Dr. D.Y. Chandrachud, J.

The constitutional validity of the Maharashtra Protection of Interests of Depositors (In Financial Establishments) Act, 1999, forms the basis of challenge in this batch of petitions under Article 226 of the Constitution. These petitions have been placed before the Full Bench by the Learned Chief Justice, in pursuance of a reference made on rd 3 September 2004 by a Division Bench. Though the Act has been challenged on several grounds, arguments before the Court have been confined to the legislative competence of the State Legislature to enact the law. Counsel appearing on behalf of the Petitioners and the State had fairly stated before the Court that it would become necessary for the Court to deal with the other challenges only in the event that this Court does not accept the principal challenge on the ground of a want of legislative competence. We have come to the conclusion that the provisions of the Act are ultra vires for want of legislative competence in the State Legislature.

FACTS

2. The Petitioner in Writ Petition 5186 of 2001, was a whole time Director of Pennar Paterson Securities Limited, a company incorporated under the Companies Act, 1956 with a registered office at Hyderabad. The Company was a non-banking finance company and is stated to have advanced money to several Companies. The Company is stated to have sustained huge losses and on 24 November 1999, the High Court of Andhra Pradesh noted in the course of its order in a Company Petition that the Company had outstanding debts of Rs.13.07 crores on 30 September 1999. A Provisional Liquidator was appointed by the High Court. The Liquidator was directed to recover the amounts due to the Company and to not distribute any portion of the recoveries to the creditors. Among the Consequential directions was a direction to the Official Liquidator to associate three persons from amongst the secured creditors as part of a Committee that would submit a report to the Court on the viability of the Company. The Official Liquidator is stated to have submitted a report to the Andhra Pradesh High Court recording that an amount of Rs.17 crores could be recovered by the Company; that certain decrees have been obtained for the recovery of the outstanding dues which would have to be executed. The Company is stated to have received notices from depositors at Mumbai, Pune, Aurangabad and Nagpur seeking the repayment of their deposits on maturity and it has been stated that notices have been received threatening prosecution against the Company and its Directors under the provisions of the State Act. A declaration has been sought in these proceedings that the Act is ultra vires on the ground that the State Legislature did not possess legislative competence. We have adverted to the facts of the main petition before the Court with a view to enunciate in brief, a flavour of the underlying facts in this batch of cases. The common thread, as it were, is a default in the repayment of depositors in diverse parts of the State.

The Maharashtra Act.

3. The Act was reserved for and received the assent of the President of India on 21 January 2000. The Act was preceded by Ordinances promulgated on 29 April 1999 and on 2 December 1999 and is deemed to have come into force on 29 April 1999 by virtue of the provisions of Section 1(2). The Statement of Objects and Reasons sets out the underlying basis of the enactment in the following terms:

"There is mushroom growth of Financial Establishments in the State of Maharashtra in the recent past. The sole object of these Establishments is of grabbing money received as deposits from public, mostly middle class and poor on the promises of unprecedented highly attractive rates of interest or rewards and without any obligation to refund the deposit to the investors on maturity or without any provision for ensuring rendering of the services in kind in return, as assured. Many of these Financial Establishments have defaulted to r