Indian Bank vs The Chief Judicial Magistrate

Indian Bank vs The Chief Judicial Magistrate on 23 August, 2006

Dated:23-08-2006
Coram:
The Honourable Mr. Justice Elipe Dharma Rao
C.R.P. (PD) No.1352 of 2005
and
W.P. Nos.1897, 5389, 6453, 7076, 8797, 8800,
9713 and 10052 of 2006
and
C.M.P. No.5081 of 2006 and W.P.M.P. Nos.7713, 7714,
10188, 10189, 5772 to 5774, 9737, 9004, 2151 to 2153,
4564, 4567, 6960, 6961, 9733, 10819 and 10820 of 2006
C.R.P. No.1352 OF 2005
Indian Bank
Main Branch
rep. by its Authorised Officer
Mr. N. Jayaraman
M.G. Street
Pondicherry ..... Petitioner
:versus:
1. The Chief Judicial Magistrate
Pondicherry
2. M/s. New Horizon Sugar Mills Ltd.
rep. by Executive Director
Mr. Madhavan
Ariyur, Kandamangalam Post
Pondicherry 605 102
3. State rep. by
Inspector of Police (CID)
Pondicherry

4. Mr. V. Kannan
5. Mr. V. Bhaskaran ..... Respondents
W.P. No.1897 of 2006:
M/s. New Horizon Sugar Mills Ltd.
Ariyur, Kandamangalam Post
Pondicherry 605 102
rep. by its Director V. Kannan .... Petitioner
:versus:
1. Union of India
rep. by the Secretary to Govt.
Ministry of Finance
New Delhi 110 001
2. Indian Bank
rep. by its Chief Manager
288 Mahatma Gandhi Road (II Floor)
Pondicherry 605 001
3. The Authorised Officer
Indian Bank
288 Mahatma Gandhi Road (II Floor)
Pondicherry 605 001
4. M/s. EID Parry India Limited
Head Office DARE House
234 NSC Bose Road
Chennai 600 001 .... Respondents
- - - - -
Revision Petition under Art.227 of the Constitution of India, against the proceedings of the Chief Judicial Magistrate, Pondicherry in Crime No.31 of 2004.
Petition under Art.226 of the Constitution of India, praying for a Writ of Mandamus directing the 3rd respondent to forthwith return to the petitioner such sums as would be due from out of the total sale consideration, after deducting the cost, charges and expenses and the dues of the 2nd respondent incurred upto 1-1-2005 on which date the possession had been taken over and forthwith return the remaining documents of title pertaining to the movable and immovable properties belonging to the petitioner after lifting the 2nd respondent's charge, sugar and molasses stocks. For Petitioner Mr. V.T. Gopalan
(in CRP 1352/05) :: Senior Counsel for
M/s. Aiyar & Dolia
For Respondents :: Mr. T. Murugesan
Senior Govt. Pleader
(for R1 and R3)
Mr. G. Rajagopalan
Senior Counsel for
M/s. Gupta and Ravi (R4&R5)
For Petitioner :: Mr. P.S. Raman, Sr.Counsel
(in W.P. No.1897/06) for M/s.Gupta & Ravi
For Respondents Mr. T.R. Rajagopalan, S.C.
For Mr. T.R. Rajaraman
(for R2 and R3)
Mr. V.T. Gopalan
Addl. Solicitor General
(for R1)
For Petitioner :: Mr. V.T. Gopalan, S.C.
(In W.P. No.5389/06) for M/s. Aiyar & Dolia
For Respondents Mr. T. Murugesan
Sr. Govt. Pleader for
R1, R2 and R4
Mr. T.R. Rajagopalan, S.C.
For Mr. T.R. Rajaraman (R3)
For Petitioner :: Mr. T.R. Rajagopalan, S.C.
(in W.P. No.6453/06) for Mr. T.R. Rajaraman
For Respondents Mr. V.T. Gopalan, S.C.
For M/s. Aiyar & Dolia (R4)
Mr. T. Murugesan
Sr. Govt. Pleader for
R1, R2, R3 and R5

For Petitioner :: Mr. R. Viduthalai, S.C.
(In W.P. No.7076/06) for M/s. Rangarajan and
Prabhakaran
For Respondents Mr. T. Murugesan
Sr. Govt. Pleader for UTP
For Petitioner :: Mr. G. Rajagopalan, S.C.
(In W.P. No.8797/06) for M/s. Gupta & Ravi
For Respondents Mr. T. Murugesan
Sr. Govt. Pleader for R1
For Petitioner :: Mr. G. Rajagopalan, S.C.
(In W.P. No.8800/06) for M/s. Gupta & Ravi
For Respondents Mr. T. Murugesan
Sr. Govt. Pleader for R1
For Petitioner :: Mr. G. Rajagopalan, S.C.
(In W.P. No.9713/06) for M/s. Gupta & Ravi
For Respondents Mr. T. Murugesan
Sr. Govt. Pleader for R1
For Petitioner :: Mr. P.S. Raman, S.C.
(in W.P. No.10052/06) for M/s. Gupta & Ravi
For Respondents Mr. T. Murugesan
Sr. Govt. Pleader for R1
- - - - -
COMMON ORDER
The above Civil Revision Petition and the eight writ petitions are disposed of by this common order as the facts involved in each case are interconnected and have a bearing on the issues arising out of the said facts.
2. On 25-5-1983, M/s. New Horizon Sugar Mills Limited, Pondicherry availed credit facilities from the Indian Bank, M.G. Road, Pondicherry, to the tune of Rs.26,50,00,000/-. The said mill offered as security its land and building situate at Ariyur. The Directors of the mill, viz. V. Kannan and V. Baskaran, stood as guarantors for the due repayment of the loan amount and they also offered their personal properties as collateral security. The mill, however, committed default in repayment of the loan amount. The bank after declaring the loan account of the mill as non performing asset, proceeded to issue the notice under Sec.13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act), which was challenged by the mill by filing a writ petition (W.P. No.33700 of 2004) before this Court. This Court, by order dated 6-12-2004, disposed of the said writ petition by directing the borrower-mill to repay the entire loan amount in three instalments and in default, the bank was entitled to proceed against the mill in accordance with law. The mill committed default as it did not pay even the first instalment as directed by this Court. The bank, in terms of the order passed by this Court, proceeded further and after complying with the statutory formalities under Sec.13(2) and Sec.13(4) of the SARFAESI Act, took possession of the property offered as security on and brought it for auction sale. When the auction sale notice was published by the bank, M/s. PNL Depositors' Welfare Association filed a writ petition (W.P. No.9834 of 2005) challenging the auction sale. While admitting the said writ petition, this Court permitted the auction proceedings to go on, but directed that the sale shall not be confirmed until further orders of this Court. Accordingly, the auction proceedings went on and M/s. EID Parry India Limited was the successful bidder, who deposited 25% of the amount, but the sale was not confirmed in their favour. There were several other writ petitions filed by other banks and other agencies to safeguard and protect their claims against the said mill. The workers/employees of the said mill had also filed a writ petition (W.P. No.10060 of 2005) seeking for quashing of the auction sale notice and to continue to run the mill. Ultimately, a quietus was given in the matter on 12-7-2005, when all these writ petitions were dismissed by this Court in the light of the judgment of the Supreme Court in Mardia Chemical's case (2004 [4] SCC 311). In so far as the writ petition filed by PNL Depositors' Welfare Association was concerned, this Court disposed of the said writ petition directing the association to work out their remedy under the provisions of the Reserve Bank of India as well as Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004. On receipt of the sale confirmation letter from the bank, M/s. EID Parry India Limited, who was the successful bidder, remitted the entire balance amount within the prescribed time and also complied with all necessary formalities for getting the sale certificate registered in their favour.
3. While so, on the complaint given by one Bhoonathan, a case in Crime No.31/2004 was registered against V. Kannan and V. Baskaran, who are said to be the major shareholders of M/s. Pondicherry Nidhi Limited (PNL Nidhi Ltd.), Pondicherry and ex-Directors thereof, as well as the Directors of M/s. New Horizon Sugar Mills Limited, for the offences punishable under Secs.409, 420 r/w 34 IPC and Secs.138 and 142 of the Negotiable Instruments Act on the allegation that they misappropriated a sum of of Rs.12.5 crores belonging to P.N.L. Nidhi Limited and diverted the said amount to their own trade and business in M/s. Arunachalam Sugar Mills Limited, Tamil Nadu and M/s. New Horizon Sugar Mills Limited, Pondicherry and Sri Malini Spinning Mills Limited, Tamil Nadu. In the said criminal case, the Chief Judicial Magistrate, Pondicherry, based on the entries found in the revenue records and the encumbrance certificates produced before him by the investigating officer, had passed an order dated 18-2-2005 directing the attachment of various properties standing in the names of the accused V. Kannan and V. Baskaran and their mother Sivapriya.
4. In the mean time, the Government of Pondicherry, in exercise of the powers conferred under the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004, issued a notification in G.O.Ms. No.12 dated 18-2-2006 ordering the attachment of the properties allegedly acquired by M/s. Pondicherry Nidhi Limited (PNL Nidhi Limited), Pondicherry.
5. In view of the order dated 18-2-2005 passed by the Chief Judicial Magistrate in Crime No.31 of 2004 attaching the properties standing in the names of M/s. V. Kannan and V. Baskaran and the notification issued by the Government of Pondicherry vide G.O.Ms. No.12 dated 18-2-2006 attaching the properties allegedly acquired by M/s. Pondicherry Nidhi Limited (PNL Nidhi Ltd.), the successful bidder, viz. M/s. EID Parry India Limited could not get the sale certificate in respect of the property, viz. land and building comprising in R.S. No.7/2 and 118 measuring 3.99 and 13.10.00 hectares in Ariyur village, purchased by them in the auction sale registered in their favour as the District Registrar, Registration Department of Pondicherry refused the register the document citing the order of attachment passed by the Chief Judicial Magistrate.
6. Aggrieved, M/s. EID Parry India Limited have filed writ petition (W.P. No.6453 of 2006) seeking the relief of Writ of Certiorarified Mandamus for quashing the G.O.Ms. No.12 dated 18-2-2006 and for a direction to the District Registrar, Registration Department, Pondicherry to register the sale certificate in respect of the property purchased by them in the auction sale in their favour. Similarly, the Indian Bank has also filed a writ petition (W.P. No.5389 of 2006) seeking the relief of quashing the G.O.Ms.No.12 dated 18-2-2006 and to permit them to comply with the provisions of SARFAESI Act for registering the sale certificate in favour of M/s.EID Parry India Limited. The said bank has also filed the civil revision petition (C.R.P. No.1352 of 2005) challenging the order dated 18-2-2005 passed by the Chief Judicial Magistrate in Crime No.31 of 2004.
7. M/s. New Horizon Sugar Mills Limited has filed W.P. No.1897 of 2006 seeking the relief of Writ of Mandamus, directing the Indian Bank to forthwith return to them such sums as would be due from out of the total sale consideration, after deducting the cost, charges and expenses and the dues of the bank incurred as on 1-1-2005, the date on which the possession of property offered as security was taken over and return the remaining documents of title pertaining to the movable and immovable properties belonging to the mill after lifting the bank's charge. The said mill has also filed another writ petition (W.P. No 8797 of 2006) challenging the validity of G.O.Ms.No.12 dated 18-2-2006.
8. M/s. V. Kannan and V. Baskaran and two others, who claim to be the major shareholders of PNL Nidhi Limited, Pondicherry and also the Directors of M/s. New Horizon Sugar Mills have filed two writ petition, viz. W.P. Nos.9713 and W.P. No.10052 of 2006. While in W.P. No.9713 of 2006 they challenge the validity of G.O.Ms. No.12 dated 18-2-2006, in W.P. No.10052 of 2006, they challenge the validity of the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004.
9. Two more writ petitions were filed, viz. W.P. Nos.7076 and 8800 of 2006 by M/s. Indian Renewable Energy Development Agency Limited, New Delhi and M/s. Arunachalam Sugar Mills Limited, Pondicherry respectively challenging the validity of G.O.Ms.No.12 dated 18-2-2006.
10. Shri V.T. Gopalan, learned senior counsel appearing for Indian Bank, who is the petitioner in C.R.P. No.1352 of 2005 and W.P. No.5389 of 2006, submitted that when once the issue relating to sale of the properties in question of the second respondent Mill under the provisions of the SARFAESI Act had been concluded by this Court by dismissing the writ petitions filed challenging the action taken by the petitioner bank under the provisions of the SARFAESI Act, the learned Chief Judicial Magistrate ought to have taken note of the order passed by this Court and should not have proceeded to attach the property. The Chief Judicial Magistrate unmindful of the order passed by this Court had passed the impugned order which has the effect of the frustrating the order passed by this Court confirming the auction sale of the properties in question. The impugned order is, therefore, wholly without jurisdiction and null and void. Learned senior counsel further submitted that pursuant to the confirmation of the auction sale by this Court, the petitioner bank has to execute the sale certificate in favour of EID Parry India Limited, who was the successful bidder, and the impugned order passed by the Chief Judicial Magistrate stands in the way of the petitioner-bank executing the sale certificate in favour of the successful bidder, resulting in loss and hardship not only to the successful bidder but also to the petitioner bank. Learned counsel further submitted that in the said criminal proceedings the property in question was shown as the property of M/s. V. Kannan and V. Baskaran, who are respondents 4 and 5, whereas in fact the property in question belongs to the second respondent Mill, which is a separate legal entity and which created the equitable mortgage in favour of the petitioner bank.
11. Learned senior counsel further submitted that the impugned order passed by the Government of Pondicherry vide G.O.Ms.No.12 dated 18-2-2006 is wholly illegal and without jurisdiction. Learned senior counsel submitted that the impugned order virtually nullifies the order passed by this Court in the batch of writ petitions challenging the auction sale proceedings initiated by the bank. Learned senior counsel submitted that the impugned notification had been issued only at the behest of the owners of the sugar mill and the action of the Government in issuing the impugned notification is ex facie illegal and tainted with mala fides and ulterior motives.
12. In sum and substance the argument of the learned senior counsel is the impugned order passed by the Chief Judicial Magistrate and the impugned notification issued by the Government are illegal and unsustainable in law as they run counter to the order dated 12-7-2005 passed by this Court in a batch of writ petition and that the impugned order and the impugned notification had virtually frustrated the order passed by this Court confirming the auction sale proceedings held under Sec.13(4) of the SARFAESI Act by the petitioner-bank.
13. Shri T.R. Rajagopalan, learned senior counsel appearing for M/s. EID Parry India Limited, who is the petitioner in W.P. No.6453 of 2006, submitted that in view of the impugned notification the petitioner, who is the successful bidder in the auction sale and in whose favour the sale has also been confirmed by this Court, is put to serious prejudice as the entire amount has already been paid and the possession alone is denied. Learned senior counsel submitted that property in question belongs to the sugar mill and not the personal properties of M/s.V. Kannan and V. Basakaran and, therefore, the attachment is illegal. Learned senior counsel further submitted that the provisions of Protection of Interest of Depositors' in Financial Establishment Act, 2004 will have no application to the property in question purchased by the petitioner as the same was purchased in an auction sale held by the Indian Bank under the provisions of SARFAESI Act. Learned senior counsel further submitted that the impugned notification attaching the property after the Indian Bank had enforced its rights as a secured creditor under the SARFAESI Act is clearly illegal. There was no property available for attachment on the date of impugned notification as the Indian Bank had already enforced its right in the mortgage and, therefore, the impugned notification in so far as it relates to the property in question is invalid.
14. The challenge to the validity of G.O.Ms. No.12 issued by the Government of Pondicherry is almost similar and the line of arguments addressed by the learned counsel is also common. Shri G. Rajagopalan, learned senior counsel appearing for the petitioners in W.P. Nos.8797, 8800 and 9713 of 2006 submitted that the impugned notification is wholly illegal and passed without jurisdiction. It was submitted that the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2005 is liable to be struck down inasmuch as it suffers from the legislative incompetence and hence the said Act is ultra vires the Constitution of India. Consequently, the impugned notification issued by the Government of Pondicherry in exercise of the powers under Sec.4(2) of the said Act is also liable to be set aside.
15. Learned senior counsel further submitted that the properties attached under the impugned notification stand in the name of the individual persons and not in the name of the company. While the preamble to the impugned notification says that the properties were alleged acquired by PNL Nidhi Limited, the schedule attached to the notification shows that the properties stand in the name of M/s.V.Kannan, V. Baskaran and their mother Sivapriya. This itself shows the non-application of mind in issuing the impugned notification. It was further submitted that the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 do not apply to PNL Nidhi Limited as it is a company registered under the Companies Act and excluded from the definition of "financial establishment" under Sec.2(d) of the said Act. The respondent Government has no jurisdiction to issue the impugned notification to make the provisions of the said Act applicable to PNL Nidhi Limited and, on that score, the impugned notification is liable to struck down.
16. Shri R. Viduthalai, learned senior counsel appearing for the petitioner in W.P. No.7076 of 2006 submitted that the impugned notification was issued much after the petitioner had taken possession of the property in question under the provisions of the SARFAESI Act and the action of the Government of Pondicherry in issuing the impugned notification belatedly was an afterthought and with an oblique motive to defeat the rights and interests of the secured creditors like the petitioner of their valuable rights to sell the secured assets under the provisions of the SARFAESI Act. The Government while issuing the impugned notification had failed to take into consideration the security interest of various secured creditors like the petitioner. Learned counsel further submitted that the Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004 was enacted to secure the interests of the depositors in non-banking companies and therefore, the properties belonging to New Horizon Sugar Mills Limited and Arunachalam Sugar Mills Limited, which are companies registered under the Companies Act having separate legal entity, cannot be attached under the impugned notification. The said Act was enacted totally for a different purpose, i.e. to protect the interests of the depositors in the financial establishments whereas the provisions of the SARFAESI Act are to regulate the securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith.
17. Shri P.S. Raman, learned senior counsel appearing for M/s. New Horizon Sugar Mills Limited, who is the petitioner in W.P. No.1897 of 2006 and for M/s. V. Kannan and V. Baskaran and others, who are petitioners in W.P. No.10052 of 2006, submitted that the petitioner M/s. New Horizon Sugar Mills Limited was constrained to file the above writ petition as the Indian Bank is illegally and unlawfully withholding the excess of the sale consideration received from the sale of the assets of the petitioner after adjusting the alleged claim of the bank. Learned senior counsel submitted that even as per the notice issued under Sec.13(2) of the SARFAESI Act, the amount due and payable is Rs.27 crores, whereas the properties were sold in the auction sale under Sec.13(4) of the SARFAESI Act for a sum of Rs.50.20 crores, which amount is far in excess as against the claim of the bank. The excess amount so received by the bank were to be held in trust by the bank under Sec.13(7) of the SARFESI Act and were to be applied only for payment of dues as set out in the said Act and the residue of the amount has to be paid to the petitioner mill as there are no other secured creditors. Learned counsel submitted the respondent-bank in collusion with the purchaser of the property has been making payments in complete breach of the trust and that such continued dissipation of the amounts due and payable to the petitioner mill is causing grave and serious prejudice to the petitioner and the future viability of the petitioner mill has been seriously prejudiced by such action. The entire claim of the respondent-bank having been satisfied, rest of the secured assets ought to have been returned to the petitioner. The respondent-bank cannot assume of the role of Official Liquidator and disburse the amounts to the alleged claimants as if the petitioner company underwent liquidation or wound up.
18. Learned senior counsel further submitted that the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004 are ultra vires the Constitution of India inasmuch as the Government of Pondicherry lacks legislative competence to enact such a legislation as the said subject neither fall under the State List nor under the Concurrent List of the Constitution of India, but falls entirely under the Union List. Learned senior counsel further submitted that the said enactment directly conflicts with the provisions of the Companies Act and the Reserve Bank of India Act. When once the Government of Pondicherry did not have the legislative competence to enact the said enactment and therefore ultra vires the Constitution of India, as a necessary corollary, the impugned notification issued by the Government of Pondicherry in G.O.Ms. No.12 dated 18-2-2006 in exercise of powers under Sec.4(2) of the said Act is also liable to be set aside. Further, when PNL Nidhi Limited is a company registered under the Companies Act, the provisions of the said Act do not apply as such financial companies have been excluded from the definition of "financial establishment" under Sec.2(d) of the said Act.
19. In reply to the above submissions, Shri T. Murugesan, learned Senior Government Pleader for Union Territory of Pondicherry, submitted that several complaints were received from the depositors/general public against the Chairman/Diectors of M/s.PNL Nidhi Limited alleging misappropriation of huge amounts deposited by the public in the said finance company. On the specific complaint given by one Boothanathan, a case was registered in Crime No.31 of 2004. Investigation revealed that M/s.V. Kannan and V. Baskaran of PNL Nidhi Limited have misappropriated huge sums of money invested by thousands of depositors and diverted the said amount to their own trade and business like M/s. New Horizon Surgar Mills, M/s. Arunachalam Sugar Mills, Lakshmi Packaging, Sri Malini Spinning Mills, etc. The investigation further revealed that the said persons have also re-pledged the gold jewels pledged with them by various persons and misappropriated the said amount for their personal benefits. During the course of investigation, it came to light that a sum of Rs.12.37 crores was drawn from M/s.PNL Nidhi Limited and paid to M/s. V. Kannan and V. Baskaran and that the land belonging to the New Horizon Sugar Mills Limited and others owned by M/s. V. Kannan and V. Baskaran and their mother Sivapriyai were to be sold to PNL Nidhi Limited for Rs.12.37 crores, but subsequent to the receipt of money, no sale took place. The investigating agency, therefore, moved the competent criminal court for attaching the properties standing in the names of M/s. V. Kannan and V. Baskaran and their mother Sivapriyai, M/s. New Horizon Sugar Mills Limited and other group companies. The Chief Judicial Magistrate, after considering the overwhelming evidence placed on record, passed an order dated 18-2-2005 attaching the properties standing in the names of the accused persons as well as the group of companies owned by them. As many as eighteen persons were arrested and the Directors of the company, viz. M/s. V. Kannan and V. Baskaran were absconding for a long time and ultimately they were also arrested and remanded to judicial custody. The Government of Pondicherry to protect the interests of the depositors has issued the impugned notification vide G.O.Ms. No.12 dated 18-2-2006, attaching all the properties standing in the names of M/s. V. Kannan and V. Baskaran and their mother Sivapriyai and M/s. New Horizon Sugar Mills Limited and other group of companies owned by the said persons. The order of attachment passed by the Chief Judicial Magistrate got merged with the order of attachment passed by the Government through the impugned notification. On coming to know of the order of attachment passed by the Chief Judicial Magistrate, Indian Bank, filed a petition before the Chief Judicial Magistrate for either lifting the order of attachment in respect of the properties sold by them to M/s. EID Parry India Limited in the auction sale proceedings held under Sec.13(4) of the SARFAESI Act. The said bank as well as the M/s. EID Parry India Limited have also filed the writ petitions challenging the impugned notification passed by the Government of Pondicherry. The accused persons and the group of companies owned by them have also filed writ petitions challenging the action taken by the Government as also the validity of the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2005.
20. Learned senior counsel submitted that the order of attachment of properties was initially by the criminal court which is competent and having jurisdiction under the Code of Criminal Procedure Code to pass such an order. In fact, Indian Bank itself has filed a petition for lifting the order of attachment in so far as the properties sold by them to M/s. EID Parry India Limited in the auction sale held under Sec.13(4) of the SARFAESI Act. In the present civil revision petition also there is no challenge to the impugned order of attachment passed by the Chief Judicial Magistrate. Therefore, it cannot be contended that the impugned order passed by the Chief Judicial Magistrate is without jurisdiction. Further more, the petitioner in the civil revision petition is not a party to the proceedings pending before the Chief Judicial Magistrate. Under Sec.173 of the Code of Criminal Procedure, the competent criminal court is competent to pass orders to keep the property in status quo till the investigation is completed and the evidence is collected. Further, the order of attachment passed by the Chief Judicial Magistrate got merged with the impugned notification passed by the Government of Pondicherry. Therefore, the revision petitioner should work out their remedy before appropriate forum and not before this Court. So long as the competent criminal court exercises its jurisdiction within the four corners of the criminal law, there is not confrontation with the other forums. In the present case, there is no confirmation of sale in favour of M/s. EID Parry India Limited by this Court as contended by the revision petitioner. Therefore, the grounds raised in the civil revision petition and the contentions urged by the petitioner are absolutely baseless and unsustainable in law.
21. Learned senior counsel further submitted that the impugned notification circulated to the Registering authorities directing them not to register the properties shown in the annexure to the notification was in accordance with the orders of this Court dated 12-7-2005 in W.P. No.9834 of 2005, which directed the depositors of PNL Nidhi Limited to work out their remedy under the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act and pursuant to that the depositors approached the Government for remedy and the properties were attached under Sec.4 of the said Act. Therefore, the impugned notification of the Government is within the ambit of law and in pursuance of the orders of this Court. Learned senior counsel further submitted that as per Sec.31(i) of the SARFAESI Act, any security interest created in agricultural land cannot be covered under the said Act. The properties of New Horizon Sugar Mills includes agricultural lands also and hence invoking of SARFAESI Act in relation to such agricultural lands by the bank is beyond their powers. Further, when there is a specific order of the Chief Judicial Magistrate, which got merged with the impugned notification, the Registration Department could not register the sale certificate. Under Sec.10(3) of the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2005, any person claiming an interest in the attached property may file his objections before the Designated Court. In the present case, since a court has been designated and notified vide G.O.Ms.No.26/05/LD dated 26-10-2005, the concerned petitioner could very well approach the Designated Court and file their grievances.
22. Learned senior counsel further submitted that the properties were attached under the special enactment made under the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2005 and Sec.4 of the said Act provides for attaching the personal assets of the promoters, partners, directors, managers or members or any other person of the defaulting financial establishment. It is purely in exercise of the powers conferred under Sec.4 of the said Act, the assets owned by the promoters/Directors of M/s.PNL Nidhi Limited were attached. The attachment of properties so made under the said Act will have the overriding effect of attachment made under other enactments. The concerned petitioner not having brought to the notice of this Court that the properties of New Horizon Sugar Mills Limited were already attached by the Chief Judicial Magistrate cannot claim to have any right to auction the said properties under the SARFAESI Act. In any event, though auction sale proceedings were completed under Sec.13(4) of SARFAESI Act, the sale is yet to be confirmed and the Registering authorities rightly refused the register the sale certificate in favour of M/s. EID Parry India Limited in view of the order of attachment passed by the Chief Judicial Magistrate and the subsequent notification issued by the Government. The order of attachment passed by the Chief Judicial Magistrate was not brought to the notice of this Court while deciding the earlier writ petition and the concerned petitioners deliberately suppressed the said fact before this Court. Further, by attaching the properties of M/s. New Horizon Sugar Mills Limited as early as on 18-2-2005 by obtaining an order of attachment from the competent criminal court and subsequently by passing the impugned notification on 18-2-2006 under the special enactment, the Government of Pondicherry has secured the first charge over the property of New Horizon Sugar Mills Limited.
23. Heard the learned counsel appearing for the parties and perused the entire material placed on record. Considering the facts and circumstances of the case and upon perusing the relevant materials placed on record, I am of the view that the civil revision petition filed by Indian Bank and the writ petitions viz. W.P. Nos.5389, 6453, 1897, 7076 and 8800 of 2006 filed by Indian Bank, M/s. EID Parry India Limited, M/s. New Horizon Sugar Mills, Pondicherry, M/s. Indian Renewable Energy Development Agency Limited, New Delhi and M/s. Arunachalam Sugar Mills Limited, Pondicherry respectively can be tagged together and disposed of inasmuch as in all these matters, the petitioners are aggrieved over the inclusion of certain properties in the impugned orders of attachment passed by the Chief Judicial Magistrate and subsequently in the G.O.Ms.No.12 passed by the Government. According to the petitioners, in respect of the properties in question proceedings under Sec.13(2) and Sec.13(4) of the SARFAESI Act has already been initiated and the said proceedings were almost reached a finality, but in view of the impugned notifications, the said properties could not be registered and legally transferred in the name of the buyers as the Registering Authority refused to register the sale instrument in view of the impugned Government Order. According to them the said properties could not be attached under the impugned orders and, therefore, the attachment should be lifted. The grievance of M/s. New Horizon Sugar Mills, petitioner in W.P. No.1897 of 2006, is that Indian Bank, after adjusting their claim against them, is withholding excess of the sale consideration received from M/s. EID Parry India Ltd. and that such excess amount should be directed to be returned to them.
24. As already stated, Indian Bank offered credit facilities to M/s. New Horizon Sugar Mills Limited to the tune of Rs.26.50 crores. For availing the said credit facility, the borrower-mill had offered as security interest the property belonging to the mill comprised in R.S. No.7/2 and 118 of Ariyur Village, all that part and parcel of the land measuring to an extent of 42.24 acres by creating equitable mortgage in favour of the bank. The Directors of the mill, viz. V. Kannan and V. Baskaran, stood as guarantors for the due repayment of the loan amount and also offered their personal properties as collateral security. The loan account was declared as Non Performing Asset since the borrower-mill committed default in repayment of the dues, which was followed by initiation of proceedings under Sec.13(2) and Sec.13(4) of the SARFAESI Act. In the writ petition filed by the borrower-mill challenging the said proceedings, this Court directed the borrower-mill to repay the entire loan amount in three instalments and in default, the bank was permitted to proceed against the mill in accordance with law. The mill committed default and, therefore, the bank once again initiated proceedings under the SARFAESI Act, took possession of the property and brought it for auction sale. The auction sale notice was challenged before this Court by M/s. PNL Depositors' Welfare Association. This Court permitted the auction proceedings to go on, but directed that the sale shall not be confirmed until further orders of this Court. Accordingly, the auction proceedings went on and M/s. EID Parry India Limited was the successful bidder in the auction sale. M/s. EID Parry India Limited remitted the entire balance amount within the prescribed time and also complied with all necessary formalities for getting the sale certificate registered in their favour. In the mean time, on a private complaint given against M/s. V. Kannan, V. Baskaran, who are promoters and Directors of M/s. PNL Nidhi Limited, and their mother Sivapriya, criminal case was registered and in the said criminal proceedings, the Chief Judicial Magistrate on 18-2-2005 passed an order attaching all the properties standing in the names of M/s. V. Kannan, V. Baskaran and their mother Sivapriya. The Indian Bank moved the said criminal court for lifting the order of attachment in so far as it related to the property sold by them under the SARFAESI Act. In the mean time, the Government of Pondicherry, exercising powers under Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004 passed the impugned notification attaching the properties allegedly acquired by M/s. PNL Nidhi Limited, Pondicherry. The impugned notification issued by the Government of Pondicherry also included the properties that were already ordered to be attached by the Chief Judicial Magistrate. In view of these subsequent developments, EID Parry India Limited could not get the property registered in their favour since the registering authority refused to register the document in view of the impugned order of attachment passed by the Government.
25. In the above facts and circumstances, the point that arise for consideration is when once the property in question was duly attached and brought to public sale in terms of the provisions of SARFAESI Act, can the very same property be attached by the Government by issuing the impugned notification under the Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004. Before considering this question, since arguments were addressed on the maintainability of the civil revision petition, that issue is taken up for consideration first.
26. Learned senior counsel for the revision petitioner submitted that the civil revision petition was filed under Art.227 of the Constitution of India, challenging the order of attachment dated 8-2-2005 passed by the Chief Judicial Magistrate and seeking the relief of lifting the order of attachment in so far as it relating to the property of New Horizon Sugar Mills Limited. According to the learned counsel for the petitioner when once it was brought to the notice of the Chief Judicial Magistrate that proceedings under Sec.13(2) and Sec.13(4) of the SARFAESI Act were initiated against the said property, the various orders passed by the Hon'ble High Court in the writ petitions challenging the said proceedings, including the order dated 12-7-2005 in W.P. Nos.10077 of 2005 etc. confirming the sale conducted on 24-3-2005, that the property in question was belonging to the company M/s. New Horizon Sugar Mills Limited, which is a separate legal entity, and not belonging to M/s. V. Kannan, V. Baskaran and Sivapriya and that the petitioner bank since having first charge over the property was the rightful claimant, the Chief Judicial Magistrate should have deleted the said property from the order of attachment. On the other hand, the learned Chief Judicial Magistrate refused to lift of the attachment and proceeded with the trial of the case. In these circumstances, since the order passed by the learned Chief Judicial Magistrate is wholly without jurisdiction, ex facie illegal, null and void and, therefore, the present revision petition challenging the same under Art.227 of the Constitution of India is maintainable in law.
27. In support of the above contentions, learned senior counsel relied on B. MISHRA v. B. DIXIT (AIR 1972 SC 2466; ACHUTANANDA BAIDYA v. PRAFULLYA KUMAR GAYEN AND OTHERS(1997) 5 SCC 76.
28. On the other hand, learned Senior Government Pleader for the respondent-State submitted that the revision petition is not maintainable on the ground that once the petitioner has approached the criminal court by way of filing a petition to lift the order of attachment, he should have waited till the orders are passed thereon by the court particularly when the Chief Judicial Magistrate has started the consideration of the matter and recording of the evidence. Learned senior counsel further submitted that when the revision petitioner is having alternative remedy of revision or appeal against the order of Chief Judicial Magistrate, they should not have approached this Court by filing the revision petition. In support of his contentions, learned senior counsel relied on the decision of the Supreme Court in ANANDWARDHAN AND ANOTHER v. PANDURANG AND OTHERS (2005 [11] SCC 195) and ESTRALLA RUBBER v. DASS ESTATE (P) LTD. (2001 [8] SCC 97). Learned senior Government Pleader, therefore, submitted that the revision petition is liable to dismissed as not maintainable.
29. Heard both the learned senior counsel. The present civil revision petition, as is clear from the grounds of revision, challenges the proceedings of the Chief Judicial Magistrate, Pondicherry in Crime No.31 of 2004 only in so far as it relates to the property in question, i.e. property of New Horizon Sugar Mills Ltd. The revision petitioner is aggrieved over the inclusion of the property in question in the order of attachment passed by the Chief Judicial Magistrate. On coming to know that the property of New Horizon Sugar Mills is also included in the order of attachment, the revision petitioner filed a petition before the Chief Judicial Magistrate praying for raising of the attachment in so far as it related to the property in question since they have first charge over the said property and further that the said property had already been sold pursuant to the proceedings initiated under Sec.13(4) of the SARFAESI Act. The Chief Judicial Magistrate has not passed any orders on the said petition, but continued with the trial of the case. Considering the entire material placed on record, it is clear that material facts relating to the initiation of proceedings under the SARFAESI Act against the property in question, writ petitions filed before this Court and the various interlocutory orders passed by this Court in the said writ petitions were brought to the notice of the Chief Judicial Magistrate and considering the over all facts and circumstances of the case, I am of the considered view that the Chief Judicial Magistrate should not have proceeded with the trial of the case. Therefore, inasmuch as the main ground of challenge in the revision petition relates only to the inclusion of the property of New Horizon Sugar Mill Limited in the impugned order of attachment passed by the Chief Judicial Magistrate, I am of the view that the civil revision petition is maintainable.
30. Now, coming to the merits of the civil revision petition and the connected writ petitions, as already stated, the grievance of the petitioners is inclusion of certain properties in the impugned order of attachment. On 25-05-1983 the said Mill availed loan from Indian Bank, Pondicherry for Rs.26.50 crores by offering the said property and created equitable mortgage of factory, land and building owned by the said mill in R.S. Nos.7/2 and 118 Ariyoor Village. On 22-12-2000 the mill further created hypothecation of certain plant and machinery in favour of the bank for the said loan. Since the mill committed default in payment of the intallments, on 31-03-2002, the loan account was declared as Non Performing Asset and on 25-09-2004 the bank initiated proceedings under the SARFAESI Act by issuing notice under Sec.13(2). In the writ petition filed by the mill challenging the notice issued under Sec.13(2), this Court permitted the mill to pay the entire dues in three instalments, but the mill failed to pay even the first instalment. The bank, therefore, took possession of the property on 1-1-2004 after issuing the notice under Sec.13(4) of the SARFAESI Act and brought the property for sale in public auction, in which M/s. EID Parry India Limited, one of the writ petitioners herein, was the highest bidder with the offer of Rs.50.20 crores. The successful bidder had also paid the entire sale consideration on 27-07-2005. The sale in favour of M/s.EID Parry India Limited was also confirmed by this Court on 12-07-2005 when the writ petition filed by the mill was dismissed. It is pertinent to note that in W.P. No.9834 of 2005 filed by PNL Depositors Welfare Association as early as on 23-03-2005 challenging the auction sale notice, Superintendent and Inspector CID, Pondicherry were arrayed as respondents 4 and 5. Therefore, they have the knowledge about the proceedings initiated against the said property under SARFAESI Act. From the dates and events, it is clear that the proceedings against the property in question under the SARFAESI Act has been initiated in the year 2004 and the Government as well as the depositors of PNL Nidhi Limited are aware of such proceedings. Therefore, when the proceedings initiated by the bank under SARFAESI Act has got the approval of the High Court by way of passing interim orders at the interlocutory stage permitting the proceedings under Sec.13(4) to go on, but not to finalise the sale and, thereafter, even the sale held under Sec.13(4) was confirmed and the writ petition was dismissed, the aggrieved persons, be it depositors of PNL Nidhi Limited and/or the Government of Pondicherry as protector of the interests of the depositors under the Special Act, in so far as the property in question is concerned, should have approached the Tribunal under Sec.17 of the SARFAESI Act by stating their objections. The right of appeal provided under Sec.17 is open to any person (including borrower) aggrieved by any of the measures referred to in Sec.13(4) taken by the secured creditor. When the depositors had filed a writ petition (W.P. No.9834 of 2005) on 23-03-2005 challenging the proceedings under SARFAESI Act, in which Superintendent and Inspector CID, Pondicherry were arrayed as respondents 4 and 5, nothing prevented the depositors or their association or even for that matter the Government of Pondicherry to intervene themselves in the SARFAESI proceedings or at least file an appeal under Sec.17 of the SARFAESI Act. This has not been done in this case. Instead, the Government of Pondicherry passed an order of attachment through impugned notification, which also included the above property.
31. There is yet another reason to exclude the above said property from the impugned orders of attachment passed by the Chief Judicial Magistrate as well as the Government of Pondicherry. Sec.35 of the SARFAESI Act provides for overriding effect of the proceedings initiated under the SARFAESI Act as against the proceedings initiated under any other laws. It provides that the provisions of the SARFAESI Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. It may be so that under the Code of Criminal Procedure, the criminal court has got jurisdiction and powers to attach any property in status quo for the purpose of completing investigation and to adduce evidence at the time of trial. It is equally so that the Government is also well within their powers to pass an enactment, Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004, Act I of 2005, to protect the interests of the gullible depositors and to order attachment of the property under such enactment. However, in view of the clear language of Sec.35 of the SARFAESI Act, the proceedings initiated by the bank in respect of the property in question under the SARFAESI Act will have the overriding effect against the impugned orders of attachment in so far as they are related to the property in question. The orders of attachment passed by the Chief Judicial Magistrate and the Government of Pondicherry are inconsistent with the proceedings initiated under the SARFAESI Act. Act I of 2005 came into force on 24-3-2005 whereas the proceedings under SARFAESI Act were initiated much earlier and completed on 24-3-2005. Therefore, I am of the considered view that the said property is to be excluded from the impugned orders of attachment. Accordingly, the attachment in respect of the said property is lifted. To this limited extent, the impugned orders of attachment passed by the Chief Judicial Magistrate and the Government of Pondicherry in so far as it related to the said property are set aside. Needless to mention, it is open to the depositors or their association and/or the competent authority appointed by the Government of Pondicherry under the Act passed to protect the interests of the depositors to file appeal, if they so desire, under Sec.17 of the SARFAESI Act.
32. The impugned order of attachment dated 18-02-2005 passed by the Chief Judicial Magistrate in Crime No.31 of 2004 and the impugned order of attachment passed by the Government of Pondicherry in G.O. Ms. No.12 dated 18-2-2006 in so far as they are related to the property in question, viz. land and building comprised in R.S. Nos.7/2 and 118 measuring 3.99 and 13.10.00 hectares in Ariyur village, Villianur Sub Rgistration District, Pondicherry are quashed. The District Registrar, Registration Department, Pondicherry, fifth respondent in W.P. No.6453 of 2006 is directed to register the Sale Certificate issued in favour of M/s. EID Parry India Limited, petitioner in W.P. No.6453 of 2006.
33. In W.P. No.1897 of 2006 filed by New Horizon Sugar Mills Limited, the relief sought for is directing the Indian Bank, third respondent therein, to forthwith return to them such sums as would be due from out of the total sale consideration after deducting the cost, charges and expenses and the dues incurred up to 1-1-2005 on which date the possession of the property in question had been taken over and to return the remaining documents of title pertaining to the movable and immovable properties belonging to them after lifting the charge. It is submitted that the bank had taken over entire factory including land, building, machinery and other stocks like sugar and molasses, which was illegal and wholly unjustifiable inasmuch as in the notice issued under Sec.13(2) of the SARFAESI Act, the 'secured asset' did not include by the bank included only land and building of the borrower mill and the assets such as plant and machinery and other stocks like sugar and molasses were not form part of the 'secured asset'. According to the petitioner, no secured asset that did not find a mention in Sec.13(2) notice could have been taken possession and/or sold under the SARFAESI Act. The auction-sale held under Sec.13(4) of the SARFAESI Act fetched a sum of Rs.50.20 cores. The total amount payable to the bank, according to the petitioner, is only approximately a sum of Rs.27.20 crores. The bank is, therefore, retaining the excess amount of Rs.23.00 crores. The petitioner submits that since the amount has been collected by the bank through the proceedings initiated under SARFAESI Act, any surplus amount received by them over and above the dues payable to them in respect of the loan account, should be held by them in trust and to be refunded to the borrower. The grievance of the petitioner is that from out of the said excess amount, the bank is making payments to the other creditors and by undertaking this exercise, the bank has assumed the role of Official Liquidator of the petitioner company, which is wholly impermissible in law.
34. Considering the grievance of the petitioner in the light of the facts and circumstances of the case that in respect of the property in question proceedings under SARFAESI Act had already been initiated, that sale of the property in question under Sec.13(4) had been concluded and confirmed by this Court in the writ proceedings, that the entire amount had been received by the bank, that some surplus amount, according to the petitioner, are now lying with the bank, that the petitioner is aggrieved by the action of the bank in retaining such excess amount and paying from out of it to the other creditors of the petitioner, and that when the SARFAESI Act itself provides for a right of appeal via Sec.17 thereof to any person aggrieved by any of the measures taken by the secured creditor under Sec.13(4) of the SARFAESI Act, I am of the view that ends of justice would be met if the petitioner is permitted to approach the appellate authority under Sec.17 of the SARFAESI Act for appropriate relief. Accordingly, petitioner may, if they so desire, file an appeal under Sec.17 of the SARFAESI Act within the one month from the date of receipt of copy of this order. On filing of such appeal, the appellate authority shall, after hearing all parties concerned, consider the same and pass appropriate orders on merits and in accordance with law. All contentions of the parties on merits of this particular issue, viz. refund of surplus amount retained by the bank, are left open. With the above direction, W.P. No.1897 of 2006 is disposed of.
35. In W.P. No.7076 of 2006 the grievance of the petitioner, M/s. Indian Renewable Energy Development Agency Limited, New Delhi is that the properties offered by the borrowers, viz. Arunachalam Sugar Mills Limited and New Horizon Sugar Mills Limited, as secured asset in respect of the loan facility availed by them and against which proceedings under Sec.13(2) of the SARFAESI Act has already been initiated, but the very same properties has been subsequently attached by the Government of Pondicherry by the impugned notification, G.O. Ms. No.12 dated 18-02-2006. The properties in question are of an extent of 120 acres and 070 cents in Mallapambady village, Thiruvannamalai District and land measuring 4.960 acres at Annamalai Nagar, Mallapambady Taluk, Thiruvannamalai District. Here also, the petitioner took possession of the said properties by initiating proceedings under Sec.13(2) and Sec.13(4) of the SARFAESI Act on 5-10-2005 and the sale notice was published in the leading dailies on 20-1-2006. While so, by the impugned notification dated 18-2-2006, the Government of Pondicherry attached the said properties. Aggrieved by the inclusion of the said properties in the list of properties ordered to be attached by the Government of Pondicherry via the impugned G.O.Ms. No.12 dated 18-02-2006, the present writ petition has been filed. The fact-situation and the issue involved are similar to that of W.P. No.5389 and 6453 of 2006. The arguments advanced were also more or the less similar. Therefore, the properties concerned in this writ petition are excluded from the impugned order of attachment passed by the Government of Pondicherry in G.O. Ms. No.12 dated 18-02-2006. It is open to the depositors and/or their association, the competent authority appointed by the Government of Pondicherry under the Protection of Interests of Depositors in Financial Establishments Act, 2004 or any one who has been aggrieved by the measures taken under Sec.13(4) of the SARFAESI Act against the said properties by the petitioner to file an appeal before the Tribunal under Sec.17 of the SARFAESI Act. With the above direction, the writ petition is disposed of.
36. W.P. Nos.8797, 8800 and 9713 of 2006 challenge the validity of the G.O. Ms. No.12 dated 18-02-2006 issued by the Government of Pondicherry and to quash the same. W.P. No.10052 of 2006 challenges the provisions of the Pondicherry Protection of Interests of Depositors in Financial Establishment Act, 2004 (Act I of 2005) as ultra vires Constitution of India.
37. The above said writ petitions have been filed by the New Horizon Sugar Mills Limited, Arunachalam Sugar Mills Limited and M/s. V. Kannan and others, who are none else than the Director/persons interests in the said sugar mills and also Promoters/Directors of PNL Nidhi Limited.
38. On the question of vires of Act 1 of 2005, it was argued that the Government of Pondicherry has no legislative competence to enact the said Act since the said subject, in pith and substance, falls neither under List II (State List) or List III (Concurrent List) in the Seventh Schedule to the Constitution of India, but falls under List I (Union List). The State Government is, therefore, legislatively incompetent to pass such a legislation. It was argued that the provisions of the Act 1 of 2005, in pith and substance, falls under Entries 43, 44 and 93 of List I and, therefore, the State Legislature is devoid of legislative competence to enact the provisions contained in the said Act. It was also argued that the offence dealt with by Sec.3 of Act 1 of 2005 is traceable to Entries 43 and 44 of List I and since Sec.3 is not severable from the rest of the enactment, the entire Act 1 of 2005 is liable to be struck down. Sec.3 deals with fraudulent default by Financial establishment and Sec.4 deals with attachment of properties on default of return of deposits, in effect, the said provisions deal with liquidation of the trading or the registered financial company. Since the subject of liquidation of a company registered under the Companies Act, 1956 is covered by Entries 43 and 44 of List I, the Government of Pondicherry is legislatively incompetent to enact Act 1 of 2005. By passing the said enactment, the Government of Pondicherry has transgressed into the domain of the Parliament.
39. The impugned notification in G.O. Ms. No.12 dated 18-02-2006 was assailed on the ground that once the State Legislature of Pondicherry did not have the legislative competence to enact Act 1 of 2005, the impugned notification dated 18-02-2006 passed under Sections 4(2), 5(3) and 10(3) of Act 1 of 2005 is also liable to be quashed. It was argued that the Government have no legal right or authority to attach the properties standing in the name of the registered companies, which are separate legal entity in the eye of law, by treating them as properties belonging to PNL Nidhi Limited and/or its shareholders. The provisions of Act I of 2005 are applicable only to the 'financial company' and admittedly PNL Nidhi Limited is a company incorporated under the Companies Act, 1956, the said Act will not apply and consequently the impugned notification issued under the said Act is liable to be struck down. On the question of legislative competence to pass the said enactment, it was argued that the State Legislature does not possesses the legislative competence to enact any law in respect of items falling in List 1 of the Seventh Schedule to the Constitution. The incorporation, regulation and winding up of trading corporations are covered by Entry 43 and Entry 44 of List 1 to Seventh Schedule in respect of which State Legislature has no competence to enact a legislation. In exercise of the powers under Entries 43 and 44 of List 1, Parliament has enacted Sections 58AA and 58AAA of the Companies Act and also incorporated provisions under Chapter IIIB and IIIC of the Reserve Bank of India Act, 1934. When the companies registered under the Companies Act are excluded due to the incompetence of the State Legislature to enact any law in respect of matters covered by List 1 of the Seventh Schedule, the Government of Pondicherry has no jurisdiction in law to make the provisions of the Act 1 of 2005 applicable to PNL Nidhi Limited and therefore, the impugned notification is liable to be struck down.
40. On the other hand, learned Senior Government Pleader appearing for the Government of Pondicherry submitted that State Legislature is competent to enact Act 1 of 2005 and the impugned notification dated 18-2-2005 passed under Sec.4(2) of the said Act is legally sustainable.
41. I have given my anxious consideration to the rival submissions made and also carefully perused the provisions of Act 1 of 2005 and the other materials placed on record. Let me first take up the issue relating to legislative competence of the State Legislature of Pondicherry to enact the Act in question. It is clear from the preamble to Act 1 of 2005 that the said enactment was legislated to protect the interests of depositors in the financial establishment in the Union Territory of Pondicherry. The Act has also got the assent of the President. In the recent past, there were mushroom growth of unregistered financial establishments with the ulterior motive of grabbing money received as deposits from the public, mostly from retired persons belonging to middle class and poor, by offering attractive rate of interest as a bait and without any obligation to refund the deposits to the investors on maturity. Many of these financial establishments have defaulted to return the deposits on maturity to the public running to crores of rupees. It was in pursuit of protecting the interests of such gullible investors, the Government have decided to undertake suitable legislation, in public interest, in order to regulate the activities of such financial establishment other than those covered by the Reserve Bank of India Act, 1934. In short, the impugned Act aims to regulate and control the affairs of the unregistered financial establishment. According to learned counsel for the petitioners concerned, the subject-matter of Act 1 of 2005, in pitch and substance, falls under Entries 43 and 44 of the Union List and, therefore, the State Legislature is legislatively incompetent to enact the said legislation. On the other hand, according to learned Senior Government Pleader for Union Territory of Pondicherry, the subject-matter falls under Entry 32 of List II, and, therefore, the impugned enactment is legislatively valid.
42. In this connection, I may refer to the decision of this Court in M/s. Thiru Muruga Finance and others v. State of Tamil Nadu and another (2000-3-LW 298). In the said the case, the petitioners, who were unregistered financial establishments, called in question the constitutional validity and vires of Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act. The provisions of the said Act are, on material aspects, in pari materia with the provisions of Act 1 of 2005. The contentions on the question of legislative competence and vires of the Act were also similar to the raised before me. The learned Judge, after interpreting the relevant Entries in List I, List II and List III to the Seventh Schedule to the Constitution of India and upon analysing various decisions of the Supreme Court on the issue, held that the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 was valid and not unconstitutional or ultra vires as contended by the writ petitioners/finance companies. The relevant portions of the judgment are as follows: "It is settled law that, when a vires of an enactment is impugned, there is an initial presumption of its constitutionality and if there is any difficulty in ascertaining the limits of the Legislative power, the difficulty must be resolved, as far as possible in favour of the Legislature putting the most liberal construction upon the Legislative entry so that it may have the widest amplitude. The burden is on the petitioners to prove affirmatively of its invalidity. In determining whether the impugned Act is a law with respect to a given power, the Court has to consider whether the impugned Act is a law with respect to a given power, the Court has to consider whether the Act, in its pith and substance, to a topic assigned to a particular Legislature,, the Act will not be invalidated even if it incidentally trenches on topics coming within another Legislative list. The fact of incidental encroachment does not affect the vires of the law even as regards the area of encroachment. The Court has to ascertain the true nature and character of the subject of the Act or its pith and substance to find out whether the impugned Act falls within the competence of the particular Legislature. ... ... ... In our case, the Legislation in question falls within the entries referred and explained in para 11 of the counter affidavit filed by the State in Writ Petition No.4157 and 4158 of 1998. 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 the 7th Schedule. The impugned law is made only in relation to such un-incorporated trading establishments and therefore State of Tamilnadu has the legislative competence to legislate in respect of those financial establishments. As rightly contended by the learned Additional Advocate General, merely because the enactment incidentally trenches upon some of the provisions of the other enactments, the law cannot be held to be bad as the incidental trenching upon the provisions of the other enactments is an integral scheme of Act itself. ... ... ... It is settled law that to ascertain the true character of the legislation which is impugned on the ground that it is ultra vires the powers of the Legislature which enacted it, one must have regard to the enactment as a whole, to its objects and to the scope and effect of its provision. It would be quite an erroneous approach to the question to view such statute not as an organic whole, but as a mere collection of sections, then disintegrate it, into parts, examine under what heads of legislation those parts would severally fall and by that process determine what portions thereof are ultra vires and what are not. Though several provisions of the R.B.I. Act have been brought to my notice, as rightly contended by the learned Additional Advocate General, the Reserve Bank of India Act is only to regulate the monetary stability in India and it deals with several monetary systems for the Indian Monetary System and Banking business have to be carried in accordance with the Reserve Bank of India Act. On the other hand, as stated earlier, Tamil Nadu Act 44 of 1997 is intended to safeguard the interest of depositors by providing stringent measures against those who deprived the depositors their dues. Section 3 of the Tamil Nadu Act is so exhaustive and comprehensive, so as to bring within its clutches the dealings of such concerns if they turn to the detrimental interest of depositors. It is also clear from the provisions of R.B.I. Act that, there is a prohibition viz. that unincorporated body should not accept deposits. The Tamil Nadu Act provides for recovery of monies due to the public on such deposits. To put it in nutshell, Reserve Bank of India Act has imposed a prohibition and the Tamil Nadu act has provided for recovery of deposits from persons who have defaulted to repay. ... ... ...
In view of Entry 32 in State List in the VII Schedule to the Constitution, I am satisfied that the State Legislature is competent to enact Tamil Nadu Act 44 of 1997. As observed earlier, even though the Tamil Nadu State Act trenches upon certain other enactments upon which the State Legislature is not competent, in view of the law laid down by the Supreme Court in various decisions, taking note of the object of the Act and in view of the fact that the Legislature have obtained the consent of the President, I hold that the State Legislature are competent in passing the impugned Act and the same is valid in all respects. ... ... ..." Entry 43 of List I deals inter alia with incorporation, regulation and winding up of trading corporations, including financial corporations and Entry 44 of List I deals with incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State. Entry 32 of List II inter alia deals with incorporation, regulation and winding up of corporation, other than those specified in List I, and unincorporated trading associations. 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 the 7th Schedule. The impugned enactment was made only in relation to such un-incorporated trading establishments and therefore State Legislature of Pondicherry was having the legislative competence to legislate the impugned Act in respect of those unregistered financial establishments. Further, the above quoted observations squarely applies to the fact situation of the present case. I am, therefore, of the view that the Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 (Act 1 of 2005) is valid and not unconstitutional or ultra vires Constitution of India.
43. Now coming to the legality of the impugned order of attachment by the Government of Pondicherry vide G.O. Ms. No.12 dated 18-02-2006, it is seen that the impugned notification was issued in exercise of the powers under Sections 4(2), 5(3) and 10(3) of Act 1 of 2005. It is very clearly stated in the impugned notification that complaints have been received against Pondicherry Nidhi Limited/PNL Nidhi Limited, Pondicherry and that the investigation revealed a prima facie case against the said financial establishment that it had failed to return the deposits after maturity or on demand by the depositors, pay interest or other assured benefits and render requisite service against such deposit and to protect the interests of the depositors and general public it became necessary to attach certain other properties of the said financial establishment. The details of the properties so attached are given in the schedule to the impugned notification. A perusal of the schedule shows that the attached properties stand in the name of M/s. V. Kannan and V. Baskaran and their mother Mrs. Sivapriyai. Sec.4(2) of the Act 1 of 2005 clearly states that the Government may, in order to protect the interests of the depositors of such financial establishments issue an order in the Official Gazettee attaching the money or property believed to have been acquired by such financial establishment either in its own name or in the name of any other person from and out of the deposits collected by the financial establishments and where it transpires that such money or other property is not available for attachment or not sufficient for repayment of the depositors, such other property of the said financial establishments or the personal assets of the promoters, partners, directors, managers or members or anyother person of the said financial establishments. Therefore, it is clear that under the said Act, the attachment is not restricted only with respect to the property standing in the name of the defaulting financial establishment, but it may extend even to the personal assets of the promoters, partners, directors, managers or members or any other person of the said financial establishment.
44. It is seen from the materials placed on record that while Pondicherry Nidhi Limited was a registered financial establishment under the provisions of the Reserve Bank of India Act, M/s.PNL Nidhi Limited is an unregistered financial establishment. Both the financial establishments are carrying on their business activities in the very same address, viz.189, Mission Street, Pondicherry. M/s. V. Kannan and V. Bhaskaran and their close relatives/associates are major shareholders of PNL Nidhi Limited. It is also pertinent to note that the said persons are also major shareholders/Directors of New Horizon Sugar Mills Limited and Arunachalam Sugar Mills Limited and as such they are persons interested in the management and affairs of the said companies and the financial establishment. Though these companies and the financial establishment are separate legal entities, as contended by the learned counsel for the parties concerned, and, therefore, the properties standing in the names of the respective companies and the individuals are distinct and independent from each other, but real beneficiaries behind the corporate mask are one and the same persons. It is also pleaded in the counter-affidavits filed by the Government of Pondicherry that M/s. V. Kannan and V. Baskaran, who are said to be the major shareholders and Directors of Pondicherry Nidhi Limited/PNL Nidhi Limited as well as Directors of New Horizon Sugar Mills Limited and Arunachala Sugar Mills Limited, have misappropriated huge sums of money deposited by the general public in PNL Nidhi Limited and diverted the said amount to their own trade and business of the said sugar mill companies. In such circumstances, when the very object and purpost of Act 1 of 2005 is to protect the interests of the depositors of the financial establishment and particularly when Sec.4(2) empowers the Government to order attachment of properties not only standing in the name of the financial establishment, but also the personal assets of the persons in charge of the management and affairs of the financial establishment, I find no illegality in the impugned notification dated 18-02-2006. However, in view of my discussions and findings in the Civil Revision Petition and the connected writ petitions, the impugned order of attachment passed vide G.O. Ms. No.12 dated 18-02-2006 is interfered with only to the limited extent in so far as it related to the properties against which proceedings under SARFAESI Act has already been initiated. Therefore, the attachment in respect those properties alone are lifted and in other respects, the impugned notification stands legally valid. Accordingly, the writ petitions challenging the validity of Act 1 of 2005 and the impugned G.O. Ms. No.12 dated 18-02-2006 are dismissed.
45. It is brought to the notice of this Court that the Government of Pondicherry has constituted a Designated Court vide G.O. Ms. No.26/05/LD dated 26-10-2005 and a competent authority has also been appointed in respect of this financial establishment. In such circumstances, as stated above, save those properties in respect of which proceedings had already been initiated by the respective bank/financial institution under the provisions of the SARFAESI Act, it is open to all parties concerned, who are aggrieved by the action taken by the Government of Pondicherry under Act 1 of 2005, to approach the Designated Court for appropriate relief.
46. In the result, the order of attachment passed against the properties viz. land and building comprised in R.S. Nos.7/2 and 118 measuring 3.99 and 13.10.00 hectares in Ariyur Village, Villianur Sub Registration District, Pondicherry, which are the subject-matter of C.R.P. No.1352 of 2005 and W.P. No.5389 of 2006 and the land of an extent of 120 acres and 070 cents in Mallapambady Village, Thiruvannamalai District, which is the subject matter of W.P. No.7076 of 2006 is lifted and the said properties are excluded from the impugned orders passed by the Chief Judicial Magistrate and the Government of Pondicherry. The District Registrar, Registration Department, Pondicherry is directed to register the Sale Certificate issued in favour of M/s. EID Parry India Limited, petitioner in W.P. No.6453 of 2006. M/s. New Horizon Sugar Mills Limited, petitioner in W.P. No.1897 of 2006, is directed to approach the Tribunal under Sec.17 of the SARFAESI Act, if they so desire, for refund of the excess amount alleged to have been retained by the Indian Bank. In so far as the other properties which are included in the impugned orders, it is open to the all parties concerned to approach the Designated Court under Act 1 of 2005 for appropriate reliefs.
47. Accordingly, C.R.P. No.1352 of 2005 and W.P.Nos.1897, 5389, 6453, 7076 and 9713 of 2006 are disposed of. W.P. Nos.8797, 8800 and 10052 of 2006 are dismissed. Interim orders, if any, shall stand vacated. Connected miscellaneous petitions are closed.