K.K. BASKARANversusSTATE REP. BY ITS SECRETARY, TAMIL NADU & ORS.

                        [2011] 3 S.C.R. 527

                         K.K. BASKARAN                               A
     i                           v.                             .
  STATE REP. BY ITS SECRETARY, TAMIL NADU & ORS.
            (Civil Appeal No. 2341 of 2011)
                         MARCH 04, 2011
                                                                     B
  [MARKANDEY KATJU AND GYAN SUDHA MISRA, JJ.]

       Tamil Nadu Protection of Interests of Depositors (in
  Financial Establishments) Act, 1997 - Constitutional Validit:I
  of - Held: Is constitutionally valid - The Act does not C
  roncentrate on the transaction of banking or acceptance of
  deposits - It has been enacted to provide a speedy remedy
  to depositors who were deceived by fraudulent financial
  establishments - Activities of these financial companies do
  not come within the term 'banking' as defined in the Banking D
  Regulation Act, 1949 or Reserve Bank of India Act, 1934 -
  Reserve Bank of India Act, Banking Regulation Act and
  Companies Act which are the legislations of the Parliament
  do not occupy the field occupied by the Tamil Nadu Act,
  though the latter may incidentally trench upon the former - E
  Thus, the Act is in pith and substance relatable to Entries 1,
· 30 and 32 of the State List (LisfJJ):ptJl?.tt: S,fl,Y,e[Jfh Schedu{e.
  - It empowers th~ .$,late. Govemfuent •to a~tacli ~nd sell, the .
  properties of the fraudulent establishments to recover the
  money of the depositors - There Is no violation of Articles 14, F
  19(1)(g) or 21 - Constitution of India, 1950 - Seventh
  Schedule List I and List II; Articles 14, 19(1)(g) and 21.

       Doctrines/Principles - Doctrine of pith and substance -
 Appllculion of - Held: Doctrine of pith and substance is
 applied w, ,cm a legislation overlaps both List I as well as List   G
 II of the Seventh Schedule in the Constitution - Constitution
 of India, 1950- Seventh Schedule List land List II.

         The respondents filed a writ petition challenging tl,le
                                527                                  H
                                                                   .-....
    528    SUPREME COURT REPORTS                (2011] 3 S.C.R.

A constitutional validity of the Tamil Nadu Protection of
  Interest of Depositors (in Financial. Establishments) Act,
  1977. The High Court upheld the constitutional validity of
  the Act. Therefore, the appellant filed the instant appeal.

       The appellant contended that the Tamil Nadu Act is
8
  beyond the legislative competence of the State
  Legislature as it falls within entries 43, 44 and 45 of List I
  of the Seventh Schedule to the Constitution; that the Act
  is liable to be struck down as the field of legislation is
C already occupied by legislation of Parliament being the
  Reserve Bank of India Act, 1934, Banking Regulation Act,
  1949, Companies Act, 1956 and the Criminal Law
  Amendment Ordinance, 1944; and that the Tamil Nadu Act
  was arbitrary, unreasonable and violative of Article... 14,
  19(1)(g) and 21 of the Constitution.
0
        Dismissing the appeal, the Court
      HELD: 1.1 There is no merit in the petition. The Tamil
  Nadu Protection of Interests of Depositors (in Financial
E Establishments) Act, 1997 is constitutionally valid. The
  Act was not focused on the transaction of banking or
  acceptance of deposits, but it is designed to protect the
  public from fraudulent financial establishments who
  defraud the public by offering lucrative returns on
F deposits and then disappear with the depositors' money
  or refuse to return the same with interest. The words
  found in the Statement of Objects and Reasons, viz., 'in
  the public interest, in order to regulate the activities of
  such Financial Establishments', would mean that the
G Tamil Nadu Act has been enacted to protect the interests
  of depositors. The Tamil Nadu Act is ir; pith and
  substance relatable to Entries 1, 30 and 32 of the State
  List (List II ) of the Seventh Schedule and not Entries 43,
  44 and 45 of List I of the Seventh Schedule to the
H Constitution though there may be some overlapping.
K.K. BASKARAN v. STATE REP. BY ITS SECRETARY, 529
             TAMIL NADU & ORS.
[Paras 12, 14, 22, 23 and 44] [536-C-D; 540-B-D; 537-C;      A
545-E]

    Vijay C. Punja/ vs. State of Maharashtra (2005) 4 CTC
705 - disapproved.
                                                              6
     2.1 It often happens that a legislation overlaps both
Lists I as well as List II of the Seventh Schedule. In such
circumstances, the doctrine of pith and substance is
applied. The doctrine of pith and substance means that
an enactment which substantially falls within the powers C
expressly conferred by the Constitution upon a
Legislature which enacted it cannot be held to be invalid
merely because it incidentally encroaches on matters
assigned to another legislature. The Court must consider
what constitutes in pith and substance the true subject
matter of the legislation. If on such examination it is found
                                                              0
that the legislation is in substance one on a matter
assigned to the legislature then it must be held to be valid
even though it incidentally trenches on matters beyond
its legislative competence. For applying the doctrine of E
pith and substance regard is to be had to the enactment
as a whole, its main objects and the scope and effect of
its provisions. The language of the Entries in the Seventh
Schedule should be given the widest scope of which the
meaning is fairly capable. There is a presumption that the
legislature does not exceed its constitutional limits. F
[Paras 23, 26, 27 and 28] [540-D; 541-A-E]

     Union of India vs. Shah Goverclhan L. Kabra Teachers'
College (2002) 8 SCC 228; Bharat Hydro Power Corporation
vs. State of Assam (2004) 4 SCC 489; State of West Bengal G
vs. Kesoram Industries Ltd. (2004) 10 SCC 201; Union of
India vs. Shah Goverdhan Kabra Teachers College (2002) 8
SCC 228; ITC Ltd. vs. State ofKamataka 1985 (Supp) SCC
476 - relied on.
                                                           H
    530      SUPREME COURT REPORTS              [2011) 3 S.C.R.

A      2.2 The court should interpret the constitutional
  provisions against the social setting of the county and
  not in the abstract. The court must take into consideration
  the economic realities and aspirations of the people and
  must further the social interest which is the purpose of
B legislation, Thus, the courts cannot function in a vacuum.
  It is for this reason that courts presume in favour of
  constitutionality of the statute because there is always a
  presumption that the legislature understands and
  correctly appreciates the needs of its own people [Para
C 38] (543-F-H; 544-A]

          Govt. of Andhra Pradesh vs. P. Laxmi Devi (2008) 4 SCC
    720 - relied on.

       3.1 By the amendment brought to the Tamil Nadu Act
D by the Protection of Interests of Depositors (In Financial
  Establishments) Amendment Act, 2003, Tamil Nadu Act
  30 of 2003, the companies registered under the
  Companies Act, 1956 and the non-banking financial
E companies, were also brought within the purview of the
  Act. (Paras 15 and 17] (537 -D; 539-C]

       3.2 It cannot be said that the subject-matter of the
  Tamil Nadu Act being banking, falls within the legislative
  competence of Parliament under Entry 45 of List I.
F Admittedly, none of the financial companies in question
  obtained any license from the Reserve Bank of India.
  Thus, they are not governed by the Reserve Bank of
  India Act or the Banking Regulation Act. The activities of
  these financial companies do not come within the ·
G meaning of the term 'banking' as defined in the Banking
  Regulation Act, 1949 or the Reserve Bank of India Act,
  1934. [Para 29] [541-E-G]

      3.3 The impugned Tamil Nadu Act was intended to
H deal with neither the banks which do the business or
       K.K. BASKARAN v. STATE REP. BY ITS               531
         SECRETARY, TAMIL NADU & ORS.
banking and are governed by the Reserve Bank of India          A
Act and Banking Regulation Act, nor the non-banking
financial companies enacted under the Companies Act,
1956. The Reserve Bank of India Act, the Banking
Regulation Act and the Companies Act do not occupy the
field which the Tamil Nadu Act occupies, though the latter     B
may incidentally trench upon the former. [Paras 34 and
35] [54Z-G-H; 543-A·B]
     3.4 The main. object of the Tamil Nadu Act is to
provide a solution to wipe out the tears of several lakhs      C
of depositors to realize their dues effectively and speedily
from the fraudulent financial establishments which duped
them or their vendees, without dragging them in a legal
battle from pillar to post. These financial institutions/
establishments did not come either under the Reserve           D
Bank of India Act or the Banking Regulation Act, and
thus, they escaped from public control. [Paras 30] [541-
H; 542-A-B]                 .
     3.5 The offences dealt with in the impugned Act were
unique and have been enacted to deal with the economic         E·
and social disorder in society, caused by the fraudulent
activities of such financial establishments. In the case of
the Tamil Nadu Act, the attachment of properties is
intended to provide an effective and speedy remedy to
the aggrieved depositors for the realization of their dues.    F
Under Section 3 and 4 of the Tamil Nadu Act, certain
properties can be attached, and there is also provision
for interim orders for attachment after which a post
decisional hearing is provided for. This is valid in view
of the prevailing realities. The Act also provides for the     G
sale of such properties and for distribution of the sale
proceeds amongst the innocent depositors .. Thus, the
doctrine of occupied field or repugnancy has no
application in the instant case. [Paras 31, 36 and 37] [542-
C; 543-D-F]                                                    H
    532    SUPREME COURT REPORTS               [2011] 3 S.C.R.


A      3.6 There is no violation of Article 14, 19(1) (g) or 21
  of the Constitution. The Act is a salutary measure to
  remedy a great social evil. A systematic conspiracy was
  effected by certain fraudulent financial establishments
  which not only committed fraud on the depositor, but
B also siphoned off or diverted the depositor's funds mala
  fide. The act of the financers in exploiting the depositors
  is a notorious abuse of faith of the depositors who
  innocently deposited their money with the former .for
  higher rate of interest. These depositors were often given
C a small pass book as a token of acknowledgment of their
  deposit, which they considered as a passport of their
  children for higher education or wedding of their
  daughters or as a policy of medical insurance in the case
  of most of the aged depositors, but in reality in all cases
D it was an unsecured promise executed on a waste paper.
  The senior citizens above 80 years, senior citizens
  between 60 and 80 years, widows, handicapped, driven
  out by wards, retired government servants and
  pensioners, and persons living .below the poverty line
E constituted the bulk of the depositors. Without the aid of
  the impugned Act, it would have been impossible to
  recover their deposits and interest thereon. [Para 39]
  [544-A·E]

F      3.7 The conventional legal proceedings incurring
  huge expenses of court fees, advocates' fees, apart from
  other inconveniences involved and the long delay in
  disposal of cases due to docket explosion in courts,
  would not have made it possible for the depositors to
G recover their money, leave alone the interest thereon.
  Thus, the impugned Act has rightly been enacted to
  enable the depositors to recover their money speedily by
  taking strong steps in this connection. [Para 40] [545-F-
    G]
H
       K.K. BASKARAN v. STATE REP. BY ITS              533
         SECRETARY, TAMIL NADU & ORS.

    3.8 The State being the custodian of the welfare of A
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         B
returns for the gullible investors, had to be dealt with
strongly. [Para 41] [544-G·H; 545·A]

    Delhi Cloth Mills Ltd vs. Union of India (1983) 4 SCC
166; T. Velayndhan Achari vs. Unoin of India (1993) 2 SCC     c
582 - referred to.
                     Case Law Reference:
 (2005) 4 CTC 705          Disapproved      Para 7, 18, 19
                                                              D
 (1983r4 sec· 1ss          Referred to      Para 21
 (1993) 2 sec 582          Referred to      Para 21
 (2004) 1o sec 201         Relied on        Para 24, 28
 1985 (Supp) sec 476       Relied on        Para 24, 28       E
 (2002) 8 sec 228          Relied on        Para 26, 28
 (2004) 4 sec 489          Relied on        Para 27
 (2008) 4 sec 120          Relied on        Para 38           F
    CIVIL APPELLATE JURISDICTION : Civil Appeal No. "
2341 of 2011 etc.
    From the Judgment & Order dated 02.03.2007 of the High
Court of Judicature at Madras in Writ Petition No. 26108 of G
2005.
   Basava Prabhu S. Patil, Sabarish Subramaniam, Prabu
Ramasubramaniam, S. Ramamani for the Appellant.
    The Judgment of the Court was delivered by                H
    534      SUPREME COURT REPORTS
                                        .;:
                                                  (2011) 3 S.C.R.
                                                                    -
                                                                    ~




A                            JUDGMENT

          1. Delay condoned. Leave granted.
          2. Heard learned counsel for the appellant.
B      3. Financial swindling and duping of gullible investors/
  depositors is not unique to India. It has been referred to in
  Charles Dicken's novel 'Little Dorrit', in which Mr. Merdle sets
  up a Ponzi scheme resulting in loss of the savings of thousands
  of depositors including the Dorrits and Arthur Clennam. In recent
C times there have been many such scandals e.g. the get-rich-
  quick scheme of the scamster Bernard Madoff in which the
  estimated losses of investors were estimated to be 21 billion
  dollars.
         4. The present case illustrates what has been going on in
D   India for quite some time. Non-banking financial companies
    have duped thousands of innocent and gullible depositors of
    their hard earned money by promising high rates of interest on
    these deposits, and then done the moonlight flit, often
    disappearing into another State or even foreign countries
E   leaving the depositors as well as the State police high and dry.
        5. This appeal has been filed against the impugned
    judgment and order of the Full Bench of the Madras dated
    02.03.2007 in writ petition No. 26108/2005.
F
       6. By means of the aforesaid writ petition, the petitioner;
  and others challenged the constitutional validity of the Tamil
  Nadu Protection of Interests of Depositors (in Financial
  Establishments) Act, 1997 (for short the Tamil Nadu Act). By
  the impugned judgment the Full Bench of the Madras High Court
G has held the aforesaid Act to be constitutional. Hence, this
  appeal.
        7. Learned counsel for the appellant has relied on the Full
    Bench· decision of the Bombay High Court in Vijay C. Punja/
H
         K.K. BASKARAN v. STATE REP. BY ITS.                    535
           SECRETARY, TAMIL NADU & ORS.
 vs. State of Maharashtra (2005) 4 CTC 705 by which a similar          A
 Act of Maharashtra , being the Maharashtra Protection of
 Interests of Depositors (in Financial Establishments) Act, 1999
 was held to be unconstitutional. We are of the opinion that the
 impugned judgment of the Full Bench of the Madras High Court
 is· correct, while the judgment of the Full Bench of the Bombay       B
 High Court in Vijay's case (supra) is not correct.

        8. The main submission of the learned counsel for the
  appellant in challenging the Tamil Nadu Act, which was also the
  main submission in challenging the Maharashtra Act, 1999, was        C
  that the said Act is beyond the legislative competence of the
  State Legislature as it falls within entries 43, 44 and 45 of List
  I of the Seventh Schedule to the Constitution. It was also
• submitted that the impugned Act is liable to be struck down as
  the field of legislation is already occupied by legislation of
  Parliament being the Reserve Bank of India Act, 1934, Banking        D
  Regulation Act,'1949, the l,ndian Companies Act, 1956 and the
  Criminal Law Amendment Ordinance, 1944 as made
  applicable by Criminal Law (Tamil Nadu Amendment) Act,
  1977. It was also contended that the Tamil Nadu Act was
  arbitrary, unreasonable and violative of Articles 14, 19(1)(g) and   E
  21 of the Constitution.

     9. We are of the opinion that none of these submissions
 have any merit.

      10. A perusal of the Statement of Objects as well as the         F
 relevant provisions of the Tamil Nadu Act shows that its object
 wc.s to ameliorate the situation of thousands of depositors from
 the clutches of financial establishments who had duped the
 investor public by offering high rates of interest on deposits and
 committed deliberate fraud in repayment of the principal and          G
 interest after maturity of such deposits. The Act provides for
 measures for attachment of the properties of the financial
 establishments as well as mala fide transferees and to bring
 these properties for sale for realization of the dues payable to
 the depositors speedily.                                              H
'•




         536      SUPREME COURT REPORTS                (2011] 3 S.C.R.


     A      11. As per the statistics of July 2002, about Rs. 1945
       crores were collected from over 19 lakhs of depositors. These
       depositors were either poor or middle class persons, retired
       government servants and pensioners and their dependants,
       senior citizens or economically backward sections of society
     B etc. The deposits were either siphoned off or diverted mala fide
       by these fraudulent financial establishments. The commission
       and omission of these financial establishments was well-
       organized, and constitute an organized systematic white color
       crime which jeopardizes the safety and interest of the public.
     c       12. As noted in the impugned judgment, the Tamil Nadu
       Act was not focused on the transaction of banking or
       acceptance of deposits, but it is designed to protect the public
       from fraudulent financial establishments who defraud the public
       by offering lucrative returns on deposits and then disappear
     D with the depositors' money or refuse to return the same with
       interst. In our opinion, the impugned Tamil Nadu Act is in pith
       and substance relatable to Entries 1, 30 and 32 of the State
       List (List II) of The Seventh Schedule.

     E       13. The Statement of Objects And Reasons of the Tamil
         Nadu Act states :

               "There is mushroom growth of Financial Establishments not
               covered by the Reserve Bank of India Act, 1934 (Central
               Act II of 1934) in the State in the recent past with the sole
     F         object of grabbing money received as deposits from t~e
               public, mostly middle class and poor, on the promise of
               unprecedented high rates of interest and without any-·"-·
               obligation to refund the deposits to the investors on
               maturity. Many of these Financial Establishments~have
     G         defaulted to return the deposits on maturity to the public
               running to crores of rupees and thereby inviting the public
               resentment, which created law and order problems in the
               State. The Government has, therefore, decided to
               undertake suitable legislation , in the public interest, in
     H         order to regulate the activities of such Financial
K.K. BASKARAN v. STATE REP. BY ITS SECRETARY, 537
             TA~IL NADU & ORS.

    Establishments, other than those covered by the Reserve     A
    Bank of India Act, 1934 (Central Act II of 1934).

    2. The Bill seeks to give effect to the above decision."
     14. A reading of the Statement of Objects and Reasons
of the Tamil Nadu Act would go to show that it does not B.
concentrate on incorporation, regulation or winding up of
banking corporations but, on the other hand, is basically
concerned with returning money of, the gullible dep9sitors who
had been defrauded. The words found in the Statement of
Objects and Reasons, viz., "in the public ititerest, in order to C
regulate the activities of such Financial Establishments" would ·
mean that the Tamil Nadu Act has been enacted to protect the
interests of depositors.

    15. An amendment was brought to the Tamil Nadu Act by       D
the Protection of Interests of Depositors (In Financial
Establishments) Amendment Act, 2003, Tamil Nadu Act 30 of
2003, the object being:            ·

    "The Tamil Nadu Protection of Interest of Depositors (in
    financial establishments) Act, 1977 (Tamil Nadu Act 44 of E
    1997) was enacted by the Government of Tamil Nadu to
    protect the interest of the depositors who have lost their
    hard earned money with the financial institutions. At
    present, there is no provision in the said Act for attaching
    the properties of the persons who borrowed money from F
    the financial establishments and for the sale of attached
    property in public action and for the equitable distribution
    of the sale proceeds to the depositors. In order to
    overcome the shortcomings and to make the said Tamil
    Nadu Act 44 of 1997 more effective, the Government have G
    decided to amend the said Act so as to-
     (1)   bring a company registered under the Companies
           Act, 1956 (Central Act 1of1956) and non-banking
           financial company within the purview of the Act;
                                                                H
    538       SUPREME COURT REPORTS                   [2011) 3 S.C.R.

A         (2)     make the non-payment of interest and failure to
                  render service for which deposit has been made,
                  as offences under the Act;
          (3)      attach the properties of the person who has
B                  borrowed money from the financial establishments
                   and failed to return the money;
           (4)     appoint more than one competent authority under
                   the Act;

c          (5)     constitute Special Courts for different areas and for
                   different cases and to appoint Special Public
                   Prosecutors for each of the Special Courts;
           (6)     specify the time limit within which the Special Court
                   shall pass the final order;
D
           (7)     compound the offences punishable under the Act;
                   and
           (8)     to sell the attached properties in public auction and
E                  to distribute the sale proceeds among the
                   depositors.
           2. The Bill seeks to give effect to the above decision."
       16. By section 2 of the Tamil Nadu Act 30 of        the~003,
F definitions of "deposit" and "financial establishments" were
  amended as follows:
          (1) .......

          (2) • deposit means the deposit of money either in one
G         lump sum or by installments made with financial
          establishments for a fixed period, for interest or for return
          in any kind or for any service;
          (3)"financial establishment" means an individual, an
H         association of individuals, a firm or a company registered
K.K. BASKARAN v. STATE REP. BY ITS SECRETARY, 539
             TAMIL NADU & ORS.
    under the Companies Act, 1956 (Central Act 1 of 1956) A
    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 Government or the Central
    Government or a banking company as defined in Section B
    5 (c) of the Banking Regulation Act, 1949 (Central Act X
    of 1949)"
     17. Thus, by the Amendment Act 30 of 2003, th.e
companies registered under the Companies Act, 1956 and the
non banking financial companies, were also brought within the C
purview of the Act.
     18. Learned counsel for the appellant relied on the Full
Bench decision of the Bombay High Court in Vijay C. Punjal's
case (supra) in support of his contention that the Tamil Nadu . D
Act, like the Maharasthra Act, was unconstitutional being
beyond the legislative competence of the State Legislature. We
do not agree.
                                                        '
    19, We have carefully perused the judgment of the Full        E
Bench of the Bombay High Court in Vijay's case (supra) and
we respectfully di&;:.gree with the view taken by the Bombay
High Court.
     20. It may be noted that though there are some differences
between the Tamil Nadu Act and the Maharashtra Act, they are      F
minor differences, and hence the view we are taking herein will
also apply in relation to the Maharashtra Act.
     21. The Bombay High Court has taken the view that the
Maharashtra Act transgressed into the field reserved for G
Parliament. We do not agree. It is true that Section SBA of the
Companies Act has been upheld by this Court in Delhi Cloth
Mills Ltd vs. Union of India (1983) 4 SCC 166.and the
provisions of Chapter lllC of the Reserve Bank of India Act,
1934 was upheld by this Court in T. Velayndhan Achari vs. H
    540     SUPREME COURT REPORTS                   [2011] 3 S.C.R.


A Union of India (1993) 2 sec 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 Section 58A and 58M of
  the Companies Act.
B
       22. We are of the opinion that the impugned Tamil Nadu
  Act enacted by the State Legislature is not in pitll and substance
  referable to the legislative heads contained in List I of the
  Seventh Schedule to the Constitution though there may be
C 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.

       23. It often happens that a legislation overlaps both Lists
  I as well as List II of the Seventh Schedule. In such
D circumstances, the doctrine of pith and substance is applied.
  We are of the opinion that in pith and substance the impugned
  State Act is referable to Entries 1, 30 and 31 of List II of the
  Seventh Schedule and not Entries 43, 44 and 45 of List I of
  the Seventh Schedule.
E
       24. It is well-settled that incidental trenching in exercise of
  ancillary powers into a forbidden legislative territory is
  permissible vide Constitution Bench decision of this court in
  State of West Bengal etc. vs. Kesoram Industries Ltd & Ors
  etc. (2004) 10 sec 201 (vide paras 31(4), {5) and (6) and 129
F (5). Sharp and distinct lines of demarcation are not always
  possible and it is often impossible to prevent a certain amount
  of overlapping vide ITC Ltd. vs. State of Kamataka, 1985
  (Supp) SCC 476 (para 17). We have to look at the legislation
  as a whole and there is a presumption that the legislature does
G not exceed its constitutional limits.
       25. The 'financial companies' in the present case had not
  obtained any licence from the Reserve Bank of India. Hence
  they are not governed by the Reserve Bank of India Act nor the
H Banking Regulation Act, 1949.
.-...
               K.K. BASKARAN v. STATE REP. BY ITS                   541
                 SECRETARY, TAMIL NADU & ORS.
             26. The doctrine of pith and substance means that an A
        enactment which substantially falls within the powers expressly
        conferred·by the Constitution upon a Legislature which enacted
        it cannot be held to be invalid merely because it incidentally
        encroaches on matters assigned to another legislature. The
        Court must consider what constitutes in pith and substance the · B
        true subject matter of the legislation. If on such examin·ation it
        is found that the legislation is in substance one on a matter
        assigned to the legislature then it must be held to be valid even
        though it incidentally trenches on matters beyond its legislative
        competence vide Union of India vs. Shah Goverdhan L. Kabra c
        Teachers' College (2002) 8 SCC 228 (vide para 7).
              27. For applying the doctrine of pith and substance regard
        is to be had to the·enactment as a Whole, its main objects and
        the scope and effect of its provisions vide Bharat Hydro Power
        Corporation vs. State of Assam (2004) 4 SCC 489 (vide para D
        15).
            28. For this purpose the language of the Entries in the
        Seventh Schedule should be given the widest scope of which
        the meaning is fairly capable vide State of West Bengal vs.        E
        Kesoram Industries Ltd (supra) (para 31(4), Union of India vs.
        Shah Goverdhan Kabra Teachers College (supra) (para 6),
        ITC Ltd. vs. State of Karnataka (supra) (para 17).
             29. Learned counsel for the appellant submitted that the
        subject-matter of the Tamil Nadu Act being banking, .falls within F
        the legislative competence of Parliament under Entry 45 of List
        I. We do not agree. Admittedly, none of the financial companies
        in question obtained any licence from the Reserve Bank of
        India. Hence they are not governed by the Reserve Bank of
        India Act or the Banking Regulation Act. The activities of these G
        financial comic~riies do not, in our opinion, come within the
        meaning of the term 'banking' as defined in the Banking
        Regulation Act, 1949 or the Reserve Bank of India Act, 1934.
            30. The Tamil Nadu Act was enacte:::' to find out a solution   H
    542     SUPREME COURT REPORTS                 [2011) 3 S.C.R.

A for the problem of the depositors who were deceived on a large
  scale by the fraudulent activities of certain financial
  establishments. There was a disastrous consequence both in
  the economic as well as social life of such depositors who were
  exploited by false promise of high return of interest. These
B financial institutions/establishments did not come either under
  the Reserve Bank of India Act or the Banking Regulation act,
  and hence they escaped from public control.

       31. By the impugned Act the State not only proposed to
C attach the properties of such fraudulent establishments and the
  mala fide transferees, but also provided for the sale of such
  properties and for distribution of the sale proceeds amongst
  the innocent depositors. Hence, in our opinion, the doctrine of
  occupied field or repugnancy, has no application in the present
  case.
D
         32. The object of the Tamil Nadu Act was to give a speedy
    remedy to the innocent depositors who were vulnerable to the
    temptation of earning high rates of interest and were victimized
    by the financial establishments fraudulently.
E
          33. As regards Section 58A of the Companies Act, this
    prescribes the conditions under which the deposits may be
    invited or accepted by the companies. On the other hand, the
    aim and object of the Tamil Nadu Act is totally different.

F      34. The Tamil Nadu Act was enacted to ameliorate the
  conditions of thousands of depositors who had fallen into the
  clutches of fraudulent financial establishments who had raised
  hopes of high rate of interest and thus duped the depositors.
  Thus the Tamil Nadu Act is not focused on the transaction of
G banking or the acceptance of deposit, but is focused on
  remedying the situation of the depositors who were deceived
  by the fraudulent financial establishments. The impugned Tamil
  Nadu Act was intended to deal with neither the banks which
  do the business or banking and are governed by the Reserve
H Bank of India Act and Banking Regulation Act, nor the non-
-....   K.K. BASKARAN v. STATE REP. BY ITS SECRETARY, 543
                     TAMIL NADU & ORS.
        banking financial companies enacted under the Companies              A
        Act, 1956.
              35. The Reserve Bank of India Act, the Banking Regulation
        Act and the Companies Act do not occupy the field which the
        impugned Tamil Nadu Act occupies, though the latter may              B
        incidentally trench upon the former. The main object of the Tamil
        Nadu Act is to provide a solution to wipe out the tears of several
        lakhs of depositors to realize their dues effectively and speedily
        from the fraudulent financial establishments which duped them
        or their vendees, without dragging them in a legal battle from       C
        pillar to post. Hence, the decision of this Court in Delhi Cloth
        Mills (supra) has no bearing on the constitutional validity of the
        Tamil Nadu Act.               ·

             36. In the case of the Tamil Nadu Act, the attachment of
        properties is intended to provide an effective and speedy D
        remedy to the aggrieved depositors for the realization of their
        dues. The offences dealt with in the impugned Act are unique
        and have been enacted to deal with the economic and social
        disorder in society, caused by the fraudulent activities of such
        financial establishments.                                        E
              37. Under Section 3 & 4 of the Tamil Nadu Act, certain
        properties can be attached, and there is also provision for
        interim orders for attachment after which a post decisional
        hearing is provided for. In our opinion this is valid in view of     F
        the prevailing realities.
             38. The Court should interpret the constitutional provisions
        against the social setting of the country and not in the abstract.
        The Court must take into consideration the economic realities
        and aspirations of the people and must further the social interest G
        which is the purpose of legislation, as held by Justices Holmes,
        Brandeis and Frankfurter of the U.S. Supreme Court in a series
        of decisions. Hence the Courts cannot function in a vacuum. It
        is for this reason that Courts presume in favour of
        constitutionality of the statute be":lUse there is always a H
    544      SUPREME COURT REPORTS                  [2011) 3 S.C.R.

A presumption that the legislature understands and correctly
  appreciates the needs of its own people, vide Govt. of Andhra
  Pradesh vs. P. Laxmi Devi (2008) 4 SCC 720.
          39. We fail to see how there is any violation of Article 14,
8   19(1)(g) or 21 of the Constitution. The Act is a salutary measure
    to remedy a great social evil. A systematic conspiracy was
    effected by certain fraudulent financial establishments which not
    only committed fraud on the depositor, but also siphoned off
    or diverted the depositor's funds mala fide. We are of the
C   opinion that the act of the financers in exploiting the depositors
    is a notorious abuse of faith of the depositors who innocently
    deposited their money with the former for higher rate of intere:~.
    These depositors were often given a small pass book as a
    token of acknowledgment of their deposit, which they
    considered as a passport of their children for higher education
D   or wedding of their daughters or as a policy of medical
    insurance in the case of most of the aged depositors, but in
    reality in all cases it was an unsecured promise executed on a
    waste paper. The senior citizens above 80 years, senior
    citizens between 60 and 80 years, widows, handicapped, driven
E   out by wards, retired government servants and pensioners, and
    persons living below the poverty line constituted the bulk of the
    depositors. Without the aid of the impugned Act, it would have
    been impossible to recover their deposits and interest thereon.
F      40. The conventional legal proceedings incurring huge
  expenses of court fees, advocates' fees, apart from other
  inconveniences involved and the long delay in disposal of
  cases due to docket explosion in Courts, would not have made
  it possible for the depositors to recover their money, leave
G alone the interest thereon. Hence, in our opinion the impugned
  Act has rightly been enacted to enable the depositors to recover
  their money speedily by taking strong steps in this connection.
          41. The State being the custodian of the welfare of the
    citizens as parens patriae cannot be a silent spectator without
H
         K.K. BASKARAN v. STATE REP. BY ITS                    545
           SECRETARY, TAMIL NADU & ORS.
finding a solution for.this malady. The financial swindlers, who       A
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.                              ·
                                                                       B
      42. 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.
                                                                       c
     43. Learned counsel for the appellant submitted that the
appellant was only a bona fide purchaser of some plots of land
from one Arun Kumar and Smt. Sulochana, and not from any
financial establishment. We are not going into this question as
it can be raised in appropriate proceedings. In this ease we           D
are only concerned with the constitutional validity of the Tamil
Nadu Act
      44. We are of the opinion that there is no merit in this
petition. The impugned Tamil Nadu Act is constitutionally valid.       E
In fact, it is a salutary measure which was long overdue to deal
with these scamsters who have been thriving like locusts in the
country.
       45. The Appeal is, therefore, dismissed. No costs:
                                                                       F
N.J.                                          Appeal dismissed.




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