SOMA SURESH KUMARversusGOVERNMENT OF ANDHRA PRADESH & ORS.

                       [2013] 10 S.C.R. 328


A                    SOMA SURESH KUMAR
                                 v.
        GOVERNMENT OF ANDHRA PRADESH & ORS.
            (Writ Petition (Civil) No. 614 of 2007)
                      SEPTEMBER 12, 2013
8
         [K.S. RADHAKRISHNAN AND A.K. SIKRI, JJ.]

       Andhra Pradesh Protection of Depositors of Financial
  Establishments Act, 1999 - ss. 2, 3, 5, 8 and 9 - Writ petition
C u/Art. 32 - Challenging constitutional validity of the Act - On
  the ground of legislative competence of the State - Held: The
  Bank in question comes within the definition of 'financial
  establishment' uls. 2(c) of the Act - It does not fall in the
  category of institutions excluded from the purview of s.2(c) -
o The object and purpose as well as provisions of the Act are
  pari materia with similar Acts of Maharashtra, Tamil Nadu
  and Pondicherry, the constitutional validity whereof has
  already been upheld - Hence, the Act is held as
  constitutionally valid - Constitution of India, 1950 - Seventh
E Schedule - List I Entry 45, List II Entry 32 - Tamil Nadu
  Protection of Interests of Depositors (in Financial
  Establishments) Act, 1997 - Maharashtra Protection of
  Interests of Depositors (in Financial Establishments) Act,
  1999 - Pondicherry Protection of Interests of Depositors in
F Financial Establishments Act, 2004.

      The petitioners, erstwhile Directors of Co-operative
  Bank, filed the present writ petitions seeking declaration
  that ss. 3, 5, 8 and 9 of Andhra Pradesh Protection of
  Depositions of Financial Establishments Act, 1999 are
G unconstitutional and violative of fundamental rights
  guaranteed u/Arts. 14 and 21 of the Constitution.

     Petitioners inter alia contended that the Bank In
  question did not come within the definition of 'financial
H                          328
   SOMA SURESH KUMAR v. GOVERNMENT OF                 329
            ANDHRA PRADESH
establishment' u/s. 2(c) of the Act; and that the State did A
not have legislative competence for enactment of the Act,
as the subject 'banking' is covered under Entry 45 of List
I of Seventh Schedule.
    Dismissing the petitions, the Court
                                                             8
    HELD: 1. It is not correct to say that the Bank in
question does not come within the definition of "financial
establishment" under Section 2(c) of the Andhra Pradesh
Protection of Depositions of Financial Establishments Act,
1999. What has been excluded from that definition is a c
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 0
question is also governed by the provisions of the
Andhra Act. [Para 13] [338-E-G]
     2. The object and purpose as well as the provisions
of the Andhra Act are pari materia with that of Tamil Nadu
Protection of Interests of Depositors (in Financial E
Establishments) Act, 1997, the Maharashtra Protection of
Interests of Depositors (in Financial Establishments) Act,
1999, as well as the Pondicherry Protection of Interests
of Depositors in Financial Establishments Act, 2004. The
constitutional validity of those legislations has already F
been upheld. Therefore, the constitutional validity of the
Andhra Act is upheld. [Paras 10 and 12] [335-C-D; 338-
D-E]
    K.K. Baskaran vs. State, represented by its Secretary, G
Tamil Naduand Ors. (2011) 3 SCC 793: 2011 (3) SCR 527;
New Horizon Sugar Mills Ltd. vs. Government of Pondicherry
(2012) 10 sec 575: 2012 (8) SCR 874 - relied on.

     R.C. Cooper vs. Union of India (1970) 1 SCC 248: 1970
(3) SCR 530; Greater Bombay Cooperative Bank and Ors.        H
    330      SUPREME COURT REPORTS                 [2013] 10 S.C.R.


A   vs. United Yarn Tex (P) Ltd. and Ors. (2007) 7 SCC 236: 2007
    (8) SCR 763; Vijay C. Pu/ja/ vs. State of Maharashtra (2005)
    4 CTC 705 - referred to.

                           Case Law Reference:
B         1970 (3) SCR 530          referred to           Para 4
          2007 (8) SCR 763          referred to           Para 9
          2011 (3) SCR 527          relied on             Para 10
          (2005) 4 CTC 705          referred to           Para 10
c         2012 (8) SCR 874          relied on             Para 11     I
                                                                      I
       CIVIL ORIGINAL JURISDICTION : Under Article 32 of the          f-
    Constitution of India.

          Writ Petition (Civil) No. 614 of 2007.
D                                 WITH
          Writ Petition (Civil) No. 637 of 2007.

        Bina Madhavan,       Praseena E. Joseph, V.
    Santhanalakshmi, A. Venayagan Balan for the Petitioner.
E
         Rakesh Kumar Khanna, ASG, ATM Rangaramanujam,
    Kiran Bhardwaj, R.K. Verma, Sushma Suri, Seema Thapliyal,
    Shreekant N. Terdal, D. Mahesh Babu, Suchitra Hrangkhawl,
    Amjid Maqbool, Amit K. Nain, B. Ramakrishna Rao, D. Bharathi
F   Reddy for the Respondents.

          The Judgment of the Court was delivered by

         K.S. RADHAKRISHNAN, J. 1. The petitioners, who were.
    erstwhile Directors of Vasavi Cooperative Urban Bank Limited,
G   have approached this Court seeking a declaration that Sections
    3, 5, 8 and 9 of the Andhra Pradesh Protection of Depositors
    of Financial 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
H   of India and also other consequential reliefs.
   SOMA SURESH KUMAR v. GOVERNMENT OF                       331
  ANDHRA PRADESH [K.S. RADHAKRISHNAN, J.]
     2. The petitioners were Directors of the above-mentioned      A
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        B
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         c
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 2003 before the Special Court-cum-
Metropolitan Sessions Judge, Hyderabad. It is at this juncture,    D
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      E
the respondents not to arrest the petitioners or to attach their
properties for the offer:ices 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 F
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 berrowers of the bank and
created fake proprietary concerns, firms/companies and
swindled away money of the depositors by accepting defective, G
fake, forged title deeds and committed default in making
payment of dues to the 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.                                                             H
    332      SUPREME COURT REPORTS                  [2013] 10 S.C.R.


A       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
B 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
c 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 would fall under Entry 45 of the
  List I of the Seventh Schedule of the Constitution of India.
0
         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,
E   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
F   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
G   to the depositors. The Banking Regulations Act, it is pointed ·
    out, was enacted to regulate the functioning of the banking
    companies, including the 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
H   clutches of law.
   SOMA SURESH KUMAR v. GOVERNMENT OF                      333
  ANDHRA PRADESH [K.S. RADHAKRISHNAN, J.]
     6. Vasavi Cooperative Bank was registered as a 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 B
from the close of business on March 7, 2003. Ban!< 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 C
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 scene. Several cases
were booked against the persons responsible for the same, but D
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:-
                                                                   E
     "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 F
     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
                                                                   G·
     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
                                                                   H
    334      SUPREME COURT REPORTS               [2013] 10 S.C.R.


A         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
B         during the course of acceptance of public deposits.

          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
C   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.

0       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 1,mder Entry 45 of
  List I-Of Seventh Schedule. Hence, only the Central Government
  is entitled to enact the law relating to subject "accepting of
E 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
F activities falling under Section 5(b) of the Banking Regulation
  Act, 1949. Consequently, only the 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 tegislature to
  legislate "corporate societies" as falling under Entry 32 List II
G 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
H banking under Entry 45 of List I of the Seventh Schedule. It was
   SOMA SURESH KUMAR v. GOVERNMENT OF                     335
  ANDHRA PRADESH [K.S; RADHAKRISHNAN, J.]
pointed out that under the guise of legislation with respect to A
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 B
Bank & Ors. Vs. United Yam Tex (P) Ltd. & Ors., (2007) 7
sec 236.
     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 C
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 i'nterests of Depositors D
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 sec 793, while examining the constitutional validity of the
Tamil Nadu Act, held that the enactment by the State E
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, F
this Court placed specific reference to the Full 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:-                                                         G

          "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 (Born) and we
    respectfully disagree with the view taken by the Bombay H
    336       SUPREME COURT REPORTS                 [2013) 10 S.C.R.


A         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.
B
                 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
c         (1983) 4 SCC 166 and the provisions of Chapter 111-C of
          the Reserve Bank of India Act, 1934 were upheld Ly this
          Court in T. Velayudhan Achari v. 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-
D         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
E         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 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
F         (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
G         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
H         gullible investors, had to be dealt with strongly. The small
   SOMA SURESH KUMAR v. GOVERNMENT OF                         337
  ANDHRA PRADESH [K.S. RADHAKRISHNAN, J.]
    amounts collected from a substantial number of individual         A
    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."                                                           B

     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            C
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 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         D
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         E
     ~sembly 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             F
     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 ttl'e 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         G
     depositors from fraud perpetrated on unsuspecting
     investors, who entrusted their life savings to unscrupulous
     and fraudulent persons and who ultimately betrayed their
     trust.
                                                                      H
    338       SUPREME COURT REPORTS                 [2013] 10 S.C.R.

A                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 11 Entries 1, 30 and 32 thereby leaving the field of
          legislation open, both to the Central Legislature as well as
B         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 from the
          above, the provisions of the Pondicherry Act are also saved
                                                                           I
                                                                           I

c         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
D 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
E 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
F contention. What has been excluded from that 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-
G 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.
H K.K.T.                                   Writ Petitions dismissed.