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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL     APPEAL     NOS.6673-6674     OF     2009   

M/s New Horizon Sugar Mills Ltd.    … Appellant  

Vs.

Govt.of Pondicherry   Th. Addl. Sec. & Anr.    … Respondents

J     U     D     G     M     E     N     T   

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,

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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 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 of 2007, which are the  

subject matter of Civil Appeal Nos.6673-6674 of  

2009, filed by M/s New Horizon Sugar Mills Ltd.

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 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  

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(Act 1 of 2005), ordering attachment of properties  

acquired by 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.   

4. The lis between the parties to these appeals  

can be traced back to the credit facilities availed  

of by the Appellant, M/s 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 guarantors for repayment of the  

loan and offered their personal properties as  

collateral securities. As the Appellant Mill  

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  

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the Securitisation and Reconstruction of Financial  

Assets and Enforcement of Security Interest Act,  

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  

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 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  

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auction. In the auction proceedings, M/s E.I.D.  

Parry (India) Ltd. (“Parry 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  

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.

6. On receiving the Sale Confirmation Letter from  

the Bank, Parry Ltd. remitted their entire balance  

amount and fulfilled all other formalities for  

getting the Sale Certificate registered in its  

favour.  At the same time, on the basis of a  

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complaint received from one of the depositors,  

alleging that Shri V. Kannan and Shri V. Baskaran,  

said to be the major shareholders of M/s PNL Nidhi  

Ltd. as well as being the Directors of the  

Appellant Mill, had misappropriated a sum of  

Rs.12.5 crores belonging to M/s PNL Nidhi Ltd. and  

diverted 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 M/s PNL Nidhi Ltd.  

Inasmuch as, by virtue of the said orders of  

attachment, M/s 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,  

Registration Department, Pondicherry, to register  

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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 registering the Sale Certificate  

in favour of M/s 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 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.  Several other Writ Petitions were filed  

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by Shri V. Kannan and Shri V. Baskaran and M/s  

Indian Renewable Energy Development Agency Ltd.  

(“IREDA”), New Delhi, and M/s Arunachalam Sugar  

Mills Ltd., Pondicherry, also filed several Writ  

Petitions challenging the validity of the aforesaid  

Government Order.  

7. A learned Single Judge of the Madras High Court  

took 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 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  

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Appellant (Writ Petitioner in Writ Petition No.1897  

of 2006) to approach the Debts Recovery Tribunal  

under Section 17 of the SARFAESI Act regarding  

their claim of refund of the excess amount alleged  

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  

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 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  

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decision, the Government of Pondicherry preferred  

Writ Appeal No.293 of 2007.   

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 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, 1958, Act 1 of 2005 and  

the provisions of the 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  

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under Section 25FF of the 1947 Act from 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  

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 of 2005 respectively, claiming that  

the Department’s claims were superior to those of  

others against the Appellant Mill and its  

properties.  

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.  

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By a common order dated 7th 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 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  

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.

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11. Apart from the submissions relating to Section  

25FF 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 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 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 Court in the  

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case of Vijay     C.     Puljal   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 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 of the  

Companies Act, Reserve Bank of India Act and the  

Maharashtra Act and after examining the challenge  

thrown to the vires 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  

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principles of natural 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 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 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 establishments and the State  

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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  

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.

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. had not  

been returned, the Pondicherry Police registered a  

case in Crime No.31 of 2004 on the file of the  

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C.I.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 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 to PNL Nidhi Ltd.  The Company floated  

various schemes, such 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 Directors of the Appellant Mill.  

It also transpired that the funds of the PNL Nidhi  

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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 buildings in Pondicherry  

and Chennai.  The investigation conducted by the  

C.I.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 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 (in Financial Establishments) Bill,  

1997, which ultimately became an Act in 2004.

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14. Appearing for the Appellant, Mr. A.K. Ganguli,  

learned Senior Advocate, submitted that the primary  

question for 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     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.  

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  

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Act, 1956, or a Banking Company as defined under  

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 the Companies Act, 1956”  and  

inserting the words “a non-banking financial  

company”  as defined in clause (f) of Section 45-I  

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 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) carrying on the business of  receiving deposits under any scheme or  

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arrangement or in any other manner but  does not include a corporation or a co- operative society owned or controlled by  any State Government or the Central  Government or a banking company as defined  in Section 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) 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 by the  Government, any State Government or the  Central Government, or a banking company  as defined under 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 been a  

mushroom growth of non-banking financial  

establishments and deposit-taking unincorporated  

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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 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 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 was intended to realize the  

deposits made by the public in the financial  

establishments, whether they were incorporated or  

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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 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 impress upon us that in  

view of the 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  

determine the scope and ambit of the Pondicherry  

Act.

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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 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  

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, but neither of the existing laws provide for  

regulating the activities of the financial  

establishments, which not only duped the innocent  

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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 existing laws did not  

provide for the attachment of the properties that  

were procured either in the 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 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 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  

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Bank of India Act, 1934, prohibits acceptance of  

deposits and prescribes a penalty on any violation  

of the provisions of the Act, no provision or  

mechanism had been included for attaching the  

properties of the financial establishments and the  

properties of 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 58B (5A) or  

58G of the Reserve Bank of India Act, could not by  

itself validate the impugned 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 categorically observed by the Full Bench that  

where no licence had been obtained from the Reserve  

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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 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 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 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  

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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, 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.     Puljal  ’s case  

(supra), which had declared the Maharashtra  

Protection of Interests of Depositors (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 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  

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subject matter of Entry 30 of the State List.  This  

Court had, however, upheld the validity of Section  

58 of the Companies 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 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.

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  

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the exclusive jurisdiction of the Parliament being  

referable to Entries 43, 44, 45 and 97 of List 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 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 Act is not focused on the transactions  

of banking or the acceptance of deposits, but is  

focused on remedying the situation of the  

depositors who were deceived by the fraudulent  

financial establishments.  Applying the doctrine of  

pith and substance, this Court held that the said  

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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 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 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.

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  

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Page 32

binding between the parties, it had no precedence  

value.  Submitting that there were several 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.   

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 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  

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passed by the Division Bench of the Madras High  

Court.   

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 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 II as there was no occupied field  

to oust the competence of the State Government to  

legislate in regard 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  

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Page 34

his aforesaid submissions, Mr. Venkataramani  

contended that the issues which arose for  

consideration in these appeals were : (i) Whether  

the judgment 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) 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?

26. Mr. Venkataramani urged that the second  

question indicated hereinabove involved the  

interpretation of Articles 246 and 254 of the  

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Constitution and the Government of Union  

Territories Act, 1963.  It was urged further that  

having regard to 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 determination  

of the vires of the law.  Mr. Venkataramani  

submitted that regardless of the submissions made  

by the Appellant with regard to the judgment in  

K.K.     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 Act,  

was not acceptable, since the Appellant neither  

received any deposits directly from the depositors  

nor did it directly engage in the business of  

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Page 36

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 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. Venkataramani submitted that M/s PNL  

Nidhi Ltd., the offending establishment, had not  

filed any petition relating either to the Act or  

the Government order.  As a consequence, the actual  

establishment which would fall under Section 2(d)  

of the Act was not before the Court.  It was  

contended that M/s PNL Nidhi Ltd. has been shown as  

the Respondent in both the two writ petitions,  

while Writ Appeal Nos.1142 and 1143 of 2006 were  

filed by M/s Kannan and others, with M/s PNL Nidhi  

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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 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,  

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 company licenced or registered to  

carry on the non-banking financial activities,  

which were pending before this Court.    

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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 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, 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  

cases, overlapping of Parliamentary and State  

Legislations, referable to Entries in the  

Concurrent List, stand on a different footing and  

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Page 39

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 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 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 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  

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Page 40

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 and the State Legislature exercised  

their powers over the self-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 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 44  

under List I of the Seventh Schedule to the  

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Page 41

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 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 argued that  

an offence whether committed by individuals or  

other legal entities would fall within the scope of  

Entry I List III viz. “criminal law”.  It is for  

that purpose that Entry I List III provides for an  

exclusion from “offences against laws with respect  

to any of the matters specified in List I and List  

II”.   

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Page 42

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, it was submitted that the Pondicherry Act  

is not a 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 III,  

the question of threshold lack of competence or  

invasion of a forbidden territory does 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 purposes of the present case.   

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Page 43

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 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 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 (commercial and industrial monopolies) of  

List II of the Seventh Schedule to the  

Constitution. According to Mr. Venkataramani, none  

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Page 44

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 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 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 actionable wrongs committed by  

establishments.  Consequently, no interference was  

called for with the decision of the Madras High  

Court as the law in question had been enacted to  

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Page 45

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     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 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.  

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  

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Page 46

provisions of the Tamil Nadu Act, is misconceived.  

While the definition of “financial establishment”  

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 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 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  

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Pondicherry Act 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 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, 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    

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[(1968) 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 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 all  

candidates irrespective of the State/Union  

Territory were given the benefit of reservation and  

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 held by this Court that where  

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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 Parliamentary Act had received the assent of  

the President, it 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.  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.

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36. From the case made out on behalf of the  

Appellant Mill 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 the decision 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.  

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  

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Constitution deal with the following matters,  

namely,

“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 corporations, whether trading or  not, with objects not confined to one  State, but not including universities.

45. Banking.”

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, 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 indebtedness.

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

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  

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were enacted, are identical, namely, to protect the  

interests of small depositors from fraud  

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 that has been presented on account of the  

two views expressed by the Madras High Court and  

the Bombay High Court, it has 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 there is  

now a parity between the judgments relating to the  

Maharashtra Act and the Tamil Nadu Act.   

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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 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 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 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  

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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 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 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, 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;  

(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 Legislature  of such State shall, if it has been  reserved for the consideration of the  

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President and has received his assent,  prevail in that State:  

Provided that nothing in this clause shall  prevent 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 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 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 Pondicherry Act had received  

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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 Pondicherry Act could be traced  

to Entries 1, 8, 13 and 21 of the Concurrent List.  

Entry 1 of List III deals with criminal law,  

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.  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  

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the Companies Act, 1956, 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  

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 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  

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company 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 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 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 companies.  

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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 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  

since the validity of the Tamil Nadu Act and the  

Maharashtra Act 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 depositors, who invest their life’s earnings  

and savings in schemes for making profit floated by  

unscrupulous individuals and companies, both  

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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 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 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.

47. In such circumstances, we are not inclined to  

accept the submissions made by Mr. Ganguli, since  

in our view there is little difference between the  

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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 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/-.

………………………………………………………J.    (ALTAMAS KABIR)

………………………………………………………J.                      (J. CHELAMESWAR)

New Delhi Dated:27.09.2012          

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CORREGENDUM   

In page 1, in cause title, respondents'  Govt. of Pondicherry, be read as Govt. of  Pondicherry Th. Addl. Sec. & Anr.   

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