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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO.614 OF 2007

Soma Suresh Kumar …. Petitioner

Versus

 Government of Andhra   Pradesh & Ors.      …. Respondents

WITH

WRIT PETITION (CIVIL) NO.637 OF 2007

J U D G M E N T

K.S. RADHAKRISHNAN, J.

1. The petitioners, who were erstwhile Directors of Vasavi  

Cooperative  Urban  Bank  Limited,  have  approached  this  

Court seeking a declaration that Sections 3, 5, 8 and 9 of the  

Andhra  Pradesh  Protection  of  Depositors  of  Financial

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Establishments  Act,  1999  (in  short  “the  Andhra  Act”)  are  

unconstitutional  and  violative  of  fundamental  rights  

guaranteed  to  them  under  Articles  14  and  21  of  the  

Constitution of India and also other consequential reliefs.

2. The petitioners were Directors of the above-mentioned  

bank during the period from 1996 to 2002.  Large number of  

complaints  were received from the depositors  stating that  

the Board of Directors of the bank had swindled away the  

money  of  the  depositors  by  creating  false  documents,  

amounting to crores of rupees.  On receipt of the complaints,  

enquiry  was  conducted  and,  ultimately,  Joint  Registrar  of  

Cooperative  Societies  and  Chief  Executive  Officer  of  the  

bank registered Crime No.8 of 2003 on the file of the CID,  

Police Station under Section 120(b), 420, 409, 468, 477(A),  

Indian Penal Code and under Section 5 of the Andhra Act.  

Criminal  case  was  later  investigated  by  the  Deputy  

Superintendent of Police, STD-II, CID Hyderabad and charge-

sheet  was  filed  against  several  persons,  including  the  

petitioners.  The Charge-sheet was registered as C.C. No.4 of

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2003  before  the  Special  Court-cum-Metropolitan  Sessions  

Judge, Hyderabad.  It is at this juncture, the petitioners have  

approached this Court seeking the above-mentioned reliefs  

and also for a  writ of certiorari to quash all proceedings or  

orders passed by the competent authority and by the Special  

Court  constituted under the Andhra Act.   Petitioners have  

also  sought  for  a  writ  of  mandamus directing  the  

respondents not to arrest the petitioners or to attach their  

properties for the offences alleged to have been committed  

by them under Sections 3 and 5 of Andhra Act.

3. The State of Andhra Pradesh filed a detailed counter-

affidavit  explaining  the  circumstances  under  which  the  

petitioners were charge-sheeted.  It was stated that, while  

they  were  in  the  Board  of  Directors  of  bank,  they  had  

entered into a criminal conspiracy with the borrowers of the  

bank  and  created  fake  proprietary  concerns,  

firms/companies and swindled away money of the depositors  

by  accepting  defective,  fake,  forged  title  deeds  and  

committed  default  in  making  payment  of  dues  to  the

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depositors.   It  was  pointed  out  that  the  petitioners  were  

rightly  charge-sheeted  for  the  various  offences  under  the  

Indian Penal Code as well as Section 5 of the Andhra Act.

4. Union of India, in its counter affidavit,  submitted that  

the  petitioners  were  rightly  charge-sheeted  by  the  State  

Government  and,  over  and  above,  the  provisions  under  

which  they  were  charge-sheeted,  even  the  provisions  of  

Sections  11  to  11-D  of  Chapter  IV  of  the  Securities  and  

Exchange Board of India Act, 1992 (15 of 1992) would also  

be applicable as amended by the Amendment Act 2002 (59  

of 2002).  Further, it was also stated that the Andhra Pradesh  

Cooperative  Societies  Act,  1964  did  not  fall  within  the  

meaning of the “banking company” as defined by Section  

5(b) of the Banking Regulations Act, 1949.  Union of India  

has taken up that stand by placing reliance on the Judgment  

of this Court in  R.C. Cooper Vs. Union of India (1970) 1  

SCC 248,  wherein this  Court  held that  all  activities falling  

under  Section  5(b)  of  the  Banking  Regulations  Act,  1949

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would  fall  under  Entry  45  of  the  List  I  of  the  Seventh  

Schedule of the Constitution of India.

5. The Union of India had earlier filed a counter affidavit to  

the interlocutory application No.2 of 2010, filed to implead  

the Union of India as a party to Writ Petition (C) No.614 of  

2007.  In that, it was stated that the provisions of Sections 3,  

5, 8 and 9 of the Andhra Act were not opposed to the public  

policy  or  unconstitutional  or  violative  of  the  fundamental  

rights  guaranteed to  the petitioners.     Further,  it  is  also  

pointed out that the Banking Regulations Act, enacted by the  

Central  Government,  to  regulate the operation of  banking  

companies or organizations, enables the RBI to give licence  

to banking companies to carry out the functions of the bank.  

It was pointed out that it covered different areas which are  

not common to the area covered by the Andhra Act.  Further,  

it was pointed out that both the Acts have applicability to  

different aspects of refund to the depositors.  The Banking  

Regulations Act, it is pointed out, was enacted to regulate  

the  functioning  of  the  banking  companies,  including  the

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Vasavi  Cooperative  Urban  Bank  Limited  and  that  the  

petitioners  have  approached  this  Court  challenging  the  

validity of the Act so as to wriggle out of the clutches of law.

6. Vasavi  Cooperative  Bank  was  registered  as  a  

cooperative society on 29.05.1982.  The bank was issued a  

licence to carry on the business on June 16, 1982 and was  

accorded the Scheduled Status in the Banking Regulations  

Act w.e.f.  May 22, 1999.  The Bank was placed under the  

directive  of  Section  35A  of  the  Banking  Regulations  Act,  

1949  with  effect  from the  close  of  business  on  March  7,  

2003.   Bank  is  having  17  branches  all  over  the  State  of  

Andhra Pradesh.

7. We  notice  that  the  State  of  Andhra  Pradesh  was  

contemplating  a  legislation  similar  to  one  enacted  in  the  

State of Tamil Nadu, for a long time.  On many occasions,  

the State’s attention was drawn, to the large scale diversion  

of  money  by  many  financial  institutions  in  the  State,  by  

cheating  the  depositors  of  their  hard-earned  savings,  

misappropriating the same and then later vanishing from the

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scene.     Several  cases were booked against the persons  

responsible  for  the  same,  but  the  presence  of  a  

comprehensive legislation to curb such unfair practice was  

lacking.    This  was  the  reason  for  the  State  of  Andhra  

Pradesh to enact the Andhra Act.   The Statement of Objects  

& Reasons of the Act read as under :-

“Instances have come to the notice of the State  Government,  wherein  a  number  of  unscrupulous  financial establishments in the State are cheating  innocent,  gullible  depositors  by  offering  very  attractive  rates  of  interest,  collecting  huge  deposits  and  then  vanishing  suddenly.   The  depositors are being cheated and are put to grave  hardship by losing their hard earned savings.  To  curb  these  malpractices,  the  State  Government  has decided to bring a law to protect the interests  of depositors of the financial establishment in the  State  and  for  matters  connected  therewith  or  incidental  thereto.   The  above  issue  was  also  discussed  in  a  conference  of  the  State  Chief  Ministers  and  Finance  Ministers  presided  by  the  Union  Finance  Minister  on  14.9.1998  at  Vigyan  Bhavan,  New Delhi.   The Union Finance Minister  also  desired that  States  should  take expeditious  steps  for  enacting  legislation   on  the  lines  of  “Tamil Nadu Protection of Depositors (in Financial  Establishments)  Act,  1997,  “to  restore  the  confidence amongst the innocent depositors and  also to serve as a deterrent against malpractices  by  such  establishments  during  the  course  of  acceptance of public deposits.

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To achieve the above object, the Government has  decided  to  make  separate  law  by  undertaking  legislation.”

8. The  above  mentioned  Act  was  reserved  by  the  

Governor on 13th April, 1999 for consideration and assent of  

the President and on 23rd June, 1999, the same was granted  

and the Act was published on 1st July, 1999, in the Andhra  

Pradesh Gazette for general information.   

9. The petitioners have raised an objection that the State  

Legislature  does  not  have  the  competence  to  enact  the  

Andhra  Act  since  the  subject  “banking”  is  covered  under  

Entry  45  of  List  I  of  Seventh  Schedule.  Hence,  only  the  

Central Government is entitled to enact the law relating to  

subject “accepting of deposit from the public and repayment  

of the same on demand”.   Referring to the judgment of this  

Court in R.C. Cooper’s case (supra), it was contended that  

the scope, ambit and definition of the term “banking” under  

Entry 45 List I of the Seventh Schedule appended to Article  

246 would include all activities falling under Section 5(b) of  

the Banking Regulation Act, 1949.  Consequently, only the

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Parliament alone has the power to frame the law relating to  

acceptance of deposits or its return or making the same as  

an  offence.   Further,  it  was  pointed  out  that  the  powers  

conferred  on  State  Legislature  to  legislate  “corporate  

societies”  as  falling under  Entry  32 List  II  of  the Seventh  

Schedule appended to Article 246 of the Constitution can be  

confined  to  incorporation,  registration,  administration,  

amalgamation,  winding-up  of  the  cooperative  societies.  

Further, it was pointed out that the power under that Entry  

can be stretched to encompass all the activities of banking  

under Entry 45 of List  I  of  the Seventh Schedule.   It  was  

pointed out that under the guise of legislation with respect  

to Entry 32 of List I, the State Legislature cannot legislate  

with respect to the matters falling under Entry 45 of List I of  

the Seventh Schedule.  Consequently, it was submitted that  

the Andhra Act is constitutionally invalid.    Reference was  

also  made  to  the  judgment  of  this  Court  in  Greater  

Bombay Cooperative Bank & Ors. Vs. United Yarn Tex  

(P) Ltd. & Ors., (2007) 7 SCC 236.

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10. We notice that the question of law raised in this case  

had  come  up  for  consideration  before  this  Court  while  

challenging  the  constitutional  validity  of  the  Tamil  Nadu  

Protection  of  Interests  of  Depositors  (in  Financial  

Establishments) Act, 1997 (for short “the Tamil Nadu Act”),  

the  Maharashtra  Protection  of  Interests  of  Depositors  (in  

Financial  Establishments)  Act,  1999  (for  short  “the  

Maharashtra Act”) as well as the Pondicherry Protection of  

Interests of Depositors in Financial Establishments Act, 2004  

(for  short  “the  Pondicherry  Act”).   This  Court  in  K.  K.  

Baskaran  Vs.  State,  represented  by  its  Secretary,   

Tamil  Nadu  and  Others (2011)  3  SCC  793,  while  

examining the constitutional validity of the Tamil Nadu Act,  

held that the enactment by the State Legislature is not in  

pith  and  substance  referable  to  the  legislative  heads  

contained  in  List  I  of  the  Seventh  Schedule  to  the  

Constitution though there may be some overlapping.   The  

Court held that in pith and substance, the Act comes under  

the Entries in List II  of the Seventh Schedule.  In the said  

judgment,  this  Court  placed  specific  reference  to  the  Full

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Bench  judgment  of  the  Bombay  High  Court  in  Vijay  C.  

Puljal Vs. State of Maharashtra (2005) 4 CTC 705.   After  

scanning through the various provisions of the Tamil Nadu  

Act, this Court held as follows:-   

“15. We have carefully perused the judgment of  the Full Bench of the Bombay High Court in  Vijay V.  Puljal  v.  State  of  Maharashtra  (2005)  4  CTC  705   (Bom) and  we  respectfully  disagree  with  the  view  taken by the Bombay High Court.  It  may be noted  that though there are some differences between the  Tamil  Nadu Act  and the Maharashtra  Act,  they are  minor differences, and hence the view we are taking  herein will also apply in relation to the Maharashtra  Act.

16. The Bombay High Court has taken the view  that the Maharashtra Act transgressed into the field  reserved for Parliament. We do not agree. It is true  that  Section  58-A  of  the  Companies  Act  has  been  upheld by this Court in Delhi Cloth and General Mills   Co. Ltd. v.  Union of India (1983) 4 SCC 166 and the  provisions  of  Chapter  III-C  of  the  Reserve  Bank  of  India  Act,  1934  were  upheld  by  this  Court  in  T.  Velayudhan  Achari v.  Union  of  India  (1993)  2  SCC  582. However, we are not in agreement with the Full  Bench decision of  the  Bombay High Court  that  the  subject-matter covered by the said Act falls squarely  within the subject-matter of Sections 58-A and 58-AA  of the Companies Act.

17. We  are  of  the  opinion  that  the  impugned  Tamil  Nadu Act enacted by the State Legislature is  not in pith and substance referable to the legislative  heads contained in List I of the Seventh Schedule to

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the  Constitution  though  there  may  be  some  overlapping. In our opinion, in pith and substance the  said Act comes under the entries in List II (the State  List) of the Seventh Schedule.”

Further, in para 33 of the judgment, this Court expressed the  

following view:

“33. The  State  being  the  custodian  of  the  welfare of the citizens as parens patriae cannot be  a silent spectator without finding a solution for this  malady. The financial swindlers, who are nothing  but  cheats  and  charlatans  having  no  social  responsibility, but only a lust for easy money by  making false promise of attractive returns for the  gullible  investors,  had to be dealt  with  strongly.  The  small  amounts  collected  from a  substantial  number  of  individual  depositors  culminated  into  huge amounts of money.  These collections were  diverted in  the name of  third parties and finally  one  day  the  fraudulent  financers  closed  their  financial  establishments  leaving  the  innocent  depositors in the lurch.”

11. Later, the constitutional validity of the Pondicherry Act  

came for consideration before this Court in  New Horizon  

Sugar Mills Ltd. Vs. Government of Pondicherry (2012)  

10 SCC 575, wherein this Court has exhaustively considered  

the various contentions raised on the constitutional validity  

of the Pondicherry Act in the light of the judgment in  K.K.  

Baskaran’s  case (supra).   Contention was raised that the

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State  lacked  the  legislative  competence  to  enact  the  

Pondicherry Act  on the ground that the subject would fall  

under the Union jurisdiction.   This Court, while deciding the  

constitutional  validity  of  the  Pondicherry  Act,  held  as  

follows :-

“49. 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.

50.  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  perpetrated  on  unsuspecting  investors,  who  entrusted  their  life  savings  to  unscrupulous  and  fraudulent  persons  and  who  ultimately  betrayed  their trust.

53.   Even if  it  is  to  be accepted that  the  Pondicherry Act is relatable to List I Entries 43, 44  and  45,  it  can  be  equally  said  that  the  said  enactment is also relatable to List II Entries 1, 30  and  32  thereby  leaving  the  field  of  legislation  open, both to the Central Legislature as well as the  State Legislature. In such a situation, unless there

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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 from the above, the provisions  of the Pondicherry Act are also saved by virtue of  Article 254(2) of the Constitution.”

12. We notice in  New Horizon Sugar Mills Ltd.’s  case  

(supra), this Court held that the objects of the Tamil Nadu  

Act, Maharashtra Act and the Pondicherry Act are the same  

and/or  of  similar  nature.    In  our  view,  the  object  and  

purpose as well as the provisions of the Andhra Act are pari  

materia with  that  of  Tamil  Nadu,  Maharashtra  and  

Pondicherry  Acts,  the  constitutional  validity  of  those  

legislation has already been upheld.  We also fully concur  

with the views expressed by this Court in those Judgments  

and uphold the constitutional validity of the Andhra Act.  

13. Learned  counsel  for  the  petitioner  raised  a  further  

contention that Vasavi Cooperative Bank Ltd. does not come  

within  the  definition  of  “financial  establishment”  under  

Section 2(c) of the Andhra Act.   We find it difficult to accept  

that  contention.   What  has  been  excluded  from  that

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definition is a Company registered under the Companies Act  

or  a  Corporation  or  a  Cooperative  Society  owned  and  

controlled  by  any  State  Government  or  the  Central  

Government.   The Society in question does not fall in that  

category.  Consequently, the Co-operative Bank in question  

is also governed by the provisions of the Andhra Act.

14. In  the circumstances,  we find no merit  in  these Writ  

Petitions and the same are accordingly dismissed.

……………………………..J. (K. S. Radhakrishnan)

….………………………...J. (A. K. Sikri)    

New Delhi, September 12, 2013.