defeats the very purpose of 
the provision which is incorporated to safeguard the interest of the 
investors. 
16. In light of the above discussion, we are of the considered 
opinion that the order passed by the. State Government under Section 3 
of the Act attaching the immovable properties standing in the name of 
respondents, basing on the complaint of investors and directing the 
competent authority (District Revenue Officer, Madurai District) to take 
recourse as per the procedures contemplated under Sub-section (3) and 
( 4) of Section 4 of the Act is valid and is very much in consonance with 
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(2017] 4 S.C.R. 
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the provisions of the Act. In view of the abo\'.e the impugned order 
deserves to be set aside and accordingly we set aside the Judgment 
passed by the Madurai Bench of the Madras High Court. 
17. The appeal is, accordingly, allowed. 
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Kalpana K. Tripathy 
Appeal allowed.