State can attach Properties of ‘Defaulting’ Financial Establishments: SC

By CA Sandeep Kanoi Corporate Law Judiciary May 22, 2017

TaxGuru Citation: 2017 taxguru.in 557
Case Name: State Represented By The Prinicipal Secretary To Government, Home Vs K.S. Palanichamy And Ors. (Supreme Court of India)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Supreme Court of India

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It is clear from the reading of Section 3(i) of the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997, that whenever complaints are received from a number of depositors against a Financial Establishment, which defaults or fails to return the deposits or fails to provide services for which the deposits have been made by the depositors, then the State Government is empowered to initiate proceedings by passing ad-interim order for attachment of the properties of the Financial Establishment or any other persons as mentioned there under. It is not in dispute that the present case falls under Section 3(i) of the Act. Whereas under Section 3(ii) of the Act, Government has the suo motto power to initiate proceedings and pass an order of ad- interim injunction. Thereafter the Government is at liberty to transfer the control of the aforesaid money or property to the competent authority.

13. Sub- section (1) of Section 4 of the Act empowers the Government to appoint competent authority. Whereas Sub- section (2) of Section 4 confers necessary power on the competent authority for carrying out the purposes of the Act. Sub- section (3) of Section 4 mandates the competent authority to apply before the Special Court within a stipulated period for making the ad-interim order of attachment absolute and for further directions pertaining to the selling of the attached property by public auction and realization of the sale proceeds. Sub-section (4) of Section 4 of the Act clarifies that an application under sub- section (3), before the Special Court, has to be accompanied with affidavits stating the grounds or reasons on which the belief that the Financial Establishment is going to commit a default or defraud the depositors are founded. The application should also contain other particulars and details as to the persons in whose name the properties vest.

14. It is clear from the relevant statutory scheme that in order to curb the malady of financial swindlers and to deal with such problems effectively, The State of Tamil Nadu enacted this statute to protect the interest of innocent investors. Therefore as per the procedure envisaged under Section 3 and 4 of the Act unequivocally the power to set the process into motion vests with the State Government by passing an ad-interim attachment order and thereafter act mandates appointment of competent authority under Sub-section (1) of Section 4 of the Act, to take further recourse as per the procedures laid down under Section 4 of the Act.

J U D G M E N T

N.V. RAMANA, J.