IMPORTANT POINT
The impugned Act is intra vires.

JUDGMENT

1. Delay condoned. Leave granted.

2. Heard learned counsel for the appellant.

3. Financial swindling and duping of gullible investors/depositors is not unique to India. It has been referred to in Charles Dicken’s novel ‘Little Dorrit’, in which Mr. Merdle sets up a Ponzi scheme resulting in loss of the savings of thousands of depositors including the Dorrits and Arthur Clennam. In recent times there have been many such scandals e.g. the get-rich-quick scheme of the scamster Bernard Madoff in which the estimated losses of investors were estimated to be 21 billion dollars.

4. The present case illustrates what has been going on in India for quite some time. Non-banking financial companies have duped thousands of innocent and gullible depositors of their hard earned money by promising high rates of interest on these deposits, and then done the moonlight flit, often disappearing into another State or even foreign countries leaving the depositors as well as the State police high and dry.

5. This appeal has been filed against the impugned judgment and order of the Full Bench of the Madras dated 02.03.2007 in writ petition No. 26108/2005.

6. By means of the aforesaid writ petition, the petitioner and others challenged the constitutional validity of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (for short the Tamil Nadu Act). By the impugned judgment the Full Bench of the Madras High Court has held the aforesaid Act to be constitutional. Hence, this appeal.

7. Learned counsel for the appellant has relied on the Full Bench decision of the Bombay High Court in Vijay C. Punjal vs. State of Maharashtra1 (2005) 4 CTC 705 by which a similar Act of Maharashtra , being the Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act, 1999 was held to be unconstitutional. We are of the opinion that the impugned judgment of the Full Bench of the Madras High Court is correct, while the judgment of the Full Bench of the Bombay High Court in Vijay’s case (supra) is not correct.

8. The main submission of the learned counsel for the appellant in challenging the Tamil Nadu Act, which was also the main submission in challenging the Maharashtra Act, 1999, was that the said Act is beyond the legislative competence of the State Legislature as it falls within entries 43, 44 and 45 of List I of the Seventh Schedule to the Constitution. It was also submitted that the impugned Act is liable to be struck down as the field of legislation is already occupied by legislation of Parliament being the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, the Indian Companies Act, 1956 and the Criminal Law Amendment Ordinance, 1944 as made applicable by Criminal Law (Tamil Nadu Amendment) Act, 1977. It was also contended that the Tamil Nadu Act was arbitrary, unreasonable and violative of Articles 14, 19(1)(g) and 21 of the Constitution.

9. We are of the opinion that none of these submissions have any merit.

10. A perusal of the Statement of Objects as well as the relevant provisions of the Tamil Nadu Act shows that its object was to ameliorate the situation of thousands of depositors from the clutches of financial establishments who had duped the investor public by offering high rates of interest on deposits and committed deliberate fraud in repayment of the principal and interest after maturity of such deposits. The Act provides for measures for attachment of the properties of the financial establishments as well as mala fide transferees and to bring these properties for sale for realization of the dues payable to the depositors speedily.

11. As per the statistics of July 2002, about Rs. 1945 crores were collected from over 19 lakhs of depositors. These depositors were either poor or middle class persons, retired government servants and pensioners and their dependants, senior citizens or economically backward sections of society etc. The deposits were either siphoned off or