ORDER
P.D. Dinakaran, J.
I. CORNERSTONE
1. The Constitution is the documentation of the founding faiths of a Nation and the fundamental directions of the fulfillment. An organic, but not pedantic approach in interpreting the constitutional validity of any enactment should be the guiding principle in the judicial process. Finding of solution for the gruesome evils in economic and social life of the citizens, through the healing art of promoting Rule of Law, blending the whole statute harmoniously, without being tempted by the game of hair-splitting, to achieve the common object of the legislation should be the basic rule of construction while testing the constitutional validity of a legislation, particularly when it deals with economic and social reliefs, because the distance between societal realities and constitutional challenge often creates a dilemma while considering the legislative competency relating to a socio-economic legislation. The Court, therefore, should be more cautious as well as conscious as to its jurisdiction while irrationalising the legislative competency of the Legislature or rationalising Court's power to annul the legislation.
With this, we propose to experiment, analyze, and render our observation on the constitutional validity of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (for brevity, 'Tamil Nadu Act'), which, in fact, had already been upheld by the learned Single Judge of this Court (P. Sathasivam, J.) in Thiru Muruga Finance v. State of Tamil Nadu : 2000(2)CTC609 , and the same has become final for not having been appealed against.
II. Why the Full Bench
2.1. Attracted by the fabulous rate of interest on the deposit, which of course is not viable commercially, the depositors, day by day started investing their savings in the financial establishments, believing the said promises of the financial establishments for higher rate of interest. The depositors, who mostly belong to the poor, lower middle and middle class, are senior citizens above 80 years, senior citizens between 60 and 80 years, widows, handicapped, driven out by wards, retired Government servants, pensioners, living below the poverty line, etc. As a result, the financial establishments, which set their business on motion on false wheels, started growing. Finding no effective remedies available, in the existing legal system to safeguard the grievance of innocent depositors, the State Government, enacted the Tamil Nadu Act.
2.2. The sole object of the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 is to curb the mushroom growth of such financial establishments, which were grabbing money received as deposits from the public, on false promises for exorbitant and unprecedented high rate of interest, without any obligation to refund the deposits to the investors on maturity. The Tamil Nadu Act is also intended to provide a legal mechanism and judicious machinery to attach the properties of the financial establishments and that of the mala fide transferees, bring them for auction sale, realize the amount and to distribute the same to the depositors. Therefore, the State had carefully taken into consideration the public resentment as well as the public interest and safety, as these institutions went back of their promise not only to pay interest but also to refund the principal amount to the innocent depositors on maturity. The State had also taken note of the panic and unrest of the public, and the trauma caused to the poor and middle class people because of the false promises by the financial establishments, which dragged them to approach various authorities, executives as well as subordinate judiciary, for realization of the dues.
2.3. The Tamil Nadu Act was challenged by the financial establishments before this Court in a batch of writ petitions, viz., W.P. No. 4157 of 1999 etc., on the ground that the Tamil Nadu Act is draconian, excessively harsh, more severe than the existing provisions in the different enactments, such as Companies Act, 1956, Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, as well as the provisions of the Criminal Law Amendment Ordinance, 1944 as made applicable by the Criminal Law (Tamil Nadu Amendment) Act, 1997; that the same was passed in haste, lacks legislative competency, liable to be struck down for the unreasonableness of various provisions as well as for violation of principles of natural justice and therefore, ultra vires the Constitution of India.
2.4. However, the learned Single Judge of this Court (P. Sathasivam, J.) in his common and elaborate order reported in Thiru Muruga Finance v. State of Tamil Nadu : 2000(2)CTC609 upheld the constitutional validity of the Tamil Nadu Act on all fours.
3.1. In the meanwhile, the Reserve Bank of India addressed all the State Governments to enact suitable legislation along the lines of the Tamil Nadu Act, since existing legislation was found to be inadequate to deal with the financial establishments, which have duped large number of depositors and collected crores of rupees on false promise to repay the same with higher rate of interest, which is not viable commercially.
3.2. The Maharashtra Government, therefore, enacted Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (hereinafter referred to as 'the Maharashtra Act') and the Pondicherry Government enacted Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (hereinafter referred to as 'the Pondicherry Act').
3.3. The Pondicherry Act incidentally was challenged before this Court in C.R.P. (PD) No. 1352 of 2005 and W.P. No. 1897 of 2006, etc. and the learned Single Judge of this Court (E. Dharma Rao, J.) by a common order dated 23.9.2006 reported in Indian Bank v. Chief Judicial Magistrate, Pondicherry and Ors. 2006-4-LW 535, upheld the constitutional validity of the Pondicherry Act, of course, following the decision of P. Sathasivam, J. reported in Thiru Muruga Finance v. State of Tamil Nadu, referred supra.
3.4. On the other hand, the Full Bench of the Bombay High Court struck down the Maharashtra Act and declared the same to be ultra vires holding that the Maharashtra Act directly conflicts with the provisions of the Central Legislation such as, Companies Act, 1956, Reserve Bank of India Act, 1934 read with Banking Regulation Act, 1949, of course, following Delhi Cloth and General Mills Co. Ltd. v. Union of India : [1983]3SCR438 with reference to the provisions of the Companies Act, 1956 and the decision of the Delhi High Court in Kanta Mehta v. Union of India 1987 (62) Com Cases 771, [the view thereunder was confirmed by the Apex Court in Velayuidhan Achari, T. v. Union of India : [1993]1SCR832 ], with reference to the provisions of Reserve Bank of India Act, 1934, and observing that the attention of the learned Single Judge (P. Sathasivam, J.) was not adequately drawn to the reasons contained in Kanta Mehta v. Union of India, referred supra.
3.5. Placing reliance on the decision of the Full Bench of the Bombay High Court reported in Vijay C.Puljal v. State of Maharashtra : (2005)107BOMLR983 , the present batch of writ petitions came to be filed challenging the provisions of the Tamil Nadu Act once again, both on the ground of legislative competency and unreasonableness, violating Articles 14, 19(1)(g) and 21 of the Constitution of India as well as violation of principles of natural justice.
3.6. When this batch of writ petitions came up before the Division Bench originally on 13.11.2006, it was desired by both sides that the matter may be heard by a Full Bench as the Maharashtra Act, a statute in pari materia, was already struck down by a Full Bench of Bombay High Court. Hence, the Full Bench.
4. Heard all the parties at length.
III. THE GROUNDS OF CHALLENGE
5.1. The sheet-anchor of the petitioners' contention is that the State Government lacks legislative competency as the impugned subject matter, viz., 'Banking' falls within the field of legislation of the Union of India under Entry 45 of List 1 of the VII Schedule read with Article 246 of the Constitution of India, as the view taken in the decision of the Division Bench of the Delhi High Court in Kanta Mehta v. Union of India, referred supra, that the acceptance of deposits amounts to banking, while upholding the constitutional validity of Section 45S of Chapter IIIC read with Section 58B(5A) of Reserve Bank of India Act, 1934, has already been confirmed by the Apex Court in Velayuidhan Achari, T. v. Union of India, referred supra.
5.2. The other predominant contention is that the impugned legislation suffers from want of legislative competency of the State Government as the subject matter in question relates either to the regulation of the trading corporation, including banking, insurance and financial corporation, or relating to the regulation of corporations, whether trading or not, falling within the field of legislation of the Union of India under Entries 43 or 44 of the List I of VII Schedule read with Article 246 of the Constitution of India. In this regard reliance is placed on the decision of the Apex Court in Delhi Cloth and General Mills Co. Ltd. v. Union of India, referred supra.
5.3. The impugned Act is liable to be struck down as the field of legislation is already occupied by the legislations of the Central Government, viz., (i) Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949; (ii) Companies Act, 1956; and (iii) Criminal Law Amendment Ordinance, 1944 as made applicable by the Criminal Law (Tamil Nadu Amendment) Act, 1997, as the subject matter deals with (i) the Banking under Entry 45 of List I or; (ii) incorporation, regulation of the trading corporations under Entry 43 or Corporations under Entry 44 of List I; or (iii) offences against laws with respect to any of the matter under Entry 93 of List I.
5.4. The impugned Act is held to be ultra vires the Constitution as the provisions of the same are repugnant to the existing provisions of the (i) Reserve Bank of India Act, 1934 read with Banking Regulation Act, 1949; (ii) Companies Act, 1956; and (iii) Criminal Law Amendment Ordinance, 1944 as made applicable by the Criminal Law (Tamil Nadu Amendment) Act, 1997, wherein procedure prescribed for repayment of the dues is more reasonable and in compliance of the principles of natural justice and the penalty prescribed is lesser than the one prescribed in the impugned Act.
5.5. The provisions of the Tamil Nadu Act are also arbitrary, unreasonable and violative of the principles of natural justice as the competent authority is provided with unguided powers under Sections 3, 5 and 8 of the Tamil Nadu Act for attachment of the properties of the financial establishments as well as the mala fide transferees, even without pre-decision opportunity to them and prosecuting every person responsible for the management of the affairs of the financial establishments, in violation of Articles 14, 19(1)(g) and 21 of the Constitution of India.
IV. SHIELD OF DEFENCE
6.1. Per contra, Mr. R. Viduthalai, learned Advocate General, defends that the Tamil Nadu Act is intended to realise the deposits made by the public in the financial establishments, whether they are incorporated or unincorporated, as the Companies incorporated under the Companies Act, 1956 are also roped in by the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Amendment Act, 2003, (Tamil Nadu Act 30/2003).
6.2. The learned Advocate General elaborately invited our attention to the societal realities that reflected in media - dailies, weeklies and monthlies, exhibiting the untold sufferings of the depositors on account of the organised crime by the financial establishments. According to the learned Advocate General, the impugned enactment is intended to ameliorate thousands of depositors from the clutches of financial establishments, who have committed a deliberate and fraudulent default in repayment of the principal and the interest after maturity, and to provide a machinery for attachment of the properties of the financial establishments as well as the mala fide transferees, to bring them for sale for realization of the dues payable to the depositors, speedy recovery of the matured and defaulted amounts due to them.
6.3. According to the learned Advocate General, the State is competent to enact a suitable legislation to meet the urgent need to protect the interest of the innocent depositors, taking into consideration the public interest in the matter by providing appropriate mechanism to operate effective control over the financial establishments and to attach the properties of the financial establishments as well as that of the mala fide transferees and to realise the dues payable to the depositors.
6.4. It was highlighted that the Government of Tamil Nadu is the first in constituting a Special Wing for recovering the dues to the depositors, who had invested their hard-earned money in the financial establishments, believing false promises for higher rate of interest.
6.5. As per the statistics as on July, 2002, about Rs. 1945 crores were collected from over 19 lakhs of depositors. These depositors belong to either poor or middle-class; retired Government servants and pensioners; dependents or driven out by wards; senior citizens or economically weaker sections; and so on. The above public deposits, however, are either siphoned or diverted mala fide in the hands of financial establishments. The commission and omission of the financial establishments in this regard is unique, but well-organized. Such activities of the financial establishments constitute white-collar crime, which belongs to a category by itself, and ruins the safety and interest of the public in the society. The hue and cry raised by these huge number of depositors, not only leads to public disorder but also creates law and order problem in the State often. Hence, the State Government rightly enacted the impugned legislation to maintain public order.
6.6. According to him, the Government is within its legislative competency to bring out an appropriate legislation to find a solution not only to curb the activities of such financial establishments, but also to find a permanent solution to the tragedy of the depositors with suitable provisions for attaching the properties of the financial establishments and that of the mala fide transferees, and to bring them to sale and realise the amount payable to the depositors. Therefore, the impugned Act is not focused on the transaction of banking or the acceptance of deposit, but it is more on the delinquency of collecting money from a community of depositors, who are part and parcel of the public and with a view to protect such public interest.
6.7. The learned Advocate General justifies the legislative competency of the State in bringing out the impugned legislation, taking recourse to Entries 1, 30 and 32 of the State List, based on the doctrine of pith and substance.
6.8. It is his contention that the impugned legislation is intended to deal with neither the Banks, which do the business of banking as they are all governed by the provisions of the Reserve Bank of India Act, 1934 read with Banking Regulation Act, 1949, nor the non banking financial companies incorporated under the Companies Act, 1956, as none of the said legislations, said to have occupied the field, provides a solution to wipe the tears of several lakhs of depositors and to realize the dues effectively from the financial establishments, which ramped into public disorder.
6.9. Meeting the point of occupied field, the learned Advocate General contends that the State Government never intended to enact any legislation, the subject matter of which is governed under the existing laws, namely Section 58A of the Companies Act, 1956, which only regulates the acceptance of the deposits and Section 45S of Reserve Bank of India Act, 1934 which prohibits the acceptance of the deposits, but only intended to protect the interest of the depositors for realization of the dues, which they are entitled to, without dragging them for a legal battle from pillar to post. Therefore, the decision of the Apex Court in Delhi Cloth and General Mills Co. Ltd. v. Union of India, referred supra, which deals with Section 58A of the Companies Act, 1956 and Rule 3A of the Companies (Acceptance of Deposits) Rules, as well as the decision of the Delhi High Court in Kanta Mehta v. Union of India, referred supra, which was upheld by the Apex Court in Velayuidhan Achari, T. v. Union of India, referred supra, dealing with Section 45S of the Reserve Bank of India Act, 1934 has no bearing to the impugned enactment.
6.10. Assuming that the powers conferred on the competent authorities and the Special Court under the provisions of the Tamil Nadu Act already exist with the appropriate authorities under the Reserve Bank of India Act, 1934 and Companies Act, 1956, it is contended that there is no repugnancy between the Tamil Nadu Act and Central Acts which provide lesser or lighter consequences, in view of the objects and reasons of the enactment, in providing speedy solution to the agony of the depositors for realization of the dues and on account of the assent given by the President of India for the impugned Act, and, in any event, such incidental trenching upon the field of other legislature is permissible under law.
6.11. It is further contended that the penal provisions contained in the enactment are only incidental as the main object is to protect the interest of the depositors, viz., the money should come back to the depositors and the fraudulent defaults should be rectified by such attachment, auction sale and realization.
6.12. Alternatively, it is contended that the field of legislation of the impugned Act is also traceable to Entries 1, 7, and 8 of the Concurrent List (List-III), viz., Entry 1 of the Concurrent list deals with criminal law, including all matters included in the Indian Penal Code, but excluding offences against laws with respect to any of the matters specified in Lists I and II; Entry 7 deals with contracts; and Entry 8 deals with actionable wrongs, respectively, as the assent of the President under Article 254(2) of the Constitution of India removes the embargo of any such lack of legislative competency.
6.13. The learned Advocate General also opposes the reliance placed on the Criminal Law Amendment Ordinance, 1944, as made applicable by the Criminal Law (Tamil Nadu Amendment) Act, 1997, as the offences dealt with in the impugned Act are unique and calculated, causing economic and social disorder in the society and not covered under the offences scheduled thereunder. According to the learned Advocate General, the commission or omission which attracts the provisions of the Tamil Nadu Act are not governed by any of offences scheduled under the Criminal Law Amendment Ordinance, which require mens rea to be satisfied; whereas it is not so in the case of the statutory offence chargeable under Section 5 of the Tamil Nadu Act. The provisions provided under the Ordinance are all subject to the termination of the criminal proceedings of the scheduled offences. But, in the case of the impugned Tamil Nadu Act, the attachment of the properties is intended to provide an effective remedy to the aggrieved depositors, viz., for the realisation of the dues payable to the depositors equitably.
6.14. The learned Advocate General stoutly opposes the contention of the petitioners that the impugned Act is arbitrary, unreasonable and discriminatory, and violative of principles of natural justice, and thereby, offending Articles 14, 19(1)(g) and 21 of the Constitution of India.
6.15. For all these reasons, it is contended that the decision of the Full Bench of the Bombay High Court in Vijay C.Puljal v. State of Maharashtra, referred supra, has no bearing to test the constitutional validity of the impugned enactment.
V. NUCLEUS OF THE CONFLICT
7. In the light of the above conflicting contentions, the following issues arise predominantly for our consideration:
(i) Whether the Tamil Nadu Act stands the test of reasonableness and does not violate Articles 14, 19(1)(g) and 21 of the Constitution of India, and the principles of natural justice? and
(iii) Whether the Tamil Nadu Government has legislative competence to enact the impugned Tamil Nadu Act?
VI. ANALYSIS & CONSIDERATION
8.1. We have given our careful consideration to the submissions of all parties. We propose to legally and logically analyse and scientifically consider the above issues (i) and (ii) compartmentalized as hereunder:
8.2. Issue No. (i):'Whether the Tamil Nadu Act stands the test of reasonableness and does not violate Articles 14, 19(1)(g) and 21 of the Constitution of India, and the principles of natural justice?'
A) THE Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997.
(a) OBJECTS AND REASONS
(b) DEFINITIONS UNDER SECTION 2
(c) ATTACHMENT OF PROPERTIES BY COMPETENT AUTHORITY UNDER SECTION 3
(d) STATUTORY OFFENCE AND PENALTY UNDER SECTIONS 5 AND 5A
(e) SPECIAL COURT AND CONFIRMATION OF INTERIM ATTACHMENT UNDER SECTIONS 6 AND 7
(f) ATTACHMENT OF PROPERTIES OF MALA FIDE TRANFEREES UNDER SECTION 8
(g) SECURITY AND ADMINISTRATION OF THE PROPERTY ATTACHED AND APPEAL UNDER SECTIONS 9 AND 10
B) Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Rules, 1997
C) VALIDITY WITH REFERENCE TO THE PRINCIPLES OF NATURAL JUSTICE
D) VALIDITY WITH REFERENCE TO THE TEST OF REASONABLENESS AND ARBITRARINESS READ WITH ARTICLES 14, 19(1)(g) and 21 OF THE CONSTITUTION OF INDIA
8.3. Issue No. (ii): 'Whether the Tamil Nadu Government has legislative competence to enact the impugned Tamil Nadu Act?'
A) Vijay C. Puljal v. State of Maharashtra : (2005)107BOMLR983 - (THE MAHARASHTRA ACT)
B) THE PRINCIPLES GOVERNING THE TEST OF LEGISLATIVE COMPETENCY
(a) ARTICLES 245 AND 246 OF THE CONSTITUTION OF INDIA
(b) THE CONCEPT OF OCCUPIED FIELD
(c) LIBERAL AND HARMONIOUS CONSTRUCTION
(d) APPLICATION OF THE DOCTRINE OF PITH AND SUBSTANCE, THE DOCTRINE OF ANCILLARY AND INCIDENTAL TRENCHING AND THE DOCTRINE OF ECLIPSE
(e) THE IMPUGNED TAMIL NADU ACT AND THE RELEVANT ENTRIES IN LISTS I, II AND III OF THE VII SCHEDULE TO THE CONSTITUTION OF INDIA
(f) THE IMPUGNED TAMIL NADU ACT WITH REFERENCE TO SECTION 58A OF COMPANIES ACT, 1956 AND SECTIONS 45S AND 58B(5a) AND 58B(5b) OF RESERVE BANK OF INDIA ACT, 1934
(g) THE IMPUGNED TAMIL NADU ACT AND SECTIONS 45S AND 58B(5A) OF RESERVE BANK OF INDIA ACT, WITH REFERENCE TO THE DECISION IN Kanta Mehta v. Union of India CASE AND Velayuidhan Achari, T. v. Union of India CASE
(h) THE IMPUGNED TAMIL NADU ACT AND SECTION 58A OF THE Companies Act, 1956 WITH REFERENCE TO THE Delhi Cloth and General Mills Co. Ltd. v. Union of India CASE
(i) THE IMPUGNED TAMIL NADU ACT WITH REFERENCE TO THE CRIMINAL LAW AMENDMENT ORDINANCE, 1944 as made applicable by the Criminal Law (Tamil Nadu Amendment) Act, 1997
(j) THE IMPUGNED TAMIL NADU ACT AND THE RELEVANT ENTRIES, VIZ., 1, 7 AND 8 IN LIST III OF VII SCHEDULE TO THE CONSTITUTION OF INDIA
(k) THE IMPUGNED Tamil Nadu ACT AND ENTRY 32 OF LIST II with reference to the power to regulate
(l) THE IMPUGNED TAMIL NADU ACT AND THE CONCEPT OF PUBLIC