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Judgment
Elipe Dharma Rao, J.—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.
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 u/s 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 u/s 13(2) and Section 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 Chemicals Ltd. Vs. Union of India (UOI) and Others Etc. Etc., . 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 u/s 13(4) of the SARFAESI Act by the petitioner-bank.
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.
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 u/s 4(2) of the said Act is also liable to be set aside.
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"" u/s 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.
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.
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 u/s 13(2) of the SARFAESI Act, the amount due and payable is Rs. 27 crores, whereas the
properties were sold in the auction sale u/s 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 u/s 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.
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 u/s 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"" u/s 2(d) of the said Act.
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 u/s 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.
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 u/s 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. u/s 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.
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 u/s 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 Section 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. u/s 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.
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 Section 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 u/s 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 u/s 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.
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 u/s 13(2) and Section 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.
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 u/s 13(2) and Section 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.
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.
Learned senior counsel for the revision petitioner submitted that the civil revision petition was filed under Article 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 u/s 13(2) and Section 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 Article
227 of the Constitution of India is maintainable in law.
In support of the above contentions, learned senior counsel relied on Shri Baradakanta Mishra Ex-Commissioner of Endowments Vs. Shri
Bhimsen Dixit, ; Achutananda Baidya Vs. Prafullya Kumar Gayen and others, .
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 Anr. v. Pandurang and Ors. 2005 [11] SCC 195 and
M/s. Estralla Rubber Vs. Dass Estate (Pvt.) Ltd., . Learned senior Government Pleader, therefore, submitted that the revision petition is liable to
dismissed as not maintainable.
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 u/s 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.
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 u/s 13(2). In the writ petition filed by the mill
challenging the notice issued u/s 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 u/s 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 u/s 13(4) to go on, but not to finalise the sale and, thereafter,
even the sale held u/s 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 u/s 17 of the SARFAESI Act by stating their objections. The right of appeal provided u/s 17 is
open to any person (including borrower) aggrieved by any of the measures referred to in Section 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 u/s 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.
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. Section 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 Section 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, u/s 17 of the SARFAESI Act.
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.
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 u/s 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 Section 13(2) notice could have been taken possession
and/or sold under the SARFAESI Act. The auction-sale held u/s 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.
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 u/s 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 Section 17 thereof to any person
aggrieved by any of the measures taken by the secured creditor u/s 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 u/s 17 of the SARFAESI Act for appropriate relief. Accordingly, petitioner
may, if they so desire, file an appeal u/s 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.
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 u/s 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 u/s 13(2) and Section 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 u/s 13(4) of the SARFAESI Act
against the said properties by the petitioner to file an appeal before the Tribunal u/s 17 of the SARFAESI Act. With the above direction, the writ
petition is disposed of.
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.
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.
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
Section 3 of Act 1 of 2005 is traceable to Entries 43 and 44 of List I and since Section 3 is not severable from the rest of the enactment, the entire
Act 1 of 2005 is liable to be struck down. Section 3 deals with fraudulent default by Financial establishment and Section 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.
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.
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 u/s 4(2) of the said Act is legally sustainable.
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.
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 Anr. 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.
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. Section 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.
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 Section 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.
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.
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 u/s 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.
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.