Source: https://www.legalindia.com/judgments/ms-thiru-muruga-finance-rep-by-vs-the-state-of-tamil-nadu-rep-by-on-8-september-2000
Timestamp: 2019-04-23 22:48:07+00:00

Document:
1. All these writ petitions challenge the constitutional validity of Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (Tamil Nadu Act XIV of 1997). Hence, they are dealt with in a common judgment.
Constitution. It is also stated that, in the light of the provisions of Reserve Bank of India Act 2 of 1934 by an amendment Act 23 of 1997, Tamil Nadu Act is not at all a necessary and the same is repugnant to the provisions of Section 45 of the Central Act. The present Act also offends Art. 14 of the Constitution and it is therefore liable to be struck down. It infringes the fundamental rights as guaranteed under Article 19(1)(g) and depriving the personal liberty and offends Art. 21 of the Constitution of India. With these and other grounds, the petitioner prayed for necessary relief by declaring the Tamil Nadu Act 44 of 1997 as invalid. Since identical and similar averments have been made in other writ petitions, I am not referring the same.
3. Though the first respondent Government of Tamil Nadu have filed separate counter affidavits disputing various averments made by the petitioners, here again, for the convenience, I shall refer their defence as stated in Writ Petition No.4157 and 4158 of 1998. It is stated that there is mushroom growth of Financial Establishments not covered by Reserve Bank of India Act, 1934, in this Slate in the recent past with the sole object of grabbing money as deposits from the public, particularly from the middle class and poor without any obligation to refund the deposits on maturity. Many of such Financial Establishments closed their operations after collection of huge amounts from the public. They have defaulted to return the deposits on its maturity to the public and this amount running to 195 crores of rupees and thereby inviting the public resentment, which created law and order problems in the State. Therefore, the Government have 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 Act, 1934. Accordingly, the Government enacted Tamil Nadu Act 44 of 1997, which has come into force with effect from 8.8.1997. With regard to the claim of the petitioner in Writ Petition No.4157 of 1998 it is stated that the petitioner’s firm was started on 14.4.1995 and against this firm number of complaints started cropping up. Cases in Crime No.916 of 1997 and 158 of 1998 were registered for the complaints from aggrieved persons and in Crime No.916 of 1997 there were specific allegations that the petitioner collected deposits besides the name Thiru Muruga Finance” in the names Thiru Muruga Enterprises”, “Thiru Muruga Advertisers”, “Thirumuruga Coating Division”, “Thiru Muruga Fibre Glass Industry” and the like. The petitioner has also collected deposits in the name of “Thiru Muruga Real Estate” and “Thiru Muruga Finance”. Even though within a short span a sum of Rs.2.75 crores was collected, by the said petitioner, he failed to refund even the matured deposit amounting to Rs.35,000.00 which resulted in Complaint No.916 of 1997.
who fail to perform their obligations to their customers and the Act is not in any way detrimental to the interest of the business people. It is stated that the Reserve Bank of India Act is only to regulate monetary stability in India and deals with various monetary systems for the Indian monetary system and the banking business have to be carried in accordance with the said Act. However, Tamil Nadu Act is intended to safeguard the interest of depositors by providing stringent measures against those who deprive the depositors their dues. The provisions in the Tamil Nadu Act are so exhaustive and comprehensive, so as to bring within its clutches the dealings of the concerns, if they turn to the detrimental to the interest of depositors. There is no repugnancy in the said Act and the same is intra vires and not unconstitutional. The punishment is for the gravity of the offence done by a financial institution or individual on the public by non payment of their lawful claim under the Act while the Reserve Bank of India Act 1934 is for violations of the statutory regulations under Section 45-S of the Reserve Bank of India Act. The subject matter Insolvency and Criminal Procedure Code falls under Entries 9 and 2 respectively of the Concurrent List in the Seventh Schedule to the Constitution. As these provisions of the Act seek to over-rule existing laws, viz., insolvency laws and earlier law made by Parliament, viz., Criminal Procedure Code on Concurrent subjects, the assent of the President has been obtained under Article 254(2) of the Constitution. As such, it is stated that the Tamil Nadu Act is intravires the Constitution. The Act is intended only to punish those who deprive the public of their lawful claim and when the public invest at large is to be safeguarded and that the individual can not lay claim that his business is affected. By virtue of the special enactment, a Special Court is constituted for implementing the provisions of the Act in its letter and spirit and the procedural law is not given a go by. The Act only points out that there shall be a Special Court and Special Public Prosecutor for the conduct of prosecution, appointed in the cadre of District and Sessions Judge and Advocate with 10 years standing in the bar respectively. There is no violation by presenting the mode of conduct of cases under the Special enactment. Complaints have been registered only when the petitioner failed to return the matured deposits. If the properties are sold away, then the interest of the depositors will be defeated. With these averments they prayed for dismissal of all the writ petitions.
5. In the light of the above pleadings, I have heard Mr. C. Chinnasamy, learned senior counsel and Mr. P. Rajamanickam for the petitioners and learned Additional Advocate General for the State Government. In one writ petition Depositors’ Association got themselves impleaded, for whom Mr. P.K. Rajagopal advanced arguments defending the enactment.
(i) The impugned Tamil Nadu Act is unconstitutional for the reasons that, Tamil Nadu Legislative Assembly has no Legislative competence to enact the said Act. Since the subject matter falls within Entry 45 of List 1 of Seventh Schedule, the Parliament alone can enact any laws in respect of these matters. Even the assent of the President cannot save the enactment, at least so far as Sections 3 and 5 are concerned.
(iii) The definition “Financial Establishment” in the Tamil Nadu Act, makes a distinction between individual and firms on the one hand and Compa-nies and Corporations on the other hand. If the object of the Act is to protect the depositors – public, then there may not be any discrimination. The discrimination in the Act between the individual and the firm and the Company is not reasonable and there is no relation to the object of the Act. It is therefore a hostile discrimination and offends Articles 14, 19(1)(g) and 21 of the Constitution and liable to be struck down.
(iii) There is no hostile discrimination between depositors in the individual financial establishments, firms and companies, since the State has en-acted the Act within its Legislative competency covering financial establishments only and not in respect of other institutions covered by Reserve Bank of India Act There is a nexus between the classification and object of the Act under Consideration.
8. Mr. Rajagopal, learned counsel for the impleaded Depositors’ Association reiterated the arguments made by learned Additional Advocate General. Apart from the above legal submissions, petitioner in Writ Petition No.5932 of 1998 appeared in person and highlighted his grievance and also attacked the Legislation as it affects even the genuine person doing business in financial matters, like him.
9. I have carefully considered the rival submissions.
10. In order to appreciate the rival submissions, I shall refer the Object and Reasons furnished in the “Bin”.
In order to achieve the above object, the Government of Tamil Nadu has passed the impugned Act 44 of 1997. Now, I shall refer relevant Sections and Rules.
(2) “Deposit” means the deposit of a sum of money made with a Financial Establishment for a fixed period, for interest or return in any kind.
“4. Competent Authority. (1) The Government may, by notification, appoint an authority hereinafter 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 neces-sary 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 fifteen days to the special Court constituted under this Act for making the ad-interim order of attachment absolute.
“6. Special Court. (1) For the purpose of this Act. the Government may, with the concurrence of the Chief Justice of the High Court, by notification, constitute a Special Court in the cadre of a District and Sessions Judge.
(2) No Court including the Court constituted under the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, other than the Special Court shall have jurisdiction in respect of any matter to which the provisions of this Act apply.
(3) Any pending case in any other court to which the provisions of this Act apply shall stand transferred to the Special Court.
“7. Powers of Special Court regarding attachment. (1) Upon receipt of an application under Section 4, the Special Court shall issue to the Financial Establishment or to any other person whose property is attached by the Government under Section 3, a notice accompanied by the application and affidavits and of the evidence, if any, recorded, calling upon him to show cause on a date to be specified in the notice why the order of attachment should not be made absolute.
(2) The Special Court shall also issue such notice, to all other persons represented to it as having or being likely to claim, any interest or title in the property of the Financial Establishment or the person to whom the notice is issued calling upon such person to appear on the same date as that specified in the notice and make objection if he so desires to the attachment of the property or any portion thereof on the ground that he has an interest in such property or portion thereof.
(3) Any person claiming an interest in the property attached or any portion thereof may, notwithstanding that no notice has been served upon him under this section, make an objection as aforesaid to the Special Court at any time before an order is passed under sub-section (4) or sub-section (6).
(4) If no cause is shown and no objections are made on or before the specified date, the Special Court shall forthwith pass an order malting the ad-In-terim order of attachment absolute.
(5) If cause is shown or any objection is made as aforesaid the Special Court shall proceed to investigate the same, and in so doing, as regards the examinations of the parties and in all other respects; the Special Court shall, subject to the provisions of this Act, follow the procedure and exercise all the powers of a Court in hearing a suit under the Code of Civil Procedure. 1908 (Central Act V of 1908) and any person making an objection shall be required to adduce evidence to show that at the date of attachment he had some interest in the property attached.
“15. Power to make Rules. (1) The Government may make rules for carrying out the provisions of this Act.
(2) (a) All rules made under mis Act shall be published in the Tamil Nadu Government Gazette and unless they are expressed to come into force on a particular day, shall come into force on the day on which they are so published.
(b) All notifications issued under this Act shall, unless they are expressed to come into force on a particular day, shall come into force on the day on which they are published.
11. In exercise of the powers conferred by sub-section (1) of Section 15 of the Act, the Governor of Tamil Nadu has made the Rules called Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Rules, 1997 (hereinafter referred to as the “Rules”).
“Rule 3. Ad-interim order and examination of the complainant and witnesses. (1) The Government shall pass the ad-interim order of attachment under Section 3 of the Act.
(2) Upon receipt of the orders of the Government under sub-rule (1), the Competent Authority may examine the complainant and such examination shall be reduced in writing.
12. Among the provisions mentioned above, the main attack is only with reference to Sections 3 and 5 of the Act. A perusal of the provisions of the Act shows that, it is enacted to identify and to take legal action against certain Financial Establishments which on receipt of deposits from the public commit default in returning the deposit after maturity. In order to safeguard the interest of depositors, the Act gives infrastructures to identify them and compel to return the money by taking proceedings under the Act. The Act prescribes procedures not only for taking legal proceedings against such Financial Establishments, but also make every person responsible for the management of the affairs of such Establishment by prescribing punishment, if there is a failure in returning the amount by the Financial Establishment. Section 2 sub-clause (3) does not include Companies registered under the Companies Act or Statutory Corporation, Cooperative Societies owned or controlled by any State Government or the Central Government, or a Banking Company as defined under Section 5(c) of the Banking Regulation Act, 1949 or a non-banking financial company as defined under clause (f) of Section 45-I of the Reserve Bank of India Act, 1934.
Entry 64:- Offence against laws with respect to any of the matters in this List.
Entry 65:- Jurisdiction and powers of all courts, except Supreme Court, with respect to any of the matters in this List.
excluding the use of naval, military or air forces or any other armed forces of the Union in aid of the civil power.
Entry 2:- Criminal procedure, including all matters included in the Code of Criminal Procedure at the commencement of this Constitution.
Entry 7:- Contracts, including partnership, agency contracts of carriage, other special forms of contracts, but not including contracts relating to agricultural land.
Entry 9:-        Bankruptcy and insolvency.
Entry 11-A:- Administration of justice; constitution and organisation of all courts except the Supreme Court and the High Courts.
Entry 42:-       Acquisition and requisitioning of property.
Entry 46:- Jurisdiction and powers of all courts, except Supreme Court, with respect to any of the matters in this list."
companies were not to hold deposits in excess of 25 per cent of its paid-up capital and the reserves as also to non-banking, non-financial companies. They were also required to take steps to keep the deposits within the limits. This direction was challenged unsuccessfully before this Court. In 1974, Section 58A of the Companies Act was inserted by the Companies (Amendment) Act of 1974, which came into force from 1st February, 1975. The object was to regulate deposits received by non-banking non-financial companies. The financial companies were already covered by Reserve Bank of India directions under the Reserve Bank of India Act. After issuing several directions, in 1981, several new regulatory directions were given by the Reserve Bank of India. Inter alia they included restrictions on accepting or renewing deposits from shareholders, Directors etc., which exceeded 15 per cent of the net-owned funds of the companies as also restricted payment of interest on deposits at a rate of interest exceeding 15 per cent per annum. The validity of the amendment was upheld by this Court in the case reported in A.S.P. Aiyar v. Reserve Bank of India, . The Supreme Court while quashing the F.I.R launched against the firm, in State of West Bengal v. Swapan Kumar Guha,, directed that the Government and Reserve Bank of India should look into the matter deeply. It is in this background the Banking Laws (Amendment) Act, 1983 came to be enacted. These provisions were challenged in various civil appeals as violative of Articles 14 and 19 of the Constitution.
15. A Division Bench of the High Court of Delhi in Kanta Mehta v. Union of India, 1987 (62) CC 769 held.
“Section 45S read with Section 58B(5A) of Chapter III-C of the Reserve Bank of India Act, 1934, as introduced by section 10 of the Banking Laws (Amendment) Act, 1983, is not violative of Arts. 14 and 19 of the Constitution. There is nothing demonstrably irrelevent or perverse in limiting in section 45S the number of depositors that an individual, firm or association could accept.
contended that the said judgment of the Supreme Court conclusively holds that receipt of deposits from the public falls under Entry 45 List 1.
related articles in the Constitution. The language of an entry should be given the widest meaning fairly capable to meet the need of the Government envisaged by the Constitution. Each general word should extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended within it. When the vires of an enactment is impugned, there is an initial presumption of its constitutionality. If there exists any difficulty in ascertaining the limits of the legislative power, it must be resolved, as far as possible, in favour of the legislature, putting the most liberal construction on the legislative entry so that it is intra vires. Narrow interpretation should be avoided and the construction to be adopted must be benefitical and cover the amplitude of the power. The broad liberal spirit should inspire those whose duty it is to interpret the Constitution to find out whether the impugned Act is relatable to one or the other entry in the relevant list. The allocation of the subjects of the entries in the respective lists is logical definitions but it is a mere enumeration of broad and comprehensive categories. The power to legislate on a particular topic includes the power to legislate on subjects which are ancillary to or incidental thereto or for purposes necessary to give full effect of the power conferred by the entry.
called upon to interpret the Constitution, it must not be construed in any narrow or pedantic sense, and adopt such construction which must be beneficial to the amplitude of Legislative powers. The broad and liberal spirit should inspire those whose duty is to interpret the Constitution to find whether the impugned Act is relatable to any entry in the relevant list. Their Lordships have also held that the power to legislate on a particular topic includes the powers to legislate on subjects which are ancillary to or incidental thereof or for the purposes necessary to give full effect to the power conferred by the entry. In determining whether the impugned Act is a law with respect to a given power, the Court has to consider whether the Act, in its pith and substance is a law on the subject in question. If the statute relates in pith and substance to a topic assigned to a particular Legislature, the Act will not be invalidated even if it incidentally trenches on topics coming within another Legislative list. The fact of incidental encroachment does not affect the vires of the law even as regards the area of encroachment. The Court has to ascertain the true nature and character of the subject of the Act or its pith and substance to find whether the impugned Act falls within the competence of the particular Legislature. As observed by their Lordships, blind adhering to strict interpretation which would lead to invalidation of statutes as being legislated in the forbidden sphere should be avoided.
India assented to the “Bill” No.12 of 1997 passed by the Tamil Nadu Legislative Assembly. In the light of the details furnished for the various doubts and questions raised I am of the view that there is no substance in the argument of the learned senior counsel for the petitioners. In the light of the above mentioned factual position, the decision in Velayudhan Achari v. Union of India, A.I.R. 1993 S.C.W. 1201 is not helpful to the petitioners contention.
21. The other decision referred to by the learned Additional Advocate General is reported in Virendra Pal Singh v. District Assistant Registrar, Co-operative Societies, Etah, . In the above case the Supreme Court has held that, in pith and substance the U.P. Co-operative Societies Act deals with Co-operative Societies and that it trenches upon “banking” incidentally does not take it beyond the competence of the State Legislature. The Hon’ble Supreme Court held that, for proper financing and effective functioning of cooperative societies there must also be co-operative societies which do banking business to facilitate the working of other co-operative societies. Following the decisions of the Privy Council reported in Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., 74 IA 23, Nagpur District Central Co-operative Bank Ltd. v. Divisional Joint Registrar, Co-operative Societies, and Sant Sadhu Singh v. State of Punjab, held that the legislation by the State of Uttarpradesh is competent (para 10 of the judgment). The said Act also falls under Entry 32 of the List 2 of the 7th Schedule as in the present case.
22. The following observation in the Constitutional Bench judgment of the Supreme Court reported in Ameerunnissa v. Mahboob Begum, is relevant. In para 11 their Lordships have held.
Same view has been reiterated in Ram Krishna Dalmia v. Justice Tendolkar, ; C.I. Emenden v. State of Uttar Pradesh, and Kerala State Electricity Board v. The Indian Aluminium Co., Ltd., .
and by that process determine what portions thereof are ultra vires and what are not.
25. It is the contention of the learned counsel for the petitioners that, in the light of the various provisions in the Reserve Bank of India Act, the same subject cannot be regulated by the State Legislature by enacting the Tamil Nadu Act and in any event the impugned Act is unnecessary. In order to appreciate the said contention, certain relevant provisions from the R.B.I. Act has to be considered.
“45-A Definitions In this chapter, unless the context otherwise requires.
(vii) any amount received by way of subscriptions in respect of a chit.
Explanation I: “Chit” has the meaning assigned to it in clause (b) of section 2 of the Chit Funds Act, 1982 (40 of 1982).
26. Chapter III-C speaks about Prohibition of acceptance of deposits by unincorporated bodies.
Provided that nothing contained in this sub-section shall apply to the receipt of money by an individual by way of loan from any of his relatives or to the receipt of money by a firm by way of loan from the relative or relatives of any of the partners.
him, it may, by an order in writing, extend such period by a period not exceeding one year subject to such conditions as may be specified in the order.
58B-(5B): Notwithstanding anything contained in section 29 of the Code of Criminal Procedure, 1973 (2 of 1974), it shall be lawful for a Metropolitan Magistrate or a Judicial Magistrate of the first class to impose a sentence of fine in excess of the limit specified in that section on any person convicted under sub-section (5A).” We are not concerned with other Sections in the Act.
writing in that behalf by that Government. After a comparative analysis, it is stated that except certain aspects the matters dealt with in both the Reserve Bank of India Act and Tamil Nadu Act are one and the same. Even though there is no provision in the Reserve Bank of India Act similar to that in Section 3 and 4 of Tamil Nadu Act, according to them, the difference or omission in the Acts will not be a relevant point for the purpose of considering the competence of the Tamil Nadu Legislature. Pointing out the said provisions, it is further stated that Reserve Bank of India Act deals not only with the question of deposits, but with recovery also, since it provides for punishment for failure to repay. It is also contended that Section 45S(i) of the Reserve Bank of India Act lays down that no person being an individual or a firm or an incorporated association of individuals shall, accept any deposit, if his or its business wholly or partly includes, any of the activities specified in Clause (C) of Section 45-I, or if his or its principal business is that of receiving of deposits under any scheme or arrangement or in any other manner, or lending in any manner. By pointing out this, it is very much stressed that. Section 45S(I)(i)(ii) prohibits any person or a firm or an unincorporated association of individuals to accept any deposit not only under any scheme or arrangement, but also in any other manner. Thus, according to them, the prohibition contained in Section 45S squarely applies to cases of individuals. They also pointed out the notice issued to the petitioner by the Reserve Bank of India. If such deposit is not in accordance with sub- section (1), there is a provision in sub-section (2) of Section 45S for repayment of the deposit immediately after such deposit becomes due for repayment. It is true that while Section 45S(1) prohibits acceptance of deposit Section 45S(2) provides for repayment of the same if it is not in accordance with the business activities specified in the Act. Thus, Section 45S of the Reserve Bank of India Act lays down not only prohibition for acceptance of deposits’ but also return of the deposits if the same were not in the manner specified therein. But in the Tamil Nadu Act, there is no such prohibition against receipt or acceptance of deposits. Mr. P.Rajamanickam, learned counsel for some of the petitioners also contended that, Section 58B(5A) of Reserve Bank of India Act provides for prosecution and punishment and that under Section 58E the prosecution can be launched by an Officer of the State Government. According to him, Criminal Law Amendment Ordinance 1944 is still in force. Hence if the prosecution desires to attach the properties, they can set the law in motion under the same.
28. Though several provisions of the R.B.I. Act have been brought to my notice, as rightly contended by the learned Additional Advocate General, the Reserve Bank of India Act is only to regulate the monetary stability in India and it deals with several monetary systems for the Indian Monetary System and Banking business have to be carried in accordance with the Reserve Bank of India Act. On the other hand, as stated earlier, Tamil Nadu Act 44 of 1997 is intended to safeguard the interest of depositors by providing stringent measures against those who deprived the depositors their dues. Section 3 of the Tamil Nadu Act is so exhaustive and comprehensive, so as to bring within its clutches the dealings of such concerns if they turn to the detrimental to the interest of depositors.
Their Lordships have further observed..
Accordingly I hold that mere receipt of deposits and payment of Interest cannot be termed as Banking business as defined under the Banking Regulation Act, 1949. I also hold that, even in the light of certain provisions in the Reserve Bank of India Act, in the absence of effective machinery from the said Act, the State Government, is competent to enact the impugned Act in the interest of the General Public. The State has got the best machinery to enforce the provisions of the Act and in order to protect the interest of the depositors the Act has provided all safeguards for the Financial. Establishments also. Accordingly:- I am unable to accept the contra argument made by the learned senior counsel for the petitioners.
31. Apart from the legal principles narrated above, it is once again contended on the side of the petitioners that, in the light of detailed procedure in the Amended Reserve Bank of India Act, stringent provisions in the Tamil Nadu Act cannot be sustained. I have already explained in the earlier part of my order how for the provisions in the Reserve Bank of India Act including the Amended Act would help thousands of depositors who made deposits with un-incorporated persons/firms, accordingly it is unnecessary to refer the same once again.
32. It is also the case of the petitioners that, the impugned Act makes a distinction between individual and firms on the one hand and Companies and Corporations on the other hand. If the object of the Act is to protect the depositors – public, according to the petitioners, then there need not be any discrimination beating the depositors who make the deposits in the limited Company on a different footing does not speak well of the object of the Legislation. It is also stated that the depositors who deposits their savings in a firm or with an individual is well protected, whereas the depositors who made deposits in a company is discriminated. This is a hostile discrimination. It is also the claim that the petitioner however honest in his banking business is subjected to harassment even on a frivolous complaint for a very small amount. The Tamil Nadu Act cannot reach big Nidhi company and other company even if they defraud crores of rupees. Accordingly, it is stated that there cannot be two different stand in dealing with the financial establishments and the discrimination in the impugned Act between an individual and firm and the company is not reasonable and there is no relation to the object of the Act.
power on the Government and the power conferred is unguided. Likewise, no time limit has been prescribed for receipt of the orders of the Government by the competent authority, hence according to him such conferment of unguided power invalidates Section 3 of the Act. By drawing my attention to Section 5 of the impugned Act, it is stated that mere reading of the Section shows that punishment of 10 years is only for civil failure, since offence is not made out to it the Financial Establishment fails to return the deposit. Mr. Chinnasamy, learned senior counsel also stressed this point by saying, even for non return of deposit of one rupee will result in one lakh rupees fine and 10 years rigorous imprisonment. There is no opportunity given to the genuine finance companies for return of deposits. Hence it hits Article 14. It is also stated that, even Negotiable Instruments Act provides provision of issuing notice calling for the payment to the dishonoured cheques, giving 15 days time. It becomes offence, only after failure of payment after receipt of notice. Here according to them, in Section 5 there is no such protection. Even the poor officials, who work in Financial Establishment made accused and punished. In such circumstance, it is stated that inasmuch as Sections 3 and 5 are prime sections and they are not severable from the rest of the provisions. Hence, if these sections are struck down, ultimately the impugned Act cannot stand and will not also be enforceable.
34. In order to appreciate the contentions raised by the petitioners with regard to Article 14, 19(1)(G), I shall first refer the decision reported in Ameerunnissa v. Mahaboob Begum, . The following observations of their Lordships are relevant.
Hence, it is clear that mere differentiation or inequality of treatment does not per se amount to discrimination. It is also clear that, before considering inequality treatment, the object of the legislation has to be considered.
The above principles will have to be constantly borne in mind by the Court when it is called upon to adjudge the constitutionality of any particular law attacked as discriminatory and violative of the equal protection of the laws. The view expressed by the Constitutional Bench has been once again stated in C.I.Emden v. State of U.P., .
The impugned Act is enacted by the Tamil Nadu Legislature to identify and to take legal action against certain Financial Establishments doing un-incorporated trading who on receipt of deposits from public commits default in returning the same after maturity. In order to safeguard the interest of the depositors, the Act create infrastructure to identify them and compel them by taking proceedings under the Act. In the light of the principles laid down in various decisions referred to above, when there is a prohibition against the business being carried on by the un-incorporated trading establishments like the petitioners, the carrying on of the business is illegal. Even though there is a prohibition/restriction in the Reserve Bank of India Act, since there is no provision for recovery of matured debts and no effective remedy against persons committing default, the State Act was passed in order to see that crores of deposits deposited with such establishments are recovered and distributed to the general public. Accordingly, I do not find any merit in the contention that the Act is violative of Article 14, 19(1)(G) and 21 of the Constitution.
37. I have already extracted the object and reasons for enacting the impugned Legislation. In order to ameliorate thousands of depositors from the clutches of the un-incorporated trading establishments, the State Government has enacted the impugned Act by providing speedy recovery of the matured /defaulted amount. As per Section 2(3) of the Act only individual or firm doing un-incorporated trading viz., carrying on the business of receiving deposits under any scheme or arrangement alone are controlled by this Act. The companies registered under the Companies Act or a Corporation or a co-operative society owned and controlled by the Central Government or a banking company as defined under Section 5(c) of the Banking Regulation Act or a non-banking financial company as defined in clause (f) of Section 45-I of the R.B.I. Act are excluded from the definition of “Financial Establishment”. Since the excluded categories are covered by statutory provisions and only un-incorporated trading establishments like the petitioners who are not having statutory control, particularly for recovery, the State Government has rightly passed the impugned Legislation.
deposits, the Government, may in order to protect the interests of the depositors of such Financial Establishments pass an ad-interim order attaching the money or the other property of the said Financial Establishments. Even though it is stated that Section 3 is arbitrary, violative of Article 14, 19(1)(G) and 21, in the light of sub-section (i) and (ii) of Section 3 I am unable to accept the said contention. Before considering the validity of Section 3, I shall consider the other submissions made on this provision. By pointing out certain provisions of Criminal Law (Amendment) Ordinance, 1944, it is stated that the Government can only approach the Court under the said Ordinance even for interim attachment. However, according to them in the present case the Government has been clothed with such authority conferring judicial power on the Government and the power conferred is unguided. As stated earlier, it is not open to the Government to attach the property merely on the basis of a complaint from a depositor. It is clear from sub-section (i) that only upon complaints received from number of depositors stating that the Financial Establishment committed default to return the deposits after maturity, it is possible for the Government to pass an interim order of attachment. Likewise, as per sub-section (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, on satisfaction it is open to the Government to pass an interim order of attachment. In the individual counter affidavits filed by the respondents Government have highlighted various instances such as how the monies of the depositors were utilised by purchasing immovable properties either in the name of the Establishment or in the name of other fictitious companies. Further, later part of sub-section (ii) of Section 3 makes it clear that, only if the Government satisfied that such Financial Establishment is not likely to return the deposit, they in order to protect the interest of the depositors pass an interim order. It is also clear that, it is open to the Government to attach the money or other property procured either in the name of Financial Establishment or in the name of any other person from and out of the funds collected by the Financial Establishments or if it transpires that such money or other property is not available for attachment or not sufficient for repayment of the depositors, it is open to the Government to attach such other property of the Financial Establishment or the promoter, manager or member of the said Financial Establishment and transfer the control over the said money or property to the competent authority. As rightly contended by the respondents, the word “in a calculated manner” in sub-section (ii) in Section 3 is very exhaustive and comprehensive, so as to bring within its clutches the dealings of the concerns, if they turn to the detrimental to the interest of depositors.
Competent authority to make an application under sob-section (3) supported by affidavits stating the grounds on which the belief that the Financial Establishment has committed any default or is likely to defraud, particulars regarding the amount of money or value of property believed to have been procured by means of such deposits and other details.
40. As per Section 6 of the Act, for the enforcement of the provisions of the Act, the Government has to constitute a Special Court in the cadre of a District and Sessions Judge with the concurrence of the Chief Justice of the High Court. Sub-section (4) of Section 6 enables the special court, on any application made by the Competent authority to pass such order or issue such direction as may be necessary for equitable distribution among the depositors of the money realised from and out of the property attached. Powers of the special court regarding attachment have been enumerated in Section 7 of the Act. On receipt of application under Section 4, from the Competent authority, the Special Court is to issue notice accompanied by the application, affidavits and of the evidence, if any, recorded, to the Financial Establishment or to any other person whose property is attached by the Government under Section 3 calling upon him to show cause why the order of attachment should not be made absolute. Sub-section (2) of Section 7 enables the special court to issue such notice to all other persons represented to it as having or being likely to claim any interest or title in the property of the Financial Establishment to appear on the date as specified in the notice and pass orders after hearing all the parties concerned. As per sub-section (3) any person claiming an interest in the property attached or any portion thereof may notwithstanding that no notice has been served upon him, make an objection to the special court at any time before an order is passed under sub-section (4) of Section 6. As per sub-section (4) if there is no sufficient cause and no objection is made before the specified date, the special court is expected to pass an order forthwith making the ad-interim order of attachment absolute. As per sub-section (5), if cause is shown or objection made, the special court is empowered to investigate the same. For doing so, it is open to it to examine the parties, follow the procedure and exercise all the powers of a court in hearing a suit under the Code of Civil Procedure, 1908. Likewise, any person making an objection can also adduce evidence to show that at the date of attachment he had some interest in the property attached. Sub-section (6) enables the special court, after investigation under sub-section (5), to pass an order either making the ad-interim order of attachment absolute or modifying the same by releasing a portion of the property from attachment. If it is satisfied it is open to the special court to cancel the ad-interim order of attachment subject to the condition prescribed in the proviso to sub-section (6). The reading of sub-sections (1) to (6) of Section 7 show that elaborate procedure is prescribed and it is open to the person affected or to be affected to make his/her submission to explain their case. It is also clear that, if the special court is satisfied it has power to make the interim order of attachment absolute or modify the said order by releasing a portion of the property or even cancel the interim order of attachment Hence, I agree with the contention of the learned Additional Advocate General that, elaborate procedure has been prescribed under Section 7 of the Act.
41. Apart from this, as per Section 9, any Financial Establishment or a person whose property has been or is about to be attached at any time, may apply to the special court for permission to give security in lieu of such attachment. If the security is sufficient, on satisfaction, it is open to the special court to cancel the interim-order of attachment. How the attached properties have to be administered is dealt with in Section 10 of the Act. Further, if any person is aggrieved by an order of the special court he may prefer an appeal to the High Court within 30 days from the date of the order as per Section 11 of the Act. The said provision enables the Competent authority also to file an appeal if it is aggrieved before the High Court with in the said period. In the light of the elaborate procedures in the Tamil Nadu Act and of the fact that there are provisions to attach or release the property or cancel the order of attachment or to go on appeal to the High Court, I am of the view that those provisions cannot be termed as arbitrary or unguided.
being committed to it for trial and in trying the accused person, it shall follow the procedure prescribed in the Code of Criminal Procedure, 1973 (Central Act II of 1974) for the trial of warrant cases by Magistrates. In the light of Section 13 and in view of the fact that Section 5 comes into operation only when financial establishments defaults the return of deposit or defaults the payment of interest on the deposit, the contention and apprehension raised by the petitioners cannot be accepted. In the light of the elaborate and flexible procedure adumbrated in the Act itself, it is unnecessary to deal with the point with regard to detention of debtor in civil prison for non- payment of contractual debt and the other safeguards as observed by their Lordships in Jolly George Varghese v. Bank of Cochin, . Further, even though it is stated that, as per Section 5 every person responsible for the management of the affairs of the Financial Establishment viz., a clerk will be held responsible and punishment imposed, I am of the view that such apprehension is again misconceived. It is clear from Section 5 that if there is any default in return of the deposit after maturity or default in payment of interest on such deposit, every person responsible for the management of the affairs of the Financial Establishment alone will be punished. Such safeguards cannot be construed as an arbitrary.
43. Even in the earlier part of my order, I have observed that, as directed, learned Additional Advocate General has brought to my notice relevant file relating to the assent given by the President of India. In view of certain doubts raised by Mr. C. Chinnasamy, learned senior counsel for the petitioners, I have carefully perused the entire correspondences between the Law Department of the Government of Tamil Nadu and the Ministry of Home Affairs, Government of India and Ministry of Finance, Department of Economic Affairs of the Government of India and the Reserve Bank of India and the ultimate assent given by the President of India. As a matter of fact, learned Additional Advocate General has filed typed set of papers containing all the relevant correspondences. As stated earlier, I am satisfied with the particulars furnished therein and I do not find any substance in the submission made by the learned senior counsel for the petitioners.
“5.3. The provisions of Section 45S, however, proved to be difficult to implement. Innovative methods were devised to circumvent these provisions of the Act. For example, certain unscrupulous operators created a large number of firms by having a number of permutations and combinations of partners. The situation was further aggravated by the fact that the RBI did not have adequate machinery to enforce the provisions while most of the State Governments did not set up or designate any official machinery which could oversee the implementation of the provisions in a focused manner.
in the Tamil Nadu Act, the other provisions are there; accordingly I am unable to countenance the argument of the learned counsel for the petitioners in this score also.
45. In view of Entry 32 in State List in the VII Schedule to the Constitution, I am satisfied that the State Legislature is competent to enact Tamil Nadu Act 44 of 1997. As observed earlier, even though the Tamil Nadu State Act trenches certain other enactments upon which the State Legislature is not competent, in view of the law laid down by the Supreme Court in various decisions, taking note of the object of the Act and in view of the fact that the Legislature have obtained the consent of the President, I hold that the State Legislature are competent in passing the impugned Act and the same is valid in all respects. The Tamil Nadu enactment constitute a Special court only for implementing the provisions of the Act It also enables the special court to follow the procedure prescribed under the Code of Civil Procedure as well as Code of Criminal Procedure. It is also clear that, only in the cadre of District and Sessions Judge is permitted to preside over a special Court that too with the concurrence of the Chief Justice of the High Court. As observed by me earlier, elaborate procedure has been prescribed for making the ad-interim order of attachment absolute or for modifying or vacating the said order. Provision has been made in Section 11 of the Act for aggrieved persons including the Competent authority to file an appeal before the High Court. No doubt, there are certain lacunae in the Act as well as in the Rules with regard to sale of the attached properties etc. However, keeping in view the “Object of the Act”, if there is any hurdle or difficulty in the proper implementation, of the Act, 1 believe and trust that undoubtedly the Legislature would make suitable amendments then and there.
46. Under these circumstances, I do not find any merit in all these writ petitions. I uphold the impugned provisions in the Tamil Nadu Act 44 of 1997. Accordingly, all the writ petitions are dismissed. No costs. Consequently, connected WMPs., are also dismissed.
47. This Court records the valuable assistance rendered by Mr. C. Chinnasamy, learned senior counsel and Mr. P. Rajamanickam, learned counsel for the petitioners while arguing the matter on several days, and strenuous efforts taken by the learned Additional Advocate General in highlighting the various provisions of the impugned Act and placing before Court the materials culled out from the Original Files. This Court equally appreciates the assistance rendered by Mr. P.K. Rajagopal learned counsel for the Depositors’ Association.

References: Art. 14
 Art. 21
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