M/S NEW HORIZON SUGAR MILLS LTD.versusGOVT. OF PONDICHERRY TH. ADDL. SEC. & ANR.

                         [2012] 8 S.C.R. 874


A             MIS NEW HORIZON SUGAR MILLS LTD.
                                v.
       GOVT. OF PONDICHERRY TH. ADDL. SEC. & ANR.
             (Civil Appeal Nos. 6673-6674 of 2009)
                       SEPTEMBER 27, 2012
B
        [ALTAMAS KABIR AND J. CHELAMESWAR, JJ.]

         CONSTITUTION OF IND/A, 1950:

c      Art. 254 (2), Seventh Schedule, List-I/ - Entries 1, 30 and
  32 read with List /, Entries 43, 44, 45 and 97, and List Ill,
  Entries 1, 8, 13 and 21 - Validity of Pondicherry Protection of
  Interest of Depositors in Financial Establishments Act, 2004
  (Act 1 of 2005) - Held: The power to enact the Pondicherry
0 Act, the Tamil Nadu Act, and the Maharash"tra Act is relatable
  to Entries 1, 30 and 32 of the State List, 'which involve the
  business of unincorporated trading and money-lending -
  Since the object of Tamil Nadu Act, Maharashtra Act and
  Pondicherry Act are same and/or similar in nature, and the
E validity of Tamil Nadu Act and Maharshtra Act having been
  upheld by Supreme Court, validity of Pondicherry Act must
  also be affirmed - One has to keep in mind the beneficial
  nature of the three legislations which is to protect the interests
  of small depositors, from unscrupulous individuals and
  companies, both incorporated and unincorporated - Tamil
F Nadu Protection of Interests of Depositors (in Financial
  Establishments) Act, 1997 - Maharashtra Protection of Interest
  of Depositors (in Financial Establishments) Act, 2005.

        Art. 254(2) - Rule of repugnancy - Exception - Held:
G Clause (2) provides that in a given situation where a law of a
  State is in conflict With the law made by Parliament, the law
  so made by the State Legislature shall, if it has received the
  assent of the President, prevail in that State - In the instant
  case, the Pondicherry Act had received the assent of the
H                                874
  NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF                  875
        PONDICHERRY TH. ADDL. SEC.

President attracting the provisions of Art. 254(2) of the           A
Constitution.

     Pondicherry Protection of Interest of Depositors in
Financial Establishments Act, 2004 (Act of 2005) - s.2(d) -
'Financial establishment' - Held: The expression 'any person'
                                                                    8
in s.2(d) would a/so include a company incorporated under
the Companies Act, 1956 and, consequently, would also
include a company such as the appellant Mill, which accepts
deposits from investors, not as shareholders of such
company, but merely as investors for the purpose of making
profit - Accordingly, the expression 'person' in the Act includes   C
both incorporated as we// as unincorporated companies -
Companies Act, 1956 - ss. 58A, 58AA and 58AAA - Banking
Regulation Act, 1949 - s. 15.

     The appellant-Mill' two Directors, namely 'VK' and D
'VB', who were brothers, were also the Directors of Mis
PNL Nidhi Limited ('PNL'), a concern accepting the
deposits of investors under various schemes. The
appellant availed credit facilities from the Indian Bank and
when it failed to make the payments, the Bank initiated E
recovery proceedings wherein the properties offered as
security were auctioned. One of the depositors filed a
complaint alleging that the said two Directors had
misappropriated the money belonging to 'PNL' and
diverted the same for their own trade. The Chief Judicial F
Magistrate attached various properties standing in the
names of 'VK' and 'VB'. The Government also issued
GOMs. No.12 dated 18.2.2006 under the Pondicherry
Protection of Interests of Depositors in Financial
Establishments Act, 2004 (Act 1 of 2005), ordering G
attachment of the properties acquired by 'PNL'. A criminal
revision petition and various writ petitions were filed
challenging the order of the Chief Judicial Magistrate. The
Single Judge of the High Court lifted the order of
 attachment and directed the Registrar, Registration H
    876     SUPREME COURT REPORTS              [2012] 8 S.C.R.


A Department to register the sale Certificate issued in favour
   of the auction purchaser. The appellant-Mill was directed
  to approach the Debts Recovery Tribunal regarding its
  claim of refund of the access amount retained by the
  Bank. It was also made clear that as far as the properties
B included in the impugned orders were concerned, it
  would be open to third parties to approach the
  Designated Court under Act 1 of 2005. However, while
  upholding the validity of Act 1 of 2005, the Single Judges
  limited its operation to Unincorporated Institutions.
c Aggrieved, the appellant-Mills and its Directors filed Writ
  Appeal Nos.1142 to 1144 of 2006 and the Government of
  Pondicherry filed Writ Appeal No.293 of 2007. Writ Appeal
  No.1142 of 2006 was dismissed with liberty to the
  appellant Mills to approach the Debt Recovery Tribunal
  for appropriate relief. It was further held that the entire
0
  provisions of Pondicherry Act 1 of 2005 were in pari
  materia with the provisions of the Tamil Nadu Protection
  of Interests of Depositors (in Financial Establishments)
  Act, 1997, and the latter having been upheld, the
E challenge to the legislative competency and jurisdiction
  of the Government of Pondicherry enacting Act 1 of 2005
  was untenable.

       In the instant appeals filed by the Mill, the questions
  for consideration before the Court were : (i) "whether the
F subject matter covered by the Pondicherry Act is
  relatable to Entries 43, 44, 45 and 97 of the Union List or
  to Entries 1, 30 and 32 of the State List" and (ii) "whether
  the decision of this Court in K.K. Baskaran's case,
  upholding the validity of the Tamil Nadu Act, would also
G be applicable for determining the validity of the
  Pondicherry Act."

       Dismissing the appeals, the Court.

       HELD: 1.1 The object of the Pondicherry Protection
H of Interest of Depositors in Financial Establishments Act,
  NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF               877
        PONDICHERRY TH. ADDL. SEC.

2004 (Act 1 of 2005) was to protect the interests of             A
depositors in financial establishments in the Union
Territory of Pondicherry. The Entries 1, 30 and 32 of the
State List (List II of Seventh Schedule to the Constitution
of India, 1950) and in particular Entry 32, appear to be
more appropriate source of legislative authority of the          B
State Assembly for enacting laws in furtherance of such
Entry. The power to enact the Pondicherry Act, the Tamil
Nadu Act and the Maharashtra Act is relatable to Entries
1, 30 and 32 of the State List, which involve the business
of unincorporated trading and money-lending. [para 11            c
and 39-40] [887-A-B; 904-E-F]

    K.K. Baskaran Vs. State of Tamil Nadu (2011) 3 SCC
793 - relied on.

    Vijay C. Puljal vs. State of Maharashtra (2005) 4 CTC        D
705 - stood reversed.

     1.2 Even if it is to be accepted that the Pondicherry
Act is relatable to Entries 43, 44 and 45 of List I, it can be
equally said that the said enactment is also relatable to        E
Entries 1, 30 and 32 of List II, thereby leaving the field of
legislation open, both to the Central Legislature as well
as the State Legislature. In such a situation, unless there
is anything repugnant in the State Act in relation to the
Central Act, the provisions of the State Act will have           F
primacy in determining the lis in the instant case. [para
43] [905-D-E]

     1.3 Besides, the provisions of the Pondicherry Act
are also saved by virtue of Art. 254(2) of the Constitution
of India. Clause (1) of Art. 254 provides that when there        G
are two laws enacted by Parliament and the State
Legislature in which certain inconsistencies occur, then
subject to the provisions of clause (2), the law made by
the Parliament would prevail and the law made by the
State Legislature to the extent it is repugnant to the           H
    878    SUPREME COURT REPORTS                [2012] 8 S.C.R.

A Central law, shall be void. Clause (2), however, also
  provides that in a given situation where a law of a State
  is in conflict with the law made by Parliament, the law so
  made by the State Legislature shall, if it has received the
  assent of the President, prevail in that State. In the instant
B case, the Pondicherry Act had received the assent of the
  President attracting the provisions of Art. 254(2) of the
  Constitution. [para 43-44] [906-E-G]

       1.4 It may also be worthwhile to consider that the
  power to enact the Pondicherry Act could be traced to
C Entries 1, 8, 13 and 21 of the Concurrent List. This has
  to be considered in view of the provisions of ss.58A,
  58AA and 58AAA of the Companies Act, 1956, which all
  deal with deposits invited and accepted by Companies.
  In this regard one cannot overlook the amendment to the
D definition of "financial establishment" included in the
  Tamil Nadu Act and as defined in the Pondicherry Act.
  [para 45] [906-H; 907-C-D]

       2.1 The definition of the expression "financial
E establishment" in s.2(d) of the Pondicherry Act, includes
  any person or group of individuals or a firm carrying on
  business of accepting deposits under any scheme or
  arrangement or in any other manner, but does not
  include a Corporation or a cooperative society owned or
F controlled by either the Central Government or the State
  Government or a banking company as defined u/s 5 of
  the Banking Regulation Act, 1949. The expression "any
  person" is wide enough to cover both a natural person
  as also a juristic person, which would also include a
G Company incorporated under the Companies Act, 1956.
  In that view of the matter, the definition in s.2(d) of the
  Pondicherry Act would also include a Company such as
  the appellant Mill, which accepts deposits from investors,
  not as shareholders of such Company, but merely as
  investors for the purpose of making profit. In this regard,
H
  NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF              879
        PONDICHERRY TH. ADDL. SEC.
reference may also be made to s.11 of the Indian Penal         A
Code which defines a "person" to include a Company or
Association or body of persons, whether incorporated or
not. Accordingly, the expression "person" in the
Pondicherry Act includes both incorporated as well as
unincorporated companies. [para 45] [907-E-H; 908-A]           B

    2.2 It has also to be noticed that the objects for which
the Tamil Nadu Act, the Maharashtra Act anQ the
Pondicherry Act were enacted, are identical, namely, to
safeguard the interests of the common citizens against
exploitation by unscrupulous financial establishments          C
mushrooming all over the country. That is, in fact, the
main object indicated in the Statement of Objects and
Reasons of the three different enactments. It is significant
to note that the decision of the Bombay High Court
declaring the Maharashtra Act to be ultra vires, has been      D
set aside by this Court, so that there is now a parity
between the judgments relating to the Maharashtra Act
and the Tamil Nadu Act. [para 41-42] [905-A-C]
      2.3 The decision rendered by the Madras High Court       E
in K.K. Baskaran's case so far as it relates to protection
of interests of depositors, cannot be ignored, and would
be equally applicable to the facts of the instant case. It
has to be borne in mind that the validity of the Tamil Nadu
Act and the Maharashtra Act have been upheld by the
Madras High Court and th1s Court. The objects of the
                                                               F
Tamil Nadu Act, the Maharashtra Act and the Pondicherry
Act being the same and/or similar in nature, and the
validity of the Tamil Nadu Act and the Maharashtra Act
having been upheld, the decision of the Madras High
Court in upholding the validity of the Pondicherry Act         G
must also be affirmed. One has to keep in mind the
beneficial nature of the three legislations which is to
protect the interests of small depositors, who invest their
life's earnings and savings in schemes for making profit
floated by unscrupulous individuals and companies, both        H
    880      SUPREME COURT REPORTS              [2012] 8 S.C.R.


A incorporated and unincorporated. More often tt:ian not,
  the investors end up losing their entire deposits. [para 46]
  908-8-E]

          K. K. Baskaran Vs. State of Tamil Nadu (2011) 3 SCC
    793 - relied on.
8
          Vijay C. Puljal vs. State of Maharashtra (2005) 4 CTC
    705 - stood reserved.

          2.4 The plea that it was not the appellant Company
c which had accepted the deposits, but 'PNL' which had
  changed its name five times, cannot prima facie be
  accepted. This appears to be one of such cases where
  funds have been collected from the gullible public to
  invest in projects other than those indicated by the front
0 company. It is in fact the specific case of the respondents
  that the funds collected by way of deposits were diverted
  to create the assets of the appellant-Mill. Like the Tamil
  Nadu Act, the Pondicherry Act is to protect the interests
  of depositors who stand to lose their investments on
E account of the diversion of the funds collected by 'PNL'
  for the benefit of the appellant Mill, which is privately
  owned by the two Directors of 'PNL'. [para 46-47] [908-F-
  H; 909-A-B]

       S. Bagavathy Vs. State of Tamil Nadu (2007) 1 LW 892;
F Delhi Cloth and General Mills Vs. Union of India (1983) 4
  SCC 166; Ramji and others vs. State of UP. & others (1956)
  SCR 393; R.C. Cooper vs. Union of India (1970) 3 SCR 530;
  Greater Bombay Co-op Bank vs. United Yam (2007) 6 SCC
  236; Ramesh Thapar Vs. State of Madras (1950) SCR 594;
G Ram Manohar Lohia (1991) 1 SCR 709; Rev. Stainislaus Vs.
  State of M.P. (1977) 2 SCR 611; Arun Ghosh Vs. State of
  West Bengal (1970) 3 SCR 288; S. Pushpa and others Vs.
  Sivachanmugavelu and others (2005) 3 SCC 1; New Delhi
  Municipal Council Vs. State of Punjab & Others (1997) 7 SC
H 339; and T.M. Kanniyan Vs. I. T.O. Pondicherry (1968) 2 SCR
 NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF              881
       PONDICHERRY TH. ADDL. SEC.
103; Charan Lal Sahu Vs. Union of India (1990) 1 SCC 613      A
- cited.

                    Case Law Reference:
    (2005) 4 CTC 705         stood reserved      para 11
                                                              B
    (2011) 3 sec 793         relied on           para 14
    (2007) 1 LW 892          cited               para 19
    (1983) 4 sec 166         cited               para 19
    (1956) SCR 393           cited               para 26      c
    (1970) 3 SCR 530         cited               para 29
    (2007) 6 sec 236         cited               para 31
    (1950) SCR 594           cited               para 32      D
    (1991) 1 SCR 709         cited               para 32
    (1977) 2 SCR 611         cited               para 32
    (1970) 3 SCR 288         cited               para 32
                                                              E
    (2005) 3 sec 1           cited               para 34
    (1997) 7 SC 339          cited               para 34
    (1968) 2 SCR 103         cited               para 34
                                                              .F
    (1990) 1 sec 613         cited               para 35

    CIVIL APPELLATE JURISDICTION : Civil Appeal No. :
6673-6674 of 2009.

    From the Judgment and Order dated 27.03.2007 of the       G
High Court of Judicature at Madras in W.A. No. 1144 of 2006
and 293 of 2007.

    A.K. Ganguli, V. Ramasubramanian, Chaitanya Safaya,
A. Lakshmi Narayanan for the Appellant.
                                                              H
    882      SUPREME COURT REPORTS                   (2012] 8 S.C.R.


A         R. Venkataramani, V.G. Pragasam, S.J. Aristotle,
    Praburamasubramanian, Aljo K. Joseph, Subramonium Prasad
    for the Respondents.

          The Judgment of Court was delivered by
B         ALTAMAS KABIR, J. 1. Several Special Leave Petitions
    (now Civil Appeals) were filed in this Court against the common
    judgment and order dated 27th March, 2007, passed by the
    Madras High Court, including Writ Appeal Nos.1788 & 1919
    of 2005, 1142 to 1144, 1209, 1342 to 1345 of 2006, 293 of
C 2007 and W.P.Nos.44991, 45805 of 2006 & 1460 of 2007. Of
    the said appeals, we are concerned with Writ Appeal Nos.1144
    of 2006 and 293 cf 2007, which are the subject matter of Civil
    Appeal Nos.6673-6674 of 2009, filed by M/s New Horizon
    Sugar Mills Ltd.
D
         2. As will be evident from the various writ petitions and writ
    appeals filed by the various parties, there are several skeins
    running through the fabric of the matter before us. The main
    issue, however, relates to the challenge thrown to G.O.Ms.No.12
E dated 18.2.2006 issued by the Department of Revenue and
    Disaster Management, Government of Pondicherry, under
    powers conferred under the Pondicherry Protection of Interests
    of Depositors in Financial Establishments Act, 2004 (Act 1 of
    2005), ordering attachment of properties acquired by
F . Pondicherry Nidhi Ltd.

          3. For a proper understanding of the background in which
    the said G.O. came to be issued, it is necessary to set out, in
    brief, the facts of the case.

G      4. The lis between the parties to these appeals can be
  traced back to the credit facilities availed of by the Appellant,
  Mis New Horizon Sugar Mills Pvt. Ltd., from the Indian Bank,
  Pondicherry, to the tune of Rs.26,50,00,000/-. The Directors of
  the Mill, viz., Shri V. Kannan and Shri V. Baskaran, stood as
H guarantors for repayment of the loan and offered their personal
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     883
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

properties as collateral securities. As the Appellant Mill            A
defaulted in payment of the loan amount, the Bank, after
declaring the loan account of the Mill to be a "non-performing
asset", initiated proceedings for recovery by issuing notice
under Section 13(2) of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,         B
2002, ("SARFAESI Act"). The said notice was challenged by
the Appellant by filing Writ Appeal No.33700 of 2004, before
the Madras High Court. By order dated 6th December, 2004,
the said Writ Appeal was disposed of with a direction to the
Appellant Mill to repay the entire loan amount in three               c
instalments.

     5. In the same order, the Court also indicated that in case
the Appellant defaulted in payment of the instalments, the Bank
could proceed against the Appellant Mill, in accordance with
law. Since the Appellant Mill committed default even in payment       D
of the first instalment, the Bank proceeded further and under
the provisions of Sub-Sections (2) and (4) of Section 13 of the
SARFAESI Act took possession of the property offered as
security and also initiated steps for sale of the same by auction.
In the auction proceedings, M/s E.l.D. Parry (India) Ltd. ("Parry     E
Ltd.") was the successful bidder. The said auction was
challenged by several other banks and financial agencies to
safeguard and protect their respective claims against the Mill.
On 12th July, 2005, all the Writ Petitions, including the one filed
by the workers/employees of the Appellant Mill, were                  F
dismissed. In respect of the Writ Petition filed by Pondicherry
Nidhi Ltd. (PNL) Depositors Welfare Association, the High
Court directed the Association to work out their remittance
under the provisions of the Reserve Bank of India Act ("RBI
Act") as also Act 1 of 2005.                                          G

       6. On receiving the Sale Confirmation Letter from the
Bank, Parry Ltd. remitted their entire balance amount and
fulfilled all other formalitie.s for getting the Sale Certificate
registered in its favour. At the same time, on the basis of a         H
    884      SUPREME COURT REPORTS                   [2012] 8 S.C.R.


A   complaint received from one of the depositors, alleging that Shri
    V. Kannan and Shri V. Baskaran, said to be the major
    shareholders of Mis PNL Nidhi Ltd. as well as being the
    Directors of the Appellant Mill, had misappropriated a sum of
    Rs.12.5 crores belonging to Mis PNL Nidhi Ltd. and diverted
B   the same for their own trade, the Chief Judicial Magistrate,
    Pondicherry, ordered attachment of various properties standing
    in their names and in the name of one Sivapriyal. This was
    followed by the Government Order, being G.O.Ms.No.12 dated
    18.2.2006, ordering attachment of the properties acquired by
c   Mis PNL Nidhi Ltd. Inasmuch as, by virtue of the said orders
    of attachment, Mis Parry Ltd. could not get the Sale Certificate
    registered in respect of the property auctioned, it filed Writ
    Petition No.6453 of 2006 for quashing the said G.O.Ms.No.12
    dated 18.2.2006 and for a direction to the District Registrar,
D   Registration Department, Pondicherry, to register the Sale
    Certificate in their favour with regard to the properties in which
    they had succeeded in the auction sale. The Indian Bank also
    filed Writ Petition No.5389 of 2006 for the same relief so that
    they could comply with the provisions of the SARFAESI Act for
E   registering the Sale Certificate in favour of Mis Parry Ltd. The
    Appellant Mill filed Writ Petition No.1897 of 2006 for an
    appropriate direction to the Indian Bank to return to them such
    sums as would be due from out of the total sale consideration
    after deducting the dues of the Bank incurred as on 1st January,
    2005, the date on which possession of the property in question
F   was taken over and for return of the remaining documents
    pertaining to the movable and immovable properties belonging
    to the Appellant after satisfying the Bank's charge. The
    Appellant Mill filed another Writ Petition No.8797 of 2006
    challenging the validity of G.O.Ms.No.12 dated 18.2.2006.
G   Several other Writ Petitions were filed by Shri V. Kannan and
    Shri V. Baskaran and Mis Indian Renewable Energy
    Development Agency Ltd. ("IREDA"), New Delhi, and Mis
    Arunachalam Sugar Mills Ltd., Pondicherry, also filed several
    Writ Petitions challenging the validity of the aforesaid
H   Government Order.
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF                    885
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

      7. A learned Single Judge of the Madras High Court took         A
up the Criminal Revision Petition No.1352 of 2005 filed by the
Bank questioning the Order dated 18th February, 2005,
passed by the Chief Judicial Magistrate in Crime No.31 of
2004, along with various Writ Petitions filed by different parties,
and by his order dated 23rd August, 2006, the learned Judge           B
lifted the order of attachment passed in respect of the
properties in question and also directed the District Registrar,
Registration Department, Pondicherry, to register the Sale
Certificate issued in favour of M/s Parry Ltd. The learned Single
Judge further directed the Appellant (Writ Petitioner in Writ         c
Petition No.1897 of 2006) to approach the Debts Recovery
Tribunal under Section 17 of the SAR FAES I Act regarding their
claim of refund of the excess amount a11e·ged to have been
retained by the Bank. The learned Judge also made it clear that
as far as the properties included in the impugned orders were         D
concerned, it would be open to third parties to approach the
Designated Court under Act 1 of 2005 for appropriate relief.

      8. Questioning the said common order, the Appellant Mill
and its Directors filed Writ Appeal Nos.1142 to 1144 of 2006
and the Pondicherry Non-Banking Investors Protection                  E
Association preferred Writ Appeal Nos.1342 to 1345 of 2006.
However, while upholding the validity of Act 1 of 2005, the
learned Judge limited its operation to Unincorporated
Institutions. Aggrieved by the said decision, the Government of
Pondicherry preferred Writ Appeal No.293 of 2007.                     F

      9. Yet another facet of the issues involved in these Appeals
is the Writ Petitions filed by the Banks and Financial Institutions
to safeguard their interests in regard to attachment and sale
of the properties of the Appellant Mill. The said Writ Petitions      G
were considered by another learned Judge of the Madras High
Court, who by his order dated 12th July, 2005, in PNL Investors'
Welfare Association Versus Union of India, with reference to
the SARFAESI Act, the Sick Industrial Companies (Special
Provision) Act, 19q8, Act 1 of 2005 and the provisions of the         H
    . 886    SUPREME COURT REPORTS                  [2012] 8 S.C.R.


A Industrial Disputes Act, 1947, and in particular, Section 25FF
  thereof, disposed of the Writ Petitions upon holding that the
  members of the workers' association/workers, either
  individually or through their respective Unions, were entitled to
  the benefit available under Section 25FF of the 1947 Act from
B the Appellant Mill and Parry Ltd., in view of Section 13(6) of
  the SARFAESI Act. In the same order, the learned Judge
  directed the members of the Depositors' Association and
  others to avail of the remedies provided under the SARFAESI
  Act, as well as Act 1 of 2005, for necessary reliefs. The said
c decision of the learned Single Judge was questioned by Parry
  Ltd. and the Commissioner of Central Excise, Pondicherry, who
  filed W.A. Nos.1787 of 2005 and 1999 of2005 respectively,
  claiming that the Department's claims were superior to those
  of others against the Appellant Mill and its properties.
D       10. A third set of Writ Petitions was filed by Puduvai
  Pradesa Sarkarai Aalai Thozhilalar Sangam; Indian Bank and
  the Ariyur Sugar Mills Staff Welfare Union being W.P.
  Nos.24834, 30532 and 36900 all of 2005, praying for
  appropriate directions. By a commQn order dated 7th
E December, 2005, another learned Judge of the Madras High
  Court appointed Justice K.P. Sivasubramaniam, a retired
  Judge of the Madras High Court, as Commissioner to go into
  the claims of the workmen. By the same order the learned Judge
  directed the Indian Bank to deposit Rs.6 crores in a no-lien
F account in the Indian Bank, Pondicherry Main Branch, on 8th
  December, 2005. Questioning the said order, the Appellant Mill
  filed Writ Appeal No.1209 of 2006. All the said matters were
  taken up for consideration together by the Division Bench. In
  its impugned judgment, the Division Bench agreed with the
G conclusion arrived at by the learned Single Judge with leave
  to the parties to approach the Tribunal to protect their interests.
  Writ Appeal No.1142 of 2006 was, accordingly, dismissed,
  with liberty to the Appellant Mill to approach the Debts Recovery
  Tribunal for appropriate relief.
H
    NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     887
  PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

      11. Apart from the submissions relating to Section 25FF A
 of the Industrial Disputes Act, 1947, what we are really
 concerned with in these appeals is with regard to the validity
 of the Pondicherry Protection of Interests of Depositors in
 Financial Establishments Act, 2004 (Act 1 of 2005) and
 G.O.Ms.No.12 dated 18.2.2006 issued by the Department of B
 Revenue and Disaster Management. As indicated
 hereinbefore, the object of the Act was to protect the interests
 of depositors in financial establishments in the Union Territory
 of Pondicherry. The Division Bench of the High Court observed
 that, inasmuch as, the Tamil Nadu Protection of Interests of     c
 Depositors (in Financial Establishments) Act, 1997, were in
 pari materia with the provisions of the Pondicherry Act of 2005
 and the provisions of the Tamil Nadu Act had been upheld,
 nothing further was required to be gone into in that regard.
 However, after the decision of a Full Bench of the Bombay High D
 Court in the case of Vijay C. Pu/jal vs. State of Maharashtra
 [(2005) 4 CTC 705], by which the Maharashtra Protection of
 Interest of Depositors (in Financial Establishments) Act, 1999,
was struck down, a batch of Writ Petitions came to be filed
 before the Madras High Court challenging the provisions of the
 Tamil Nadu Act. Since the provisions of the Maharashtra Act E
 had been struck down by a Full Bench of the Bombay High
 Court, the Writ Petitions were also contested before a Full
 Bench, which considered the contentions relating to the
jurisdiction of the State Government, with reference to various
 Entries in the Seventh Schedule to the Constitution, provisions F
of the Companies Act, Reserve Bank of India Act and the
Maharashtra Act and after examining the challenge thrown to
the vi res of the Act, came to the conclusion that the Tamil Nadu
Act did not suffer from any legislative incompetency, nor was it
arbitrary, unreasonable, or violative of the principles of natural G
justice. The Writ Petitions were, accordingly, dismissed. The
Division Bench after considering the pronouncement of the Full
Bench in regard to the Tamil Nadu Act and finding that the entire
provisions of the Pondicherry Act 1 of 2005 were in pari materia
with the provisions of the Tamil Nadu Act, held that the H
    888      SUPREME COURT REPORTS                 [2012] 8 S.C.R.


A   challenge to the legislative competency and jurisdiction of the
    Government of Pondicherry in enacting the impugned Act, was
    liable to be rejected.

        12. A question of considerable importance also came up
  for consideration in the appeal filed by the Government of
8
  Pondicherry with regard to the observations of the learned
  Single Judge in Writ Petition No.1897 of 2006, wherein the
  learned Single Judge while upholding the validity of the
  enactment, went on to observe that the impugned enactment.
  was made only in relation to unincorporated trade
C establishments and the State Legislature of Pondicherry had
  legislative competence to legislate in respect of unincorporated
  financial establishments only. In this regard, a submission was
  made on behalf of the Government of Pondicherry to the effect
  that Entry 32 of List II of the Seventh Schedule to the
D Constitution was only a residue of Entry 42 in the Central List
  and that Entry 32 also covered incorporated companies. It was
  submitted that the learned Single Judge had erroneously held
  that Pondicherry Act 1 of 2005 only governed unincorporated
  trade establishments.
E
        13. In this regard, it was submitted before the Madras High
  Court by the learned Government Pleader that on a complaint
  received by the Pondicherry Police from one Boothanathan,
  alleging that the amount deposited by him in PNL Nidhi Ltd.
F had not been returned, the Pondicherry Police registered a
  case in Crime No.31 of 2004 on the file of the C.l.D.,
  Pondicherry, which took up the investigation. Subsequently,
  about 3000 complaints were received from mostly aged people
  and retired Government servants who had invested their
G savings in the various financial establishments. On inquiry it
  was found that PNL Nidhi Ltd. had changed its name five times.
  It was initially a company known as "Pondicherry Mutual Fund
  Ltd." incorporated under the Companies Act, 1956. The name
  of the Company was later changed to Prasanan Narayanan
  Laxmi Nidhi Ltd. The name of the Company was again changed
H
    NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     889
  PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

to PNL Nidhi Ltd. The Company floated various schemes, such          A
as Fixed Akshaya Deposit and Locker facility and accepted
deposits under the said scheme. It was also discovered that
PNL Nidhi Ltd. was an unregistered and unrecognized financial
establishment and that the promoters of PNL Nidhi Ltd. were
Kannan and Baskaran, who were brothers and were also the             B
Directors of the Appellant Mill. It also transpired that the funds
of the PNL Nidhi Ltd. were utilized for the purchase of
properties in the name of the Appellant, New Horizon Mills,
Pondicherry, and Arunachala Sugar Mills, Thiruvannamalai, and
also for purchase of land at Kumbakonam, and land and                c
buildings in Pcindicherry and Chennai. The investigation
conducted by the C.l.D., Pondicherry, revealed that the deposits
collected from the depositors of PNL Nidhi Ltd. had been
channelised to New Horizon Sugar Mills, wherein also Kannan
and Baskaran were the Directors. It was on account of the            D
bogus cheques which had been issued and dishonoured for
want of funds, that the Chief Judicial Magistrate, Pondicherry,
ordered attachment of the properties of the Appellant Mill and
its Directors and in order to save the innocent investors from
such companies and firms, the Government of Pondicherry
introduced the Pondicherry Protection of Interests of Depositors     E
(in Financial Establishments) Bill, 1997, which ultimately
became an Act in 2004.

       14. Appearing for the Appellant, Mr. A.K. Ganguli, learned
  Senior Advocate, submitted that the primary question for           F
  determination in these appeals is whether the subject matter
  covered by the Pondicherry Act is referable to Entries 43, 44,
  45 and 97 of the Union List or to Entries 1, 30 and 32 of the
  State List. The other question for determination is whether the
  decision of this Court in K.K. Baskaran Vs. State of Tamil         G
· Nadu [(2011) 3 SCC 793], rendered in the context of the Tamil
  Nadu Protection of Interests of Depositors (in Financial
  Establishments) Act, 1997, could be regarded as a precedent
  for determining the questions which have arisen in relation to
  the Pondicherry Act.                                               H
    890       SUPREME COURT REPORTS                 [2012] 8 S.C.R.

A       15. Mr. Ganguli urged that the Tamil Nadu Act dealt with
  the protection of deposits made by the public in the financial
  establishments. Section 2(3) of the said Act defines "financial
  establishments" not to include a Company registered under the
  Companies Act, 1956, or a Banking Company as defined under
B Section 5(c) of the Banking Regulations Act, 1949, ("the 1949
  Act"), or a non-banking financial company as defined in clause
  (f) of Section 45(1) of the Reserve Bank of India Act, 1949. Mr.
  Ganguli urged that in 2003, Section 2(3) of the Tamil Nadu Act
  was amended omitting the words "a company registered under
c the Companies Act, 1956" and inserting the words "a non-
  banking financial company" as defined in clause (f) of Section
  45-1 of the Reserve Bank of India Act, 1949, after the words
  "does not include". By the same amendment, the words "a
  company registered under the Companies Act, 1956" were
  introduced into Sub-Section (3) of Section 2. The amended
0
  provision now reads as follows :-

          "(3)'financial establishment' means an individual, an
          association of individuals, a firm or a company registered
          under the Companies Act, 1956 (Central Act 1 of 1956)
E         carrying on the business of receiving deposits under any
          scheme or arrangement or in any other manner but does
          not include a corporation or a co-operative society owned
          or controlled by any State Governmen~ or the Central
          Government or a banking company as defined in Section
F         5 (c) of the Banking Regulation Act, 1949 (Central Act
          10 of 1949)."
       16. Mr. Ganguli urged that in contrast, the Pondicherry Act
  defined the expression "financial establishment" in Section 2(d)
G to mean:-
          " .... Any person or group of individuals or a firm carrying
          on business of accepting deposits under any scheme or
          arrangement or in any other manner but does not include
          a corporation or a co-operative society owned or controlled .
H         by the Government, any State Government or the Central
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     891
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

    Government, or a banking company as defined under A
    Section 5 of the Banking Regulation Act, 1949."

     17. Referring to the Statement of Objects and Reasons in
the enactment of the Pondicherry Act, 2004, Mr. Ganguli
pointed out that it had been specifically indicated that there had B
been a mushroom growth of non-banking financial
establishments and deposit-taking unincorporated bodies not
covered under the Reserve Bank of India Act, 1934, in different
parts of the country. Accordingly, it was proposed to undertake
a legislation which sought to protect the deposits made by the C
public in financial establishments not being companies
registered under the Companies Act, 1956, or a Corporation
or a Cooperative Society owned or controlled by the State
Government or the Central Government or a Banking Company
under the Banking Regulation Act. The Division Bench of the
Madras High Court in the impugned judgment has referred to D
the Full Bench decision of the said Court from which the
appeals in K.K. Baskaran's case arose. In paragraph 13-g of
the said judgment, it was recorded that it was also useful to refer
to the stand taken by the Advocate General who defended the
Tamil Nadu Act before the Full Bench by stating that the Act E
was intended to realize the deposits made by the public in the
financial establishments, whether they were incorporated or not.
The Division Bench went on to hold further that the entire
reasoning of the Full Bench was applicable to the impugned
Act of the Government of Pondicherry. Accordingly, the Division F
Bench held that the financial establishments referred to in
Section 2(d) of the impugned Act covered both unincorporated
and incorporated trading establishments.

      18. Mr. Ganguli tried to impr€ss upon us that in view of the G
aforesaid decisions in the language adopted in the definition
of "financial establishments" in the two Acts, the Court would
be required to examine the issue carefully to determine as to
whether the decision in K.K. Baskaran's case (supra) relating
to the Tamil Nadu Act could ipso facto be made applicable to H
    892      SUPREME COURT REPORTS                   [2012] 8 S.C.R.


A   determine the scope and ambit of the Pondicherry Act.

          19. Coming to the next question as to whether the State
    enactments as well as the Parliamentary enactments covered
    the same field, namely, "investor's protection", Mr. Ganguli
B   submitted that the decision of the Full Bench of the Madras High
    Court in the case of S. Bagavathy Vs. State of Tamil Nadu
     [2007) 1 LW 892] dealing with the Tamil Nadu Act and other
     Parliamentary legislations prohibiting and regulating
    acceptance of deposits by financial establishments, held the
    same to be a valid piece of legislation. The Full Bench, inter
C   alia, observed that the existing laws, namely, Section 58A of
    the Companies Act, 1956, regulates the acceptance of the
    deposits and Section 45S of the Reserve Bank of India Act,
     1934, prohibits the acceptance of deposits and also prescribes
    suitable punishments and penalties for contravening the same,
D   but neither of the existing laws provide for regulating the
    activities of the financial establishments, which not only duped
    the innocent depositors and accepted deposits from them, but
    also siphoned off, diverted or transferred the funds for their own
    use in a mala fide manner. Mr. Ganguli submitted that the
E   existing laws did not provide for the attachment of the properties
    that were procured either in ttie name of the financial
    establishments or in the name of any other person from and
    out of the deposits collected by the financial establishments.
    Mr. Ganguli also urged that the Full Bench further observed that
F   in the absence of any effective remedy in the Central legislation
    to regulate control of either unincorporated or incorporated
    companies in the matter of depositors, who have deposited
    their hard-earned money with the financial establishments, the
    State Government was fully competent to bring out legislation
G   to suit the needs of the public and to protect the interests of
    the depositors as well as in the public interest. Mr. Ganguli
    submitted that even though the Reserve Bank of India Act,
    1934, prohibits acceptance of deposits and prescribes a
    penalty on any violation of the provisions of the Act, no
H   provision or mechanism had been included for attaching the
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF                 893
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

properties of the financial establishments and the properties of A
mala fide transferees. Referring to paragraph 91 of the Full
Bench judgment, Mr. Ganguli submitted that it had been clearly
indicated therein that the mere absence of exercise of such
power conferred under Section 5BB (5A) or 5BG of the Reserve
Bank of India Act, could not by itself validate the impugned B
legislation where the Government had proposed to protect the
interests of depositors, in the public interest and in order to
regulate the activities of such financial institutions, which power
could be traced to the field of legislation under Entries 1 and
32 of List II of the Seventh Schedule to the Constitution. It was  c
categorically observed by the Full Bench that where no licence
had been obtained from the Reserve Bank of India to
commence and continue operations, the question of
applicability as well as violation of the directions issued under
Section 45S of the Reserve Bank of India Act by the Reserve
                                                                    0
Bank of India remains unanswered. The Full Bench had also
observed that concededly none of the Petitioners had obtained
licence from the Reserve Bank of India nor can the business
of financial establishments in accepting deposits be strictly
construed to be "banking", as defined under the Banking
Regulations Act, 1949. Mr. Ganguli urged that since none of E
the Petitioners are companies registered under the Companies
Act, 1956, the provisions of the said Act would not be
applicable to them. It was also observed that the impugned
legislation was enacted in the public interest to regulate the
activities of the financial establishments falling under Entries 1 F
and 32 of the State List. Mr. Ganguli urged that it is in such
background that the Full Bench concluded that the Tamil Nadu
Act could be traced to the field of legislation under Entries 1
and 32 of List II of the Seventh Schedule, without analyzing the
full scope of the said Entries on the one hand and Entries 43, G
44 and 45 of the Union List, on the other.

    20. Referring to the decision of the Full Bench of the
Bombay High Court in Vijay C. Pulja/'s case (supra), which had
declared the Maharashtra Protection of Interests of Depositors     H
    894     SUPREME COURT REPORTS                   [2012] 8 S.C.R.

A   (in Financial Establishment) Act, 1999, to be ultra vires for want
    of legislative competence of the State legislature, Mr. Ganguli
    contended that the Full Bench had relied upon the decision of
    this Court in Delhi Cloth and General Mills Vs. Union of India
    [(1983) 4 SCC 166] in which the validity of Section 58A of the
B   Companies Act, 1956, which regulated deposits accepted by
    companies, was questioned on the ground that the subject
    matter of the enactment, in pith and substance, fell within the
    subject matter of Entry 30 of the State List. This Court had,
    however, upheld the validity of Section 58 of the Companies
C   Act, upon holding that the subject matter of the legislation could
    be referred to Entries 43 and 44 of the Union List and the
    Parliament was, therefore, alone competent to enact the said
    law. Mr. Ganguli pointed out that the subsequent enactment of
    Section 58AA which made special provisions in relation to
    small depositors and declared non-compliance with the
D   provisions thereof as a criminal offence punishable with
    imprisonment of three years and fine, was also referable to
    Entries 43 and 44 of the Union List, being an amendment to
    the Companies Act which was a central enactment.

E         21. Several other decisions on the same lines were
    referred to by Mr. Ganguli which need not, however, detain us
    as the Full Bench of the Bombay High Court had held that the
    Maharashtra Act fell within the exclusive jurisdiction of the
    Parliament being referable to Entries 43, 44, 45 and 97 of List
F   I of the Seventh Schedule.

          22. Reference was then made to the decision of this Court
    in K.K. Baskaran's case (supra). Mr. Ganguli urged that in the
    said case it was the validity of the Tamil Nadu Act alone which
    was considered by this Court and this Court took note of the
G   fact that the "financial companies" had not obtained any licence
    from the Reserve Bank of India and hence they were not
    governed by the Reserve Bank of India Act, nor the Banking
    Regulation Act, 1949. In the context of the above, this Court
    observed that the Tamil Nadu Net is not focused on the
H   transactions of banking or the acceptance of deposits, but is
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF    895
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, JI

focused on remedying the situation of the depositors who were A
deceived by the fraudulent financial establishments. Applying
the doctrine of pith and substance, this Court held that the said
Act was referable to Entries 1, 30 and 31 of List II of the
Seventh Schedule to the Constitution and not Entries 43, 44
and 45 of List I thereof. Mr. Ganguli urged that the decision of B
the Full Bench of the Bombay High Court was the subject matter
of the pending appeal when the decision in K.K. Baskaran's
case (supra) was rendered. The appeal from the decision of
the Full Bench of the Bombay High Court came to be
considered subsequently on 29th September, 2011, when the        c
constitutional validity of the Maharashtra Act was upheld with
the rider that if any party wished to submit that it was not
covered by the Maharashtra Act or the Tamil Nadu Act, it would
be open to them to take appropriate proceedings before the
forum concerned.
                                                                 D
    23. Mr. Ganguli lastly urged that the decision in K.K.
Baskaran's case (supra) was rendered ex-parte without any
representation from either the State or the Union Government
and while the judgment may be binding between the parties, it
had no precedence value. Submitting that there were several      E
other similar matters pending with regard to the acceptance of
deposits by companies and regulation thereof with a view to
providing protection to investors, Mr. Ganguli urged that the
appeals were liable to be allowed.
                                                                  F
     24. Concluding his submissions, Mr. Ganguli reiterated that
it was evident that the subject matter of the Pondicherry Act is
referable to various Parliamentary laws in existence which deal
with investors' protection and provide measures for recovery,
which were covered under Entries 43, 44, 45 and 97 of the G
Union List: Mr. Ganguli submitted that the attempt to make the
said Entries referable to Entries 1, 30 and 32 of the State List,
was erroneous and the appeals were liable to be allowed upon
the setting aside of the judgment and order passed by the
Division Bench of the Madras High Court.
                                                                 H
    896      SUPREME COURT REPORTS                   [2012] 8 S.C.R.


A         25. At the very initial stage of his submissions, Mr. R.
    Venkataramani, learned Senior Advocate appearing for the
    Government of Pondicherry, submitted that the present litigation
    was, in fact, a proxy litigation since the companies which had
    received the deposits from the various depositors had not come
B   to the High Court, but were being represented by a sister
    concern, namely, M/s New Horizon Sugar Mills Ltd. It was
    submitted that the State Government had acted in accordance
    with the Entries in List 11 as there was no occupied field to oust
    the competence of the State Government to legislate in regard
c   to Entries 1 and 30 of List II. According to Mr. Venkataramani,
    the question of repugnancy of the Central legislation having an
    overriding effect on the State legislation, did not arise in the
    facts of the case. In the light of his aforesaid s1,1bmissions, Mr.
    Venkataramani contended that the issues which arose for
    consideration in these appeals were : (i) Whether the judgment
0
    of this Court in Baskaran's case has any relevance for disposal
    of the appeal? (ii) Even if the said judgment was not to be relied
    upon, whether the Pondicherry Act of 2005 is constitutionally
    valid being protected by the provisions of Section 18 and 21
    of the Government of Union Territories Act, 1963? and (iii)
E   Whether the Appellant not being an "establishment" which has
    received the deposits in question and not being one of the class
    of establishments within the meaning of Section 2(d) of the Act,
    could be permitted to challenge the validity of the Act as a proxy
    for the defaulting establishment?
F
         26. Mr. Venkataramani urged that the second question
    indicated hereinabove involved the interpretation of Articles 246
    and 254 of the Constitution and the Government of Union
    Territories Act, 1963. It was urged further that having regard to
G   the distinction between the position of States and Union
    Territories in the Scheme of the Constitution and under the
    provisions of the Government of Union Territories Act, 1963, this
    Court would have to consider the said .issue as a pure question
    of law relevant for determinC:ttion of the vires of the law. Mr.
H   Venkataramani submitted that regardless of the submissions
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF                  897
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

made by the Appellant with regard to the judgment in K.K. A
Baskaran's case (supra), the Pondicherry Act of 2005 deserves
to be upheld for special reasons and on other grounds
emerging from the provisions of the aforesaid Act. Mr.
Venkataramani also contended that the challenge thrown to
G.O.Ms.No.12 dated 18.2.2006 being beyond the scope of the B
Act, was not acceptable, since the Appellant neither received
any deposits directly from the depositors nor did it directly
engage in the business of granting financial loans, and would
not, therefore, fall under Section 2(d) of the Act which deals with
financial establishments. It was further urged that since the C
Appellant was a stranger to the legislation, its locus could be
confined only to infringing actions taken under the Act.

      27. Mr. Venkataramani submitted that the Appellant
 Company had been set up primarily to lend support to the
 challenge to the G.O.Ms.No.12 dated 18.2.2006. Mr.                 D
Venkataramani submitted that Mis PNL Nidhi Ltd., the offending
establishment, had not filed any petition relating eit~er to the
Act or the Government order. As a consequence, fhe actual
establishment which would fall under Section 2(d) of the Act was
 not before the Court. It was contended that Mis PNL Nidhi Ltd.     E
 has been shown as the Respondent in both the two writ
petitions, while Writ Appeal Nos.1142 and 1143 of 2006 were
filed by Mis Kannan and others, with Mis PNL Nidhi Ltd. as the
second respondent. In the absence of appeals by the parties
directly covered by the Act, the Appellant could not, as an alter   F
ego of such parties, claim any locus to challenge the validity of
the Pondicherry Act of 2005. Interestingly, it was also pointed
out that the licence granted to Pondicherry Nidhi Ltd. by the
Reserve Bank of India in terms of Section 45 IA of the Reserve
Bank of India Act, 1934, stood cancelled on 14th September,         G
2005. Mr. Venkataramani submitted that it was also required
to be taken into consideration that the licence granted to
Pondicherry Nidhi Ltd. by the Reserve Bank of India in terms
of Section 45 IA of the Reserve Bank of India Act, 1934, stood
cancelled on 14.9.2005 and technically there is, therefore, no      H
    898      SUPREME COURT REPORTS                   [2012] 8 S.C.R.


A   company licenced or registered to carry on the non-banking
    financial activities, which were pending before this Court.

         28. On the Scheme of the legislative powers of Union
    Territories and the Parliament, Mr. Venkataramani submitted
    that the absence of Parliamentary legislation on a Union List
B
    subject does not clothe the State Legislature with the
    competence to enact a legislation and that deficiency in
    Parliamentary legislation, referable to the Union List, could not
    also confer competence on the State Legislature to fill in the
    gaps, having regard to the Scheme of the Union Territories Act,
c   1963. It was submitted that the judgments cited on behalf of the
    Appellant in support of his two-fold submissions referred to
    above, all relate to conflicts between Parliamentary and State
    Legislations referable to Lists I and II of the Seventh Schedule
    and the Scheme of Article 246 of the Constitution. In such
D   cases, overlapping of Parliamentary and State   '     Legislations,
    referable to Entries in the Concurrent List, stand on a different
    footing and the threshold embargo on the State Legislature to
    enact laws relatable to Union List, does not exist. In such cases,
    the only issue which could at all arise would be with regard to
E   repugnancy and that too provided the legislations contained
    conflicting provisions. Referring to the decision of this Court in
    Ramji and others vs. State of U.P. & Others [(1956 SCR 393],
    Mr. Venkataramani submitted that the doctrine of pith and
    substance could not be applied to the facts of this case on
F   account of the fact that when both the Central, as well as the
    State Legislatures, were operating in the concurrent field, there
    was no question of trespass upon the exclusive jurisdiction
    vested in the Centre under Entry 52 of List I. The only question
    which, therefore, survived was whether putting both the pieces
G   of legislations enacted by the Centre and the State together,
    any repugnancy could be traced, in which event a different set
    of consequences will follow. In the instant case there being no
    question of any inconsistency, any further question relating to
    the overriding effect of the Central provision, would not arise.
    The question which necessarily arises is whether the Parliament
H
    NEW HORIZON SUGAR MILLS LTD. v. GOVT OF      899
  PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

and the State Legislature exercised their powers over the self-               A
same subject matter, or whether the laws enacted by Parliament
were intended to be a complete and exhaustive code in
themselves.

      29. Mr. Venkataramani submitted that the law in question                B
is not in substance a matter relating to incorporation, regulation
or winding-up of either incorporated or unincorporated entities
and Entries 43 and 44 of List I would have to be seen in the
context of laws relating to corporations and different modes of
incorporation. It was submitted that Entry 33 in the Federal List
of the Government of India Act, 1935, combined Entries 43 and                 C
44 under List I of the Seventh Schedule to the Constitution, as
they are concerned with incorporation and regulations and
providing for measures regulating the business of corporations.
Reliance was placed on the decision of this Court in R.C.
Cooper vs. Union of India [(1970) 3 SCR 530], wherein the                     D
fine distinction between regulation of the business activities of
and regulation of a corporation was noticed. In fact, Sections
58A and 58AA of the Companies Act, 1956, and Section 45S
of the Reserve Bank of India Act, 1934, could well fall within
the scope of Entries 43 and 44 of List I. Mr. Venkataramani                   E
argued that an offence whether committed by individuals or
other legal entities would fall within the scope of Entry I List 111
viz. "criminal law''. It is for that purpose that Entry I List Ill provides
for an exclusion from "offences against laws with respect to any
of the matters specified in List I and List II".                              F

      30. It was further pointed out that Entries 93 in List I and
64 in List II are similarly worded and do not refer to offences
against laws with respect to any of the matters in the List. In
that context, ii was submitted that the Pondicherry Act is not a              G
new law within the scope of Entry 93 of List I. It was further
submitted that the Pondicherry Act of 2005 not being a law
falling within the scope of Entries 43 and 44 of the Union List
and falling within the Entries in List Ill, the question of threshold
lack of competence or invasion of a forbidden territory does                  H
    900      SUPREME COURT REPORTS                 [2012] 8 S.C.R.


A not arise. Whether or not the Parliament could effect any further
  expansion of the provisions of Sections 58A or 58AA, could
  not, therefore, occupy the field relating to offences or crimes
  which are questions that can only be raised in the context of
  List I and List II controversies, and are irrelevant for the
B purposes of the present case.

       31. According to Mr. Venkataramani, one of the other
  reasons for enacting the Pondicherry Act of 2005 was to protect
  the interests of depositors and the Pondicherry Act of 2005 has
  primarily made the retention of deposits as a wrongful and
C fraudulent act and thus constituting a crime and an actionable
  wrong. It was further submitted that the Act provides for a
  special procedure and machinery for retrieval of the deposits
  or such property as may answer and satisfy the claims of the
  depositors. The law, therefore, essentially provides for tracing
D the source of the monies and the deposits in the hands of third
  parties and make it available to satisfy the claims of the
  depositors. According to Mr. Venkataramani, the aforesaid
  legislation would fall under Entry I (criminal law); Entry 8
  (actionable wrong), Entry 13 (civil procedure) and Entry 21
E (commercial and industrial monopolies) of List II of the Seventh
  Schedule to the Constitution. According to Mr. Venkataramani,
  none of the measures under the Act could be said to relate to
  regulation of the business activities of any corporation and even
  if such submission is taken to be correct, the Pondicherry Act
F of 2005 could not be traced to Entries 43 or 93 of List I.
  Reference was also made to the decision of this Court in
  Greater Bombay Co-op Bank vs. United Yarn [(2007) 6 SCC
  236].

       32. Going a step further, Mr. Venkataramani urged that
G even if the reference to Entries 1 and 30 of List II could be open
  to question, Entry 32 of List II, insofar as it permitted any law
  relating to incorporated or unincorporated establishments,
  would be available not as a law regulating the business
  activities of the establishments, but as a law dealing with
H
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF    901
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J)
actionable wrongs committed by establishments. A
Consequently, no interference was called for with the decision
of the Madras High Court as the law in question had been
enacted to deal with securing the public order, which is a
concept of wide amplitude. It was contended that apart from
the decision of this Court in Romesh Thapar Vs. State of
                                                                 8
Madras [(1950) SCR 594] and Ram Manohar Lohia (1991) 1
SCR 709], this Court had also considered the question in Rev.
Stainislaus Vs. State of M.P. [(1977) 2 SCR 611] and Arun
Ghosh Vs. State of West Bengal [(1970) 3 SCR 288] and has
in no uncertain terms held that certain deviations could be C
resorted to in order to deal with securing public order.
Furthermore, security of transactions and their integrity are
equally and deeply relevant to public order. The reference to
and reliance placed upon Entry 97 of List I was, therefore,
misconceived.
                                                                 D
     33. It was then submitted that the submissions made on
behalf of the Appellant that Section 2(d) of the Pondicherry Act
does not include incorporated entities, as distinct from the
corresponding provisions of the Tamil Nadu Act, is
misconceived. While the definition of "financial establishment" E
in the Tamil Nadu Act was apparently different, the ultimate
result was the same. Furthermore, the Pondicherry Act uses the
expression "person" in wide terms to include natural persons
(as individuals) and companies. Mr. Venkataramani submitted
that the expression "person" has been exhaustively dealt with F
in P. Ramanatha Ayyar's "Advanced Law Lexicon" and did not
require any further elucidation. Referring to Section 11 of the
Indian Penal Code, Mr. Venkataramani submitted that the same
defines a person to include a company or association or body
of persons whether incorporated or not. Accordingly, the use G
of the expression "person" in the Pondicherry Act also included
both unincorporated as well as incorporated companies.

    34. Mr. Venkataramani urged that there was no
repugnancy at all between the provisions of the Pondicherry Act
                                                                  H
    902      SUPREME COURT REPORTS                 [2012] 8 S.C.R.


A or the Companies Act, 1956 and/or the Reserve Bank of India
  Act and in the absence of any occupied legislation enacted
  under the provisions of the Companies Act and the Reserve
  Bank of India Act, the question as to whether the Pondicherry
  Act was subservient to the Central legislation was no longer
B relevant, particularly when the said Act had received the assent
  of the President and was, therefore, protected under Article
  254(2) of the Constitution. Consequently, the law being
  traceable to Entry 32 of List II and Entries 1, 8, 13 and 21 of
  List I and the same having received the assent of the President,
C stands fully protected by the provisions of Section 31 of the
  1963 Act. In support of his submissions Mr. Venkataramani
  referred to the decisions of this Court in S. Pushpa and others
   Vs. Sivachanmugavelu and others [(2005) 3 SCC 1], New
  Delhi Municipal Council Vs. State of Punjab & Others [(1997)
  7 SC 339] and T.M. Kanniyan Vs. I. T.O. Pondicherry [(1968)
D 2 SCR 103]. In the first of the said three decisions, this Court
  had the occasion to consider the question of reservation in
  regard to recruitment of Scheduled Caste candidates in the
  Union Territory of Pondicherry. It was held that those Scheduled
  Caste candidates who had migrated from other States would
E be eligible for selection and appointment to posts reserved for
  the Scheduled Caste candidates in the Union Territory of
  Pondicherry, since it had consistently followed the policy of the
  Central Government where ail candidates irrespective of the
  State/Union Territory were given the benefit of reservation and
F the selections made pursuant to such policy were valid. The
  second decision in the case of New Delhi Municipal Council
  was with regard to the powers of the Central Government to
  make laws with respect to Union Territories under Article 246(4)
  of the Constitution of India. While deciding the said issue, it was
G held by this Court that where the enactment could be related
  to and upheld with reference to some constitutional value, its
  validity should be upheld. The third decision is also on the same
  lines.

          35. Mr. Venkataramani ended on the note that since the
H
                                                       .
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     903
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

Parliamentary Act had received the assent of the President, it      A
would have effect irrespective of the Central legislation and as
decided in Charan Lal Sahu Vs. Union of India ((1990) 1 SCC
613] conceptually and jurisprudentially there is no bar on the
State to assume responsibilities analogous to parens patria to
discharge the State's obligations under the Constitution.           B
Learned counsel also referred to the Bhopal Gas Leak
Disaster Act, which has been traced to Entry 13 of the
Concurrent List. Mr. Venkataramani urged that the Appeals
were entirely misconceived and were liable to be dismissed.

     36. From the case made out on behalf of the Appellant Mill     C
and the submissions in support thereof, what emerges for
decision is whether the subject matter covered by the
Pondicherry Act is relatable to Entries 43, 44, 45 and 97 of the
Union List or to Entries 1, 30 and 32 of the State List. Coupled
with the aforesaid question is the other question as to whether     D
the decisipn of this Court in K.K. Baskaran's case (supra),
upholding the validity of the Tamil Nadu Act, would also be
applicable for determining the validity of the Pondicherry Act,
having particular regard to Mr. Ganguli's submissions that there
were major differences in the two enactments.                       E

     37. As far as the first question is concerned, on a scrutiny
of the Seventh Schedule to the Constitution, it will be seen that
Entries 43, 44 and 45 of List I of"the Seventh Schedule to the
Constitution deal with the following matters, namely,
                                                                    F
     "43. Incorporation, regulation and winding up of trading
     Corporations, including banking, insurance and financial
     corporations, but not including Co-operative Societies.

     44. Incorporation, regulation and winding up of                G
     corporations, whether trading or not, with objects not
     confined to one State, but not including universities.

     45. Banking."

                                                                    H
    904       SUPREME COURT REPORTS                    [2012] 8 S.C.R.


A        38. In other words, each of the above-mentioned Entries
    deal with matters relating to trading corporations, which include
    banking, insurance and financial corporations, whereas Entries
    1, 30 and 32 of List II deal with the following :-

          "1. Public order (but not including [the use of any naval,
B         military or air force or any other armed force or the Union
          or of any other force subject to the control of the Union or
          of any contingent or unit thereof] in aid of the civil power).

          30. Money-lending and money-lenders; relief of agricultural
c         indebtedness.

          32. Incorporation, regulation and winding up of
          corporations, other than those specified in List I, and
          universities; unincorporated trading, iiterary, scientific,
          religious and other societies and associations; co-
D
          operative societies."

         39. The Entries relating to the State List referred to above,
    and in particular Entry 30, appear to be a more appropriate
    source of legislative authority of the State Assembly for enacting
E   laws in furtherance of such Entry. The power to enact the
    Pondicherry Act, the Tamil Nadu Act and the Maharashtra Act
    is relatable to Entries 1, 30 and 32 of the State List, which
    involves the business of unincorporated trading and money-
    lending which falls within the ambit of Entries 1, 30 and 32 of
F   the State List.

       40. In addition to the above, it has also to be noticed that
  the objects for which the Tamil Nadu Act, the Maharashtra Act
  and the Pondicherry Act were enacted, are identical,· namely,
  to protect the interests of small depositors from fraud
G perpetrated on unsuspecting investors, who entrusted their life
  savings to unscrupulous and fraudulent persons and who
  ultimately betrayed their trust.

         41. However, coming back to the constitutional conundrum
H   that has been presented on account of the two views expressed
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     905
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]
by the Madras High Court and the Bombay High Court, it has            A
to be considered as to which of the two views would be more
consistent with the constitutional provisions. The task has been
simplified to some extent by the fact that subsequently the
decision of the Bombay High Court declaring the Maharashtra
Act to be ultra vires, has been set aside by this Court, so that      B
there is now a parity between the judgments relating to the
Maharashtra Act and the Tamil Nadu Act.

      42. The three enactments referred to hereinabove, were
framed by the respective legislatures to safeguard the interests
of the common citizens against exploitation by unscrupulous C
financial establishments mushrooming all over the country. That
is, in fact, the main object indicated in the Statement of Objects
and Reasons of the three different enactments.

    · 43. Even if it is to be accepted that the Pondicherry Act is    o
relatable to Entries 43, 44 and 45 of List I, it can be equally
said that the said enactment is also relatable to Entries 1, 30
and 32 of List II, thereby leaving the field of legislation open,
both to the Central Legislature as well as the State Legislature.
In such a situation, unless there is anything repugnant in the        E
State Act in relation to the Central Act, the provisions of the
State Act will have primacy in determining the lis in the present
case. Apart from the above, the provisions of the Pondicherry
Act are also saved by virtue of Article 254(2) of the Constitution.
For a proper understanding of the legal position, the provisions      F
of Article 254 are extracted hereinbelow :-

    "254. Inconsistency between laws made by Parliament
    and laws made by the Legislatures of States - (1) If any
    provision of a law made by the Legislature of a State is
    repugnant to any provision of a law made by Parliament G
    which Parliament is competent to enact, or to.any provision
    of an existing law with respect to one of the matters
    enumerated in the Concurrent List, then, subject to the
    provisions of clause (2), the law made by Parliament,
                                                                H
    906       SUPREME COURT REPORTS                  [2012] 8 S.C.R.


A         whether passed before or after the law made by the
          Legislature of such State, or, as the case may. be, the
          existing law, shall prevail and the law made by the
          Legislature of the State shall, to the extent of the
          repugnancy, be void;
B         (2) Where a law made by the Legislature of a State with
          respect to one of the matters enumerated in the concurrent
          List contains any provision repugnant to the provisions of
          an earlier law made by Parliament or an existing law with
          respect to that matter, then, the law so made by the
c         Legislature of such State shall, if it has been reserved for
          the consideration of the President and has received his
          assent, prevail in that State:

          Provided that nothing in this clause shall prevent
D         Parliament from enacting at any time any law with respect
          to the same matter including a law adding to, amending,
          varying or repealing the law so made by the Legislature
          of the State."

          44. As will be evident from the above, clause (1) of Article
E   254 provides that when there are two laws enacted by the
    Parliament and the State Legislature in which certain
    inconsistencies occur, then subject to the provisions of clause
    (2), the law made by the Parliament would prevail and the law
    made by the State Legislature to the extent it is repugnant to
F   the Central law, shall be void. Clause (2), however, also
    provides that in a given situation where a law of a State is in
    conflict with the law made by Parliament, the law so made by
    the State Legislature shall, if it has received the assent of the
    President, prevail in that State. In the instant case, the
G   Pondicherry Act had received the assent of the President
    attracting the provisions of Article 254(2) of the Constitution.

        45. At this stage, it may also be worthwhile to consider Mr.
    Venkataramani's submissions that the power to enact the
H   Pondicherry Act could be traced to Entries 1, 8, 13 and 21 of
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     907
  PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J]

the Concurrent List. Entry 1 of List 111 deals with criminal law,     A
including all matters included in the. Indian Penal Code at the
commencement of this Constitution, but excluding offences
against laws with respect to any of the matters specified in List
I or List II and excluding the use of naval, military or air forces
or any other armed forces of the Union in aid of the civil power.     B
 Entry 8 deals with actionable wrongs. Entry 13 deals with civil
 procedure while Entry 21 deals with Commercial and Industrial
 monopolies, combines and trusts. Such submission has been
 advanced by Mr. Venkataramani in view of the provisions of
 Section 58A, 58AA and 58AAA of the Companies Act, 1956,              C
 which all deal with deposits invited and accepted by
 Companies. The said submission is, however, subject to the
 condition that the provisions of the Companies Act are also
 attracted to the provisions of the Pondicherry Act. Although, it
 has been argued by Mr. Ganguli that the provisions of the
 Companies Act would not be attracted, we cannot overlook the         D
 amendment to the definition of "financial establishment"
 included in the Tamil Nadu Act and as defined in the
 Pondicherry Act. The definition of the expression "financial
 establishment" in Section 2(d) of the Pondicherry Act, which
 has been extracted in paragraph 14 hereinbefore, includes any        E
 person or group of individuals or a firm carrying on business
 of accepting deposits under any scheme or arrangement or in
 any other manner, but does not include a Corporation or a
 cooperative society owned or controlled by either the Central
 Government or the State Government or a banking company              F
 as defined under Section 5 of the Banking Regulation Act,
 1949. In our view, the expression "any person" is wide enough
 to cover both a natural person as also a juristic person, which
 would also include a Company incorporated under the
  Companies Act, 1956. In that view of the matter, the definition     G
  in Section 2(d) of the Pondicherry Act would also include a
  Company such as the Appellant Mill, which accepts deposits
  from investors, not as shareholders of such Company, but
  merely as investors for the purpose of making profit. In this
   regard, reference may also be made to Section 11 of the Indian     H
     908      SUPREME COURT REPORTS                   [2012] 8 S.C.R.


A   Penal Code which defines a "person" to include a Company
    or Association or body of persons, whether incorporated or not.
    Accordingly, we are inclined to accept Mr. Venkataramani's
    submissions that the expression "person" in the Pondicherry
    Act, includes both incorporated as well as unincorporated
8   companies.

          ' 46. The decision in K.K. Baskaran's case (supra) so far
      as it relates to protection of interests of depositors, cannot be
      ignored. In our view the decision rendered by the Madras High
     Court in K.K. Baskaran's case (supra) would be equally
C    applicable to the facts of this case. We have to bear in mind
     that the validity of the Tamil Nadu Act and the Maharashtra Act
      have been upheld by the Madras High Court and this Court. The
     objects of the Tamil Nadu Act, the Maharashtra Act and the
     Pondicherry Act being the same and/or similar in nature, and
D    since the validity of the Tamil Nadu Act and the Maharashtra
     [I.ct have been upheld, the decision of the Madras High Court
     in upholding the validity of the Pondicherry Act must also be
     affirmed. We have to keep in mind the beneficial nature of the
     three legislations which is to protect the interests of small
E    depositors, who invest their life's earnings and savings in
     schemes for making profit floated by unscrupulous individuals
    and companies, both incorporated and unincorporated. More
    often than not, the investors end up losing their entire deposits.
    We cannot help but observe that in the instant case although
F   an attempt has been made on behalf of the Appellant to state
    that it was not the Appellant Company which had accepted the
    deposits, but M/s PNL Nidhi Ltd., which had changed its name
    five times, such an argument is one of desperation and cannot
    prima facie be accepted. This appears to be one of such cases
G   where funds have been collected from the gullible public to
    invest in projects other than those indicated by the front
    company. It is in fact the specific case of the Respondents that
    the funds collected by way of deposits were diverted to create
    the assets of the Appellant Mill.
H
   NEW HORIZON SUGAR MILLS LTD. v. GOVT. OF     909
 PONDICHERRY TH. ADDL. SEC. [ALTAMAS KABIR, J.]

       47. In such circumstances, we are not inclined to accept A
tbe submissions made by Mr. Ganguli, since in our view there
is little difference between the provisions of the Tamil Nadu Act
and the Pondicherry Act, which is to protect the interests of
depositors who stand to lose their investments on account of
the diversion of the funds collected by M/s PNL Nidhi Ltd. for 8
the benefit of the Appellant Mill, which is privately owned by Shri
V. Kannan and Shri V. Baskaran, who are also Directors of M/
s PNL Nidhi Ltd.

    48. The Appeals are, accordingly, dismissed with costs
assessed at Rs.1,00,000/-.                                       C
R.P.                                      Appeals ·dismissed.