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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P. SATHASIVAM
M/s. Thiru Muruga Finance rep. by its Partner Sri. V. Thirunavukkarasu, 73, Ranganathan St., T. Nagar, Chennai 600017 and 15 others
Versus
The State of Tamil Nadu rep. by Secretary to Government Law Department Chennai 600009 and another
W.P. No. 4157, 4158, 5932, 7576, 7577, 7976, 7977, 8254, 8691, 16711, 20244 and 20748 of 1998 and 4467, 4819, 4887 and 12375 of 1999 and connected W.M.Ps
Decided on: 08-09-2000
The impugned Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (Tamil Nadu Act 44 of 1997) is constitutionally valid and intra vires the State Legislature. The Act is a special law enacted to protect the interests of depositors by providing stringent measures against those who deprive the depositors of their dues.
Fact of the Case:
Mushroom growth of financial establishments not covered by Reserve Bank of India Act, 1934 (Central Act II of 1934) in the State 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 these 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 public resentment, which created law and order problems in the State.
Finding of the Court:
The impugned Act is within the Legislative competence of the State, since it falls within Entry 32 of the State List in Seventh Schedule of the Constitution. The petitioners’ business does not come under “Banking activity” as mentioned in Entry 45 in Union List. The “Financial Establishments” which are covered under the impugned Act are all unincorporated trading establishments, and therefore they fall under Entry 32 of the State List in Seventh Schedule of the Constitution. The impugned law is made only in relation to such unincorporated trading establishments, and therefore the State of Tamil Nadu has the legislative competence to legislate in respect of those Financial establishments.
Issues: 1. Whether the impugned Tamil Nadu Act is unconstitutional for the reasons that, Tamil Nadu Legislative Assembly has no Legislative competence to enact the said Act and Parliament alone can enact, 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. 2. Whether the Central Government has already amended the Reserve Bank of India Act, 2 of 1934 by Amendment Act 23 of 1997 with effect from 1.4.1997 which gives protection and relief to the depositors as well as Financial Establishments. Hence, Tamil Nadu Act is not at all necessary and under Article 254 of the Constitution, Tamil Nadu Act is repugnant to the provisions of Section 45 of the Central Act; 3. Whether the definition “Financial Establishment” in the Tamil Nadu 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, 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.
Ratio Decidendi: 1. The impugned Act is within the Legislative competence of the State, since it falls within Entry 32 of the State List in Seventh Schedule of the Constitution. The petitioners’ business does not come under “Banking activity” as mentioned in Entry 45 in Union List. The “Financial Establishments” which are covered under the impugned Act are all unincorporated trading establishments, and therefore they fall under Entry 32 of the State List in Seventh Schedule of the Constitution. The impugned law is made only in relation to such unincorporated trading establishments, and therefore the State of Tamil Nadu has the legislative competence to legislate in respect of those Financial establishments. 2. Reserve Bank of India Act is only to regulate the monetary stability in India and deals with various monetary systems and the Banking business have to be carried in accordance with the said Act, whereas the Tamil Nadu Act is intended to safeguard the interest of depositors by providing stringent measures against those who deprive the depositors of their dues. 3. The definition “Financial Establishment” in the Tamil Nadu 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, 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.
Final Decision: All the writ petitions are dismissed.
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.
2. For the convenience I shall refer the facts narrated by the petitioner in Writ Petition No. 4157 of 1998. The petitioner Thiru Muruga Real Estate started its business in the year 1984. Vast extent of properties were purchased and layout formed and sold to public for construction of houses. For the past few years, the Real Estate Market was going down by 30 to 40 per cent and there are no immediate purchasers. The petitioner’s firm was formed on 18.4.1994 as a Sister concern for the Thiru Muruga Real Est ate to accept deposit from the public. Deposits were accepted both by the petitioner-firm and also by the Real Estate entity Thiru Muruga Real Estate. From 15.4.1995 deposits were received and within a short span of time, a total of 2.75 crores were raised from the public. Because of the adverse trend in finance market, the depositors of the petitioner Company started demanding repayment and therefore they could not utilise the funds for developing the property as originally planned. Therefore, the petitioner decided to pay back the amount with interest even if no profit is earned by the firm. With the short period a sum of Rs. 180 crores were returned to the public leaving a balance of about Rs. 94, 44, 250.00. Out of this amount, about 40 per cent matured for payment and others not matured for payment. It is further stated that the value of asset in the form of immovable properties of the petitioner firm and the sister concern Thiru Muruga Real Estate run about 13.80 crores. Their intention is not to cheat anybody. All the properties were purchased out of own funds long before accepting deposits from public. The balance payable to depositors for entire group of concerns is only Rs. 94, 44, 250.00. Majority of the depositors have faith in the petitioner and in fact given letters, accepting to take their funds in instalments. But, few persons who are highly mischievous have given complaints to the second respondent, who threatened to take action under the Tamil Nadu Protection of Interest of Deposit ors (in Financial Establishments) Act, 44 of 1997 (hereinafter referred to as the “Act”) It is further stated that, he is a honest businessman and also having assets worth several crores. If action taken on frivolous complaint by the second respondent under the aforesaid Act, he will be thrown out of business and his reputation will be lowered down in the Real Estate Market. The first respondent in haste passed the above Act. The first respondent is also not competent to make the said law, which is drac onian in character. The said Act is therefore ultra vires, unconstitutional and liable to be struck down by issuance or a writ of declaration. In the grounds or attach it is stated that the Act is unconstitutional for the reasons that the Tamil Nadu Legislative Assembly has no legislative competence to enact the said Act and Parliament alone can enact, since the subject matter falls squarely under Entry 45. List 1 in VII Schedule of the 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 (l) (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
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