Law to protect depositors valid: SC

8220;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 life8217;s earnings and savings in schemes for making profit floated by unscrupulous individuals and companies,both incorporated and unincorporated.

8220;More often than not,the investors end up losing their entire deposits,8221; Justice Kabir,writing the judgement,said.

The apex court passed the judgement while dismissing the appeal of M/s New Horizon Sugar Mills Ltd,challenging the Pondicherry Protection of Interests of Depositors in Financial Establishments Act,2004 Act 1 of 2005,ordering attachment of properties acquired by Pondicherry Nidhi Ltd said to be one of its own companies.

The bench said similar legislations passed by the Maharashtra and Tamil Nadu to protect their people were also valid.

The apex court rejected the argument of the company that the state was not competent to enact the statute as the power was vested with Parliament under the Constitution.

8220;Even if it is to be accepted that the Pondicherry Act is relatable to Entries 43,44 and 45 of List I,Union it can be equally said that the said enactment is also relatable to Entries 1,30 and 32 of List II,state thereby leaving the field of legislation open,both to the central legislature as well as the state legislature,8221; the bench said.

The Pondicherry government had alleged Kannan and 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 Rs.12.5 crores belonging to M/s PNL Nidhi Ltd. and diverted the same for their other companies. To curb such activities,the state came out with the Act in question.

The bench further said the provisions of the Pondicherry Act are also saved by virtue of Article 2542of the Constitution.

8220;As will be evident from the above,clause 1 of Article 254 provides that when there are two laws enacted by Parliament and the state legislature in which certains inconsistencies occur,then subject to the provisions of clause 2,the law made by Parliament would prevail and the law made by the state legislature,to the extent it is repugnant to the central law,shall be void.

8220;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,8221; the bench said.

The court said that in the instant case,the Pondicherry Act had received the assent of the President attracting the provisions of Article 2542 of the Constitution.

8220;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.

8220;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.

8220;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,8221; the bench added while imposing a cost of Rs one lakh on the company.