THIRU MURUGA FINANCE Vs. STATE OF TAMIL NADU

JUDGEMENT

(1.) ALL these writ petitions challenge the constitutional validity of Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, 1997 (Tamil Nadu Act XIV of 1997). Hence, they are dealt with in a common judgment.

(2.) FOR the convenience I shall refer the facts narrated by the petitioner in Writ Petition No. 4157 of 1998. The petitioner Thiru Muruga Real Estate started its business in the year 1984. Vast extent of properties were purchased and layout formed and sold to public for construction of houses. FOR the past few years, the Real Estate Market was going down by 30 to 40 per cent and there are no immediate purchasers. The petitioner's firm was formed on 18.4.1994 as a Sister concern for the Thiru Muruga Real Est ate to accept deposit from the public. Deposits were accepted both by the petitioner-firm and also by the Real Estate entity Thiru Muruga Real Estate. From 15.4.1995 deposits were received and within a short span of time, a total of 2.75 crores were raised from the public. Because of the adverse trend in finance market, the depositors of the petitioner Company started demanding repayment and therefore they could not utilise the funds for developing the property as originally planned. Therefore, the petitioner decided to pay back the amount with interest even if no profit is earned by the firm. With the short period a sum of Rs. 180 crores were returned to the public leaving a balance of about Rs. 94, 44, 250.00. Out of this amount, about 40 per cent matured for payment and others not matured for payment. It is further stated that the value of asset in the form of immovable properties of the petitioner firm and the sister concern Thiru Muruga Real Estate run about 13.80 crores. Their intention is not to cheat anybody. All the properties were purchased out of own funds long before accepting deposits from public. The balance payable to depositors for entire group of concerns is only Rs. 94, 44, 250.00. Majority of the depositors have faith in the petitioner and in fact given letters, accepting to take their funds in instalments. But, few persons who are highly mischievous have given complaints to the second respondent, who threatened to take action under the Tamil Nadu Protection of Interest of Deposit ors (in Financial Establishments) Act, 44 of 1997 (hereinafter referred to as the "Act") It is further stated that, he is a honest businessman and also having assets worth several crores. If action taken on frivolous complaint by the second respondent under the aforesaid Act, he will be thrown out of business and his reputation will be lowered down in the Real Estate Market. The first respondent in haste passed the above Act. The first respondent is also not competent to make the said law, which is drac onian in character. The said Act is therefore ultra vires, unconstitutional and liable to be struck down by issuance or a writ of declaration. In the grounds or attach it is stated that the Act is unconstitutional for the reasons that the Tamil Nadu Legislative Assembly has no legislative competence to enact the said Act and Parliament alone can enact, since the subject matter falls squarely under Entry 45. List 1 in VII Schedule of the Constitution. It is also stated that, in the light of the provisions of Reserve Bank of India Act 2 of 1934 by an amendment Act 23 of 1997, Tamil Nadu Act is not at all a necessary and the same is repugnant to the provisions of Section 45 of the Central Act. The present Act also offends Art. 14 of the Constitution and it is therefore liable to be struck down. It infringes the fundamental rights as guaranteed under Article 19 (l) (g) and depriving the personal liberty and offends Art.21 of the Constitution of India. With these and other grounds, the petitioner prayed for necessary relief by declaring the Tamil Nadu Act 44 of 1997 as invalid. Since identical and similar averments have been made in other writ petitions, I am not referring the same.

(3.) ON the other hand, learned Additional Advocate General after taking me through the reasons for bringing the above enactment, various provisions therein and after pointing out relevant provisions from the Reserve Bank of India Amendment Act, 1997, has raised the following submissions: (i) The Act is within the Legislative competence of the State, since it falls within Entry 32 of the State List. The petitioners" business does not come under "Banking activity" as mentioned in Entry 45 in Union List. The "Financial Establishments" which are covered under the impugned Act are all un-incorporated trading establishments, and therefore they fall under Entry 32 of the State List in Seventh Schedule of the Constitution. The impugned law is made only in relation to such un-incorporated trading es tablishments, and therefore the State of Tamil Nadu is competent to Legislate in respect of those Establishments. Mere trenching upon the other enactments cannot take away the power of legislature considering the scheme of the Act. Further, the State of Tamil Nadu had obtained the assent of the President under Article 254 sub clause (2) of the Constitution of India. The statute in question is within the competence of the State Legislature; (ii) Reserve Bank of India Act is only to regulate the monetary stability in India and deals with various monetary systems and the Banking business have to be carried out in accordance with the said Act, whereas the Tamil Nadu Act is intended to safeguard the interest of depositors by providing stringent measures against those who deprive the depositors of their dues; (iii) There is no hostile discrimination between depositors in the individual financial establishments, firms and companies, since the State has enacted the Act within its Legislative competency covering financial establishments only and not in respect of other institutions covered by Reserve Bank of India Act. There is a nexus between the classification and object of the Act under Consideration.