# MIS NEW HORIZON SUGAR MILLS LTD v. GOVT. OF PONDICHERRY TH. ADDL. SEC. & ANR

- **Citation:** [2012] 8 S.C.R. 874
- **Court:** Supreme Court of India
- **Decided:** 2012-09-27
- **Case number:** Civil Appeal Nos. 6673-6674 of 2009
- **Bench:** Altamas Kabir, J. Chelameswar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-new-horizon-sugar-mills-ltd-v-govt-of-pondicherry-th-addl-sec-anr-28535
- **Pages:** 36

## Headnote

CONSTITUTION OF IND/A, 1950:
c
Art. 254 (2), Seventh Schedule, List-I/ - Entries 1, 30 and
32 read with List /, Entries 43, 44, 45 and 97, and List Ill,
Entries 1, 8, 13 and 21 - Validity of Pondicherry Protection of
Interest of Depositors in Financial Establishments Act, 2004
(Act 1 of 2005) - Held: The power to enact the Pondicherry
0
Act, the Tamil Nadu Act, and the Maharash"tra Act is relatable
to Entries 1, 30 and 32 of the State List, 'which involve the
business of unincorporated trading and money-lending -
Since the object of Tamil Nadu Act, Maharashtra Act and
Pondicherry Act are same and/or similar in nature, and the
E validity of Tamil Nadu Act and Maharshtra Act having been
upheld by Supreme Court, validity of Pondicherry Act must
also be affirmed - One has to keep in mind the beneficial
nature of the three legislations which is to protect the interests
of small depositors, from unscrupulous individuals and
companies, both incorporated and unincorporated - Tamil
F Nadu Protection of Interests of Depositors (in Financial
Establishments) Act, 1997 - Maharashtra Protection of Interest
of Depositors (in Financial Establishments) Act, 2005.
Art. 254(2) - Rule of repugnancy - Exception - Held:
G Clause (2) provides that in a given situation where a law of a
State is in conflict With the law made by Parliament, the law
so made by the State Legislature shall, if it has received the
assent of the President, prevail in that State - In the instant
case, the Pondicherry Act had received the assent of the
H
874
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
875
PONDICHERRY TH. ADDL. SEC.
President attracting the provisions of Art. 254(2) of the
A
Constitution.
Pondicherry Protection of Interest of Depositors in
Financial Establishments Act, 2004 (Act of 2005) - s.2(d) -
'Financial establishment' - Held: The expression 'any person' 8
in s.2(d) would a/so include a company incorporated under
the Companies Act, 1956 and, consequently, would also
include a company such as the appellant Mill, which accepts
deposits from investors, not as shareholders of such
company, but merely as investors for the purpose of making
profit - Accordingly, the expression 'person' in the Act includes C
both incorporated as we// as unincorporated companies -
Companies Act, 1956 - ss. 58A, 58AA and 58AAA - Banking
Regulation Act, 1949 - s. 15.
The appellant-Mill' two Directors, namely 'VK' and D
'VB', who were brothers, were also the Directors of Mis
PNL Nidhi Limited ('PNL'), a concern accepting the
deposits of investors under various schemes. The
appellant availed credit facilities from the Indian Bank and
when it failed to make the payments, the Bank initiated
E
recovery proceedings wherein the properties offered as
security were auctioned. One of the depositors filed a
complaint alleging that the said two Directors had
misappropriated the money belonging to 'PNL' and
diverted the same for their own trade. The Chief Judicial
F
Magistrate attached various properties standing in the
names of 'VK' and 'VB'. The Government also issued
GOMs. No.12 dated 18.2.2006 under the Pondicherry
Protection of Interests of Depositors in Financial
Establishments Act, 2004 (Act 1 of 2005), ordering G
attachment of the properties acquired by 'PNL'. A criminal
revision petition and various writ petitions were filed
challenging the order of the Chief Judicial Magistrate. The
Single Judge of the High Court lifted the order of
attachment and directed the Registrar, Registration H
876
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A Department to register the sale Certificate issued in favour
of the auction purchaser. The appellant-Mill was directed
to approach the Debts Recovery Tribunal regarding its
claim of refund of the access amount retained by the
Bank. It was also made clear that as far as the properties
B included in the impugned orders were concerned, it
would be open to third parties to approach the
Designated Court under Act 1 of 2005. However, while
upholding the validity of Ac

## Text

_Characters 0–39,937 of 73,076. This is a partial read: ask again with offset=39937 for what follows._

[2012] 8 S.C.R. 874
A
MIS NEW HORIZON SUGAR MILLS LTD.
B
v.
GOVT. OF PONDICHERRY TH. ADDL. SEC. & ANR.
(Civil Appeal Nos. 6673-6674 of 2009)
SEPTEMBER 27, 2012
[ALTAMAS KABIR AND J. CHELAMESWAR, JJ.]
CONSTITUTION OF IND/A, 1950:
c
Art. 254 (2), Seventh Schedule, List-I/ - Entries 1, 30 and
32 read with List /, Entries 43, 44, 45 and 97, and List Ill,
Entries 1, 8, 13 and 21 - Validity of Pondicherry Protection of
Interest of Depositors in Financial Establishments Act, 2004
(Act 1 of 2005) - Held: The power to enact the Pondicherry
0
Act, the Tamil Nadu Act, and the Maharash"tra Act is relatable
to Entries 1, 30 and 32 of the State List, 'which involve the
business of unincorporated trading and money-lending -
Since the object of Tamil Nadu Act, Maharashtra Act and
Pondicherry Act are same and/or similar in nature, and the
E validity of Tamil Nadu Act and Maharshtra Act having been
upheld by Supreme Court, validity of Pondicherry Act must
also be affirmed - One has to keep in mind the beneficial
nature of the three legislations which is to protect the interests
of small depositors, from unscrupulous individuals and
companies, both incorporated and unincorporated - Tamil
F Nadu Protection of Interests of Depositors (in Financial
Establishments) Act, 1997 - Maharashtra Protection of Interest
of Depositors (in Financial Establishments) Act, 2005.
Art. 254(2) - Rule of repugnancy - Exception - Held:
G Clause (2) provides that in a given situation where a law of a
State is in conflict With the law made by Parliament, the law
so made by the State Legislature shall, if it has received the
assent of the President, prevail in that State - In the instant
case, the Pondicherry Act had received the assent of the
H
874
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
875
PONDICHERRY TH. ADDL. SEC.
President attracting the provisions of Art. 254(2) of the
A
Constitution.
Pondicherry Protection of Interest of Depositors in
Financial Establishments Act, 2004 (Act of 2005) - s.2(d) -
'Financial establishment' - Held: The expression 'any person' 8
in s.2(d) would a/so include a company incorporated under
the Companies Act, 1956 and, consequently, would also
include a company such as the appellant Mill, which accepts
deposits from investors, not as shareholders of such
company, but merely as investors for the purpose of making
profit - Accordingly, the expression 'person' in the Act includes C
both incorporated as we// as unincorporated companies -
Companies Act, 1956 - ss. 58A, 58AA and 58AAA - Banking
Regulation Act, 1949 - s. 15.
The appellant-Mill' two Directors, namely 'VK' and D
'VB', who were brothers, were also the Directors of Mis
PNL Nidhi Limited ('PNL'), a concern accepting the
deposits of investors under various schemes. The
appellant availed credit facilities from the Indian Bank and
when it failed to make the payments, the Bank initiated
E
recovery proceedings wherein the properties offered as
security were auctioned. One of the depositors filed a
complaint alleging that the said two Directors had
misappropriated the money belonging to 'PNL' and
diverted the same for their own trade. The Chief Judicial
F
Magistrate attached various properties standing in the
names of 'VK' and 'VB'. The Government also issued
GOMs. No.12 dated 18.2.2006 under the Pondicherry
Protection of Interests of Depositors in Financial
Establishments Act, 2004 (Act 1 of 2005), ordering G
attachment of the properties acquired by 'PNL'. A criminal
revision petition and various writ petitions were filed
challenging the order of the Chief Judicial Magistrate. The
Single Judge of the High Court lifted the order of
attachment and directed the Registrar, Registration H
876
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A Department to register the sale Certificate issued in favour
of the auction purchaser. The appellant-Mill was directed
to approach the Debts Recovery Tribunal regarding its
claim of refund of the access amount retained by the
Bank. It was also made clear that as far as the properties
B included in the impugned orders were concerned, it
would be open to third parties to approach the
Designated Court under Act 1 of 2005. However, while
upholding the validity of Act 1 of 2005, the Single Judges
limited its operation to Unincorporated Institutions.
c Aggrieved, the appellant-Mills and its Directors filed Writ
Appeal Nos.1142 to 1144 of 2006 and the Government of
Pondicherry filed Writ Appeal No.293 of 2007. Writ Appeal
No.1142 of 2006 was dismissed with liberty to the
appellant Mills to approach the Debt Recovery Tribunal
0 for appropriate relief. It was further held that the entire
provisions of Pondicherry Act 1 of 2005 were in pari
materia with the provisions of the Tamil Nadu Protection
of Interests of Depositors (in Financial Establishments)
Act, 1997, and the latter having been upheld, the
E challenge to the legislative competency and jurisdiction
of the Government of Pondicherry enacting Act 1 of 2005
was untenable.
In the instant appeals filed by the Mill, the questions
for consideration before the Court were : (i) "whether the
F subject matter covered by the Pondicherry Act is
relatable to Entries 43, 44, 45 and 97 of the Union List or
to Entries 1, 30 and 32 of the State List" and (ii) "whether
the decision of this Court in K.K. Baskaran's case,
upholding the validity of the Tamil Nadu Act, would also
G be applicable for determining the validity of the
Pondicherry Act."
Dismissing the appeals, the Court.
HELD: 1.1 The object of the Pondicherry Protection
H of Interest of Depositors in Financial Establishments Act,
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
877
PONDICHERRY TH. ADDL. SEC.
2004 (Act 1 of 2005) was to protect the interests of A
depositors in financial establishments in the Union
Territory of Pondicherry. The Entries 1, 30 and 32 of the
State List (List II of Seventh Schedule to the Constitution
of India, 1950) and in particular Entry 32, appear to be
more appropriate source of legislative authority of the
B
State Assembly for enacting laws in furtherance of such
Entry. The power to enact the Pondicherry Act, the Tamil
Nadu Act and the Maharashtra Act is relatable to Entries
1, 30 and 32 of the State List, which involve the business
of unincorporated trading and money-lending. [para 11 c
and 39-40] [887-A-B; 904-E-F]
K.K. Baskaran Vs. State of Tamil Nadu (2011) 3 SCC
793 - relied on.
Vijay C. Puljal vs. State of Maharashtra (2005) 4 CTC
D
705 - stood reversed.
1.2 Even if it is to be accepted that the Pondicherry
Act is relatable to Entries 43, 44 and 45 of List I, it can be
equally said that the said enactment is also relatable to
E
Entries 1, 30 and 32 of List II, thereby leaving the field of
legislation open, both to the Central Legislature as well
as the State Legislature. In such a situation, unless there
is anything repugnant in the State Act in relation to the
Central Act, the provisions of the State Act will have
F
primacy in determining the lis in the instant case. [para
43] [905-D-E]
1.3 Besides, the provisions of the Pondicherry Act
are also saved by virtue of Art. 254(2) of the Constitution
of India. Clause (1) of Art. 254 provides that when there G
are two laws enacted by Parliament and the State
Legislature in which certain inconsistencies occur, then
subject to the provisions of clause (2), the law made by
the Parliament would prevail and the law made by the
State Legislature to the extent it is repugnant to the
H
878
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A Central law, shall be void. Clause (2), however, also
provides that in a given situation where a law of a State
is in conflict with the law made by Parliament, the law so
made by the State Legislature shall, if it has received the
assent of the President, prevail in that State. In the instant
B case, the Pondicherry Act had received the assent of the
President attracting the provisions of Art. 254(2) of the
Constitution. [para 43-44] [906-E-G]
1.4 It may also be worthwhile to consider that the
power to enact the Pondicherry Act could be traced to
C Entries 1, 8, 13 and 21 of the Concurrent List. This has
to be considered in view of the provisions of ss.58A,
58AA and 58AAA of the Companies Act, 1956, which all
deal with deposits invited and accepted by Companies.
In this regard one cannot overlook the amendment to the
D definition of "financial establishment" included in the
Tamil Nadu Act and as defined in the Pondicherry Act.
[para 45] [906-H; 907-C-D]
2.1 The definition of the expression "financial
E establishment" in s.2(d) of the Pondicherry Act, includes
any person or group of individuals or a firm carrying on
business of accepting deposits under any scheme or
arrangement or in any other manner, but does not
include a Corporation or a cooperative society owned or
F controlled by either the Central Government or the State
Government or a banking company as defined u/s 5 of
the Banking Regulation Act, 1949. The expression "any
person" is wide enough to cover both a natural person
as also a juristic person, which would also include a
G Company incorporated under the Companies Act, 1956.
In that view of the matter, the definition in s.2(d) of the
Pondicherry Act would also include a Company such as
the appellant Mill, which accepts deposits from investors,
not as shareholders of such Company, but merely as
investors for the purpose of making profit. In this regard,
H
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
879
PONDICHERRY TH. ADDL. SEC.
reference may also be made to s.11 of the Indian Penal
A
Code which defines a "person" to include a Company or
Association or body of persons, whether incorporated or
not. Accordingly, the expression "person" in the
Pondicherry Act includes both incorporated as well as
unincorporated companies. [para 45] [907-E-H; 908-A]
B
2.2 It has also to be noticed that the objects for which
the Tamil Nadu Act, the Maharashtra Act anQ the
Pondicherry Act were enacted, are identical, namely, to
safeguard the interests of the common citizens against
exploitation by unscrupulous financial establishments
C
mushrooming all over the country. That is, in fact, the
main object indicated in the Statement of Objects and
Reasons of the three different enactments. It is significant
to note that the decision of the Bombay High Court
declaring the Maharashtra Act to be ultra vires, has been
D
set aside by this Court, so that there is now a parity
between the judgments relating to the Maharashtra Act
and the Tamil Nadu Act. [para 41-42] [905-A-C]
2.3 The decision rendered by the Madras High Court
E
in K.K. Baskaran's case so far as it relates to protection
of interests of depositors, cannot be ignored, and would
F
be equally applicable to the facts of the instant case. It
has to be borne in mind that the validity of the Tamil Nadu
Act and the Maharashtra Act have been upheld by the
Madras High Court and th1s Court. The objects of the
Tamil Nadu Act, the Maharashtra Act and the Pondicherry
Act being the same and/or similar in nature, and the
validity of the Tamil Nadu Act and the Maharashtra Act
having been upheld, the decision of the Madras High
Court in upholding the validity of the Pondicherry Act G
must also be affirmed. One has to keep in mind the
beneficial nature of the three legislations which is to
protect the interests of small depositors, who invest their
life's earnings and savings in schemes for making profit
floated by unscrupulous individuals and companies, both
H
880
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A incorporated and unincorporated. More often tt:ian not,
the investors end up losing their entire deposits. [para 46]
908-8-E]
K. K. Baskaran Vs. State of Tamil Nadu (2011) 3 SCC
8 793 - relied on.
Vijay C. Puljal vs. State of Maharashtra (2005) 4 CTC
705 - stood reserved.
2.4 The plea that it was not the appellant Company
c which had accepted the deposits, but 'PNL' which had
changed its name five times, 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
0
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. Like the Tamil
Nadu Act, the Pondicherry Act is to protect the interests
of depositors who stand to lose their investments on
E account of the diversion of the funds collected by 'PNL'
for the benefit of the appellant Mill, which is privately
owned by the two Directors of 'PNL'. [para 46-47] [908-FH; 909-A-B]
S. Bagavathy Vs. State of Tamil Nadu (2007) 1 LW 892;
F Delhi Cloth and General Mills Vs. Union of India (1983) 4
SCC 166; Ramji and others vs. State of UP. & others (1956)
SCR 393; R.C. Cooper vs. Union of India (1970) 3 SCR 530;
Greater Bombay Co-op Bank vs. United Yam (2007) 6 SCC
236; Ramesh Thapar Vs. State of Madras (1950) SCR 594;
G Ram Manohar Lohia (1991) 1 SCR 709; Rev. Stainislaus Vs.
State of M.P. (1977) 2 SCR 611; Arun Ghosh Vs. State of
West Bengal (1970) 3 SCR 288; S. Pushpa and others Vs.
Sivachanmugavelu and others (2005) 3 SCC 1; New Delhi
Municipal Council Vs. State of Punjab & Others (1997) 7 SC
H 339; and T.M. Kanniyan Vs. I. T.O. Pondicherry (1968) 2 SCR
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
881
PONDICHERRY TH. ADDL. SEC.
103; Charan Lal Sahu Vs. Union of India (1990) 1 SCC 613
A
- cited.
Case Law Reference:
(2005) 4 CTC 705
stood reserved
para 11
(2011) 3 sec 793
relied on
para 14
B
(2007) 1 LW 892
cited
para 19
(1983) 4 sec 166
cited
para 19
(1956) SCR 393
cited
para 26
c
(1970) 3 SCR 530
cited
para 29
(2007) 6 sec 236
cited
para 31
(1950) SCR 594
cited
para 32
D
(1991) 1 SCR 709
cited
para 32
(1977) 2 SCR 611
cited
para 32
(1970) 3 SCR 288
cited
para 32
E
(2005) 3 sec 1
cited
para 34
(1997) 7 SC 339
cited
para 34
(1968) 2 SCR 103
cited
para 34
(1990) 1 sec 613
cited
para 35
.F
CIVIL APPELLATE JURISDICTION : Civil Appeal No. :
6673-6674 of 2009.
From the Judgment and Order dated 27.03.2007 of the
G
High Court of Judicature at Madras in W.A. No. 1144 of 2006
and 293 of 2007.
A.K. Ganguli, V. Ramasubramanian, Chaitanya Safaya,
A. Lakshmi Narayanan for the Appellant.
H
882
SUPREME COURT REPORTS
(2012] 8 S.C.R.
A
R. Venkataramani, V.G. Pragasam, S.J. Aristotle,
B
Praburamasubramanian, Aljo K. Joseph, Subramonium Prasad
for the Respondents.
The Judgment of Court was delivered by
ALTAMAS KABIR, J. 1. Several Special Leave Petitions
(now Civil Appeals) were filed in this Court against the common
judgment and order dated 27th March, 2007, passed by the
Madras High Court, including Writ Appeal Nos.1788 & 1919
of 2005, 1142 to 1144, 1209, 1342 to 1345 of 2006, 293 of
C 2007 and W.P.Nos.44991, 45805 of 2006 & 1460 of 2007. Of
the said appeals, we are concerned with Writ Appeal Nos.1144
of 2006 and 293 cf 2007, which are the subject matter of Civil
Appeal Nos.6673-6674 of 2009, filed by M/s New Horizon
Sugar Mills Ltd.
D
2. As will be evident from the various writ petitions and writ
appeals filed by the various parties, there are several skeins
running through the fabric of the matter before us. The main
issue, however, relates to the challenge thrown to G.O.Ms.No.12
E
dated 18.2.2006 issued by the Department of Revenue and
Disaster Management, Government of Pondicherry, under
powers conferred under the Pondicherry Protection of Interests
of Depositors in Financial Establishments Act, 2004 (Act 1 of
2005), ordering attachment of properties acquired by
F . Pondicherry Nidhi Ltd.
3. For a proper understanding of the background in which
the said G.O. came to be issued, it is necessary to set out, in
brief, the facts of the case.
G
4. The lis between the parties to these appeals can be
traced back to the credit facilities availed of by the Appellant,
Mis New Horizon Sugar Mills Pvt. Ltd., from the Indian Bank,
Pondicherry, to the tune of Rs.26,50,00,000/-. The Directors of
the Mill, viz., Shri V. Kannan and Shri V. Baskaran, stood as
H guarantors for repayment of the loan and offered their personal
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
883
PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
properties as collateral securities. As the Appellant Mill
A
defaulted in payment of the loan amount, the Bank, after
declaring the loan account of the Mill to be a "non-performing
asset", initiated proceedings for recovery by issuing notice
under Section 13(2) of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
B
2002, ("SARFAESI Act"). The said notice was challenged by
the Appellant by filing Writ Appeal No.33700 of 2004, before
the Madras High Court. By order dated 6th December, 2004,
the said Writ Appeal was disposed of with a direction to the
Appellant Mill to repay the entire loan amount in three c
instalments.
5. In the same order, the Court also indicated that in case
the Appellant defaulted in payment of the instalments, the Bank
could proceed against the Appellant Mill, in accordance with
law. Since the Appellant Mill committed default even in payment
D
of the first instalment, the Bank proceeded further and under
the provisions of Sub-Sections (2) and (4) of Section 13 of the
SARFAESI Act took possession of the property offered as
security and also initiated steps for sale of the same by auction.
In the auction proceedings, M/s E.l.D. Parry (India) Ltd. ("Parry
E
Ltd.") was the successful bidder. The said auction was
challenged by several other banks and financial agencies to
safeguard and protect their respective claims against the Mill.
On 12th July, 2005, all the Writ Petitions, including the one filed
by the workers/employees of the Appellant Mill, were
F
dismissed. In respect of the Writ Petition filed by Pondicherry
Nidhi Ltd. (PNL) Depositors Welfare Association, the High
Court directed the Association to work out their remittance
under the provisions of the Reserve Bank of India Act ("RBI
Act") as also Act 1 of 2005.
G
6. On receiving the Sale Confirmation Letter from the
Bank, Parry Ltd. remitted their entire balance amount and
fulfilled all other formalitie.s for getting the Sale Certificate
registered in its favour. At the same time, on the basis of a
H
884
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A complaint received from one of the depositors, alleging that Shri
V. Kannan and Shri V. Baskaran, said to be the major
shareholders of Mis PNL Nidhi Ltd. as well as being the
Directors of the Appellant Mill, had misappropriated a sum of
Rs.12.5 crores belonging to Mis PNL Nidhi Ltd. and diverted
B the same for their own trade, the Chief Judicial Magistrate,
Pondicherry, ordered attachment of various properties standing
in their names and in the name of one Sivapriyal. This was
followed by the Government Order, being G.O.Ms.No.12 dated
18.2.2006, ordering attachment of the properties acquired by
c Mis PNL Nidhi Ltd. Inasmuch as, by virtue of the said orders
of attachment, Mis Parry Ltd. could not get the Sale Certificate
registered in respect of the property auctioned, it filed Writ
Petition No.6453 of 2006 for quashing the said G.O.Ms.No.12
dated 18.2.2006 and for a direction to the District Registrar,
D Registration Department, Pondicherry, to register the Sale
Certificate in their favour with regard to the properties in which
they had succeeded in the auction sale. The Indian Bank also
filed Writ Petition No.5389 of 2006 for the same relief so that
they could comply with the provisions of the SARFAESI Act for
E registering the Sale Certificate in favour of Mis Parry Ltd. The
Appellant Mill filed Writ Petition No.1897 of 2006 for an
appropriate direction to the Indian Bank to return to them such
sums as would be due from out of the total sale consideration
after deducting the dues of the Bank incurred as on 1st January,
2005, the date on which possession of the property in question
F was taken over and for return of the remaining documents
pertaining to the movable and immovable properties belonging
to the Appellant after satisfying the Bank's charge. The
Appellant Mill filed another Writ Petition No.8797 of 2006
challenging the validity of G.O.Ms.No.12 dated 18.2.2006.
G Several other Writ Petitions were filed by Shri V. Kannan and
Shri V. Baskaran and Mis Indian Renewable Energy
Development Agency Ltd. ("IREDA"), New Delhi, and Mis
Arunachalam Sugar Mills Ltd., Pondicherry, also filed several
Writ Petitions challenging the validity of the aforesaid
H Government Order.
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
885
PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
7. A learned Single Judge of the Madras High Court took
A
up the Criminal Revision Petition No.1352 of 2005 filed by the
Bank questioning the Order dated 18th February, 2005,
passed by the Chief Judicial Magistrate in Crime No.31 of
2004, along with various Writ Petitions filed by different parties,
and by his order dated 23rd August, 2006, the learned Judge
B
lifted the order of attachment passed in respect of the
properties in question and also directed the District Registrar,
Registration Department, Pondicherry, to register the Sale
Certificate issued in favour of M/s Parry Ltd. The learned Single
Judge further directed the Appellant (Writ Petitioner in Writ c
Petition No.1897 of 2006) to approach the Debts Recovery
Tribunal under Section 17 of the SAR FAES I Act regarding their
claim of refund of the excess amount a11e·ged to have been
retained by the Bank. The learned Judge also made it clear that
as far as the properties included in the impugned orders were
D
concerned, it would be open to third parties to approach the
Designated Court under Act 1 of 2005 for appropriate relief.
8. Questioning the said common order, the Appellant Mill
and its Directors filed Writ Appeal Nos.1142 to 1144 of 2006
and the Pondicherry Non-Banking Investors Protection
E
Association preferred Writ Appeal Nos.1342 to 1345 of 2006.
However, while upholding the validity of Act 1 of 2005, the
learned Judge limited its operation to Unincorporated
Institutions. Aggrieved by the said decision, the Government of
Pondicherry preferred Writ Appeal No.293 of 2007.
F
9. Yet another facet of the issues involved in these Appeals
is the Writ Petitions filed by the Banks and Financial Institutions
to safeguard their interests in regard to attachment and sale
of the properties of the Appellant Mill. The said Writ Petitions
G
were considered by another learned Judge of the Madras High
Court, who by his order dated 12th July, 2005, in PNL Investors'
Welfare Association Versus Union of India, with reference to
the SARFAESI Act, the Sick Industrial Companies (Special
Provision) Act, 19q8, Act 1 of 2005 and the provisions of the
H
. 886
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A Industrial Disputes Act, 1947, and in particular, Section 25FF
thereof, disposed of the Writ Petitions upon holding that the
members of the workers' association/workers, either
individually or through their respective Unions, were entitled to
the benefit available under Section 25FF of the 1947 Act from
B the Appellant Mill and Parry Ltd., in view of Section 13(6) of
the SARFAESI Act. In the same order, the learned Judge
directed the members of the Depositors' Association and
others to avail of the remedies provided under the SARFAESI
Act, as well as Act 1 of 2005, for necessary reliefs. The said
c decision of the learned Single Judge was questioned by Parry
Ltd. and the Commissioner of Central Excise, Pondicherry, who
filed W.A. Nos.1787 of 2005 and 1999 of2005 respectively,
claiming that the Department's claims were superior to those
of others against the Appellant Mill and its properties.
D
10. A third set of Writ Petitions was filed by Puduvai
Pradesa Sarkarai Aalai Thozhilalar Sangam; Indian Bank and
the Ariyur Sugar Mills Staff Welfare Union being W.P.
Nos.24834, 30532 and 36900 all of 2005, praying for
appropriate directions. By a commQn order dated 7th
E December, 2005, another learned Judge of the Madras High
Court appointed Justice K.P. Sivasubramaniam, a retired
Judge of the Madras High Court, as Commissioner to go into
the claims of the workmen. By the same order the learned Judge
directed the Indian Bank to deposit Rs.6 crores in a no-lien
F account in the Indian Bank, Pondicherry Main Branch, on 8th
December, 2005. Questioning the said order, the Appellant Mill
filed Writ Appeal No.1209 of 2006. All the said matters were
taken up for consideration together by the Division Bench. In
its impugned judgment, the Division Bench agreed with the
G conclusion arrived at by the learned Single Judge with leave
to the parties to approach the Tribunal to protect their interests.
Writ Appeal No.1142 of 2006 was, accordingly, dismissed,
with liberty to the Appellant Mill to approach the Debts Recovery
Tribunal for appropriate relief.
H
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
887
PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
11. Apart from the submissions relating to Section 25FF
A
of the Industrial Disputes Act, 1947, what we are really
concerned with in these appeals is with regard to the validity
of the Pondicherry Protection of Interests of Depositors in
Financial Establishments Act, 2004 (Act 1 of 2005) and
G.O.Ms.No.12 dated 18.2.2006 issued by the Department of
B
Revenue and Disaster Management. As indicated
hereinbefore, the object of the Act was to protect the interests
of depositors in financial establishments in the Union Territory
of Pondicherry. The Division Bench of the High Court observed
that, inasmuch as, the Tamil Nadu Protection of Interests of c
Depositors (in Financial Establishments) Act, 1997, were in
pari materia with the provisions of the Pondicherry Act of 2005
and the provisions of the Tamil Nadu Act had been upheld,
nothing further was required to be gone into in that regard.
However, after the decision of a Full Bench of the Bombay High
D
Court in the case of Vijay C. Pu/jal vs. State of Maharashtra
[(2005) 4 CTC 705], by which the Maharashtra Protection of
Interest of Depositors (in Financial Establishments) Act, 1999,
was struck down, a batch of Writ Petitions came to be filed
before the Madras High Court challenging the provisions of the
Tamil Nadu Act. Since the provisions of the Maharashtra Act
E
had been struck down by a Full Bench of the Bombay High
Court, the Writ Petitions were also contested before a Full
Bench, which considered the contentions relating to the
jurisdiction of the State Government, with reference to various
Entries in the Seventh Schedule to the Constitution, provisions
F
of the Companies Act, Reserve Bank of India Act and the
Maharashtra Act and after examining the challenge thrown to
the vi res of the Act, came to the conclusion that the Tamil Nadu
Act did not suffer from any legislative incompetency, nor was it
arbitrary, unreasonable, or violative of the principles of natural
G
justice. The Writ Petitions were, accordingly, dismissed. The
Division Bench after considering the pronouncement of the Full
Bench in regard to the Tamil Nadu Act and finding that the entire
provisions of the Pondicherry Act 1 of 2005 were in pari materia
with the provisions of the Tamil Nadu Act, held that the
H
888
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A challenge to the legislative competency and jurisdiction of the
Government of Pondicherry in enacting the impugned Act, was
liable to be rejected.
12. A question of considerable importance also came up
8 for consideration in the appeal filed by the Government of
Pondicherry with regard to the observations of the learned
Single Judge in Writ Petition No.1897 of 2006, wherein the
learned Single Judge while upholding the validity of the
enactment, went on to observe that the impugned enactment.
was made only in relation to unincorporated trade
C establishments and the State Legislature of Pondicherry had
legislative competence to legislate in respect of unincorporated
financial establishments only. In this regard, a submission was
made on behalf of the Government of Pondicherry to the effect
that Entry 32 of List II of the Seventh Schedule to the
D Constitution was only a residue of Entry 42 in the Central List
and that Entry 32 also covered incorporated companies. It was
submitted that the learned Single Judge had erroneously held
that Pondicherry Act 1 of 2005 only governed unincorporated
trade establishments.
E
13. In this regard, it was submitted before the Madras High
Court by the learned Government Pleader that on a complaint
received by the Pondicherry Police from one Boothanathan,
alleging that the amount deposited by him in PNL Nidhi Ltd.
F had not been returned, the Pondicherry Police registered a
case in Crime No.31 of 2004 on the file of the C.l.D.,
Pondicherry, which took up the investigation. Subsequently,
about 3000 complaints were received from mostly aged people
and retired Government servants who had invested their
G savings in the various financial establishments. On inquiry it
was found that PNL Nidhi Ltd. had changed its name five times.
It was initially a company known as "Pondicherry Mutual Fund
Ltd." incorporated under the Companies Act, 1956. The name
of the Company was later changed to Prasanan Narayanan
Laxmi Nidhi Ltd. The name of the Company was again changed
H
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
889
PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
to PNL Nidhi Ltd. The Company floated various schemes, such
A
as Fixed Akshaya Deposit and Locker facility and accepted
deposits under the said scheme. It was also discovered that
PNL Nidhi Ltd. was an unregistered and unrecognized financial
establishment and that the promoters of PNL Nidhi Ltd. were
Kannan and Baskaran, who were brothers and were also the
B
Directors of the Appellant Mill. It also transpired that the funds
of the PNL Nidhi Ltd. were utilized for the purchase of
properties in the name of the Appellant, New Horizon Mills,
Pondicherry, and Arunachala Sugar Mills, Thiruvannamalai, and
also for purchase of land at Kumbakonam, and land and c
buildings in Pcindicherry and Chennai. The investigation
conducted by the C.l.D., Pondicherry, revealed that the deposits
collected from the depositors of PNL Nidhi Ltd. had been
channelised to New Horizon Sugar Mills, wherein also Kannan
and Baskaran were the Directors. It was on account of the
D
bogus cheques which had been issued and dishonoured for
want of funds, that the Chief Judicial Magistrate, Pondicherry,
ordered attachment of the properties of the Appellant Mill and
its Directors and in order to save the innocent investors from
such companies and firms, the Government of Pondicherry
introduced the Pondicherry Protection of Interests of Depositors
E
(in Financial Establishments) Bill, 1997, which ultimately
became an Act in 2004.
14. Appearing for the Appellant, Mr. A.K. Ganguli, learned
Senior Advocate, submitted that the primary question for
F
determination in these appeals is whether the subject matter
covered by the Pondicherry Act is referable to Entries 43, 44,
45 and 97 of the Union List or to Entries 1, 30 and 32 of the
State List. The other question for determination is whether the
decision of this Court in K.K. Baskaran Vs. State of Tamil
G
· Nadu [(2011) 3 SCC 793], rendered in the context of the Tamil
Nadu Protection of Interests of Depositors (in Financial
Establishments) Act, 1997, could be regarded as a precedent
for determining the questions which have arisen in relation to
the Pondicherry Act.
H
890
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A
15. Mr. Ganguli urged that the Tamil Nadu Act dealt with
the protection of deposits made by the public in the financial
establishments. Section 2(3) of the said Act defines "financial
establishments" not to include a Company registered under the
Companies Act, 1956, or a Banking Company as defined under
B Section 5(c) of the Banking Regulations Act, 1949, ("the 1949
Act"), or a non-banking financial company as defined in clause
(f) of Section 45(1) of the Reserve Bank of India Act, 1949. Mr.
Ganguli urged that in 2003, Section 2(3) of the Tamil Nadu Act
was amended omitting the words "a company registered under
c the Companies Act, 1956" and inserting the words "a nonbanking financial company" as defined in clause (f) of Section
45-1 of the Reserve Bank of India Act, 1949, after the words
"does not include". By the same amendment, the words "a
company registered under the Companies Act, 1956" were
0 introduced into Sub-Section (3) of Section 2. The amended
provision now reads as follows :-
"(3)'financial establishment' means an individual, an
association of individuals, a firm or a company registered
under the Companies Act, 1956 (Central Act 1 of 1956)
E
carrying on the business of receiving deposits under any
scheme or arrangement or in any other manner but does
not include a corporation or a co-operative society owned
or controlled by any State Governmen~ or the Central
Government or a banking company as defined in Section
F
5 (c) of the Banking Regulation Act, 1949 (Central Act
10 of 1949)."
16. Mr. Ganguli urged that in contrast, the Pondicherry Act
defined the expression "financial establishment" in Section 2( d)
G to mean:-
" .... Any person or group of individuals or a firm carrying
on business of accepting deposits under any scheme or
arrangement or in any other manner but does not include
a corporation or a co-operative society owned or controlled .
H
by the Government, any State Government or the Central
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
891
PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
Government, or a banking company as defined under A
Section 5 of the Banking Regulation Act, 1949."
17. Referring to the Statement of Objects and Reasons in
the enactment of the Pondicherry Act, 2004, Mr. Ganguli
pointed out that it had been specifically indicated that there had
B
been a mushroom growth of non-banking financial
establishments and deposit-taking unincorporated bodies not
covered under the Reserve Bank of India Act, 1934, in different
parts of the country. Accordingly, it was proposed to undertake
a legislation which sought to protect the deposits made by the C
public in financial establishments not being companies
registered under the Companies Act, 1956, or a Corporation
or a Cooperative Society owned or controlled by the State
Government or the Central Government or a Banking Company
under the Banking Regulation Act. The Division Bench of the
Madras High Court in the impugned judgment has referred to D
the Full Bench decision of the said Court from which the
appeals in K.K. Baskaran's case arose. In paragraph 13-g of
the said judgment, it was recorded that it was also useful to refer
to the stand taken by the Advocate General who defended the
Tamil Nadu Act before the Full Bench by stating that the Act E
was intended to realize the deposits made by the public in the
financial establishments, whether they were incorporated or not.
The Division Bench went on to hold further that the entire
reasoning of the Full Bench was applicable to the impugned
Act of the Government of Pondicherry. Accordingly, the Division
F
Bench held that the financial establishments referred to in
Section 2(d) of the impugned Act covered both unincorporated
and incorporated trading establishments.
18. Mr. Ganguli tried to impr€ss upon us that in view of the G
aforesaid decisions in the language adopted in the definition
of "financial establishments" in the two Acts, the Court would
be required to examine the issue carefully to determine as to
whether the decision in K.K. Baskaran's case (supra) relating
to the Tamil Nadu Act could ipso facto be made applicable to
H
892
SUPREME COURT REPORTS
[2012] 8 S.C.R.
A
determine the scope and ambit of the Pondicherry Act.
19. Coming to the next question as to whether the State
enactments as well as the Parliamentary enactments covered
the same field, namely, "investor's protection", Mr. Ganguli
B
submitted that the decision of the Full Bench of the Madras High
Court in the case of S. Bagavathy Vs. State of Tamil Nadu
[2007) 1 LW 892] dealing with the Tamil Nadu Act and other
Parliamentary legislations prohibiting and regulating
acceptance of deposits by financial establishments, held the
same to be a valid piece of legislation. The Full Bench, inter
C
alia, observed that the existing laws, namely, Section 58A of
the Companies Act, 1956, regulates the acceptance of the
deposits and Section 45S of the Reserve Bank of India Act,
1934, prohibits the acceptance of deposits and also prescribes
suitable punishments and penalties for contravening the same,
D
but neither of the existing laws provide for regulating the
activities of the financial establishments, which not only duped
the innocent depositors and accepted deposits from them, but
also siphoned off, diverted or transferred the funds for their own
use in a mala fide manner. Mr. Ganguli submitted that the
E
existing laws did not provide for the attachment of the properties
that were procured either in ttie name of the financial
establishments or in the name of any other person from and
out of the deposits collected by the financial establishments.
Mr. Ganguli also urged that the Full Bench further observed that
F
in the absence of any effective remedy in the Central legislation
to regulate control of either unincorporated or incorporated
companies in the matter of depositors, who have deposited
their hard-earned money with the financial establishments, the
State Government was fully competent to bring out legislation
G to suit the needs of the public and to protect the interests of
the depositors as well as in the public interest. Mr. Ganguli
submitted that even though the Reserve Bank of India Act,
1934, prohibits acceptance of deposits and prescribes a
penalty on any violation of the provisions of the Act, no
H
provision or mechanism had been included for attaching the
NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF
893
PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
properties of the financial establishments and the properties of A
mala fide transferees. Referring to paragraph 91 of the Full
Bench judgment, Mr. Ganguli submitted that it had been clearly
indicated therein that the mere absence of exercise of such
power conferred under Section 5BB (5A) or 5BG of the Reserve
Bank of India Act, could not by itself validate the impugned
B
legislation where the Government had proposed to protect the
interests of depositors, in the public interest and in order to
regulate the activities of such financial institutions, which power
could be traced to the field of legislation under Entries 1 and
32 of List II of the Seventh Schedule to the Constitution. It was c
categorically observed by the Full Bench that where no licence
had been obtained from the Reserve Bank of India to
commence and continue operations, the question of
applicability as well as violation of the directions issued under
Section 45S of the Reserve Bank of India Act by the Reserve 0
Bank of India remains unanswered. The Full Bench had also
observed that concededly none of the Petitioners had obtained
licence from the Reserve Bank of India nor can the business
of financial establishments in accepting deposits be strictly
construed to be "banking", as defined under the Banking
Regulations Act, 1949. Mr. Ganguli urged that since none of E
the Petitioners are companies registered under the Companies
Act, 1956, the provisions of the said Act would not be
applicable to them. It was also observed that the impugned
legislation was enacted in the public interest to regulate the
activities of the financial establishments falling under Entries 1
F
and 32 of the State List. Mr. Ganguli urged that it is in such
background that the Full Bench concluded that the Tamil Nadu
Act could be traced to the field of legislation under Entries 1
and 32 of List II of the Seventh Schedule, without analyzing the
full scope of the said Entries on the one hand and Entries 43, G
44 and 45 of the Union List, on the other.
20.