India-Law.org

A largely unreported judgment of the Supreme Court in Ravindra Shah v State of Maharashtra, in SLP (Cr.) Diary No. 10560 of 2023 dated March 17, 2023 has now started to create a ripple effect in State Depositor Protection litigation and accused directors and partners have been able to free their ‘untainted’ property from trial courts. [The Court rejected the review on July 4, 2023 in RP (Crl.) Diary No. 19167/2023] Though the judgment was in the context of Maharashtra’s PID Act, it has implications for other states as MPID is like the depositor laws in various other states such as Tamil Nadu’s PID Act (the 1st state to enact such a law) and others. These Deposit protection laws arose when financial institutions had defaulted after collecting thousands of crores of deposits from large swathes of public, by offering them lucrative fraudulent schemes designedly impractical and meant to default. ‘fraudulent default’ is the very nature of these state laws.

State Governments enacted these laws with a common feature, firstly “attach all property of the financial establishment purchased out of the deposits” and if that is insufficient or untraceable, then the Government would attach “other property of the financial establishment, directors, partners, etc”. The judgment gives no clarity what this ‘other property of the financial establishment…’ is given that the law clearly means it to be other than what was purchased out of deposits.

It is not unusual for such financial establishments and their directors to dissipate assets representing the funds raised and leave nothing for recovery and hence the power to purse directors and their assets, irrespective of tracing, was a great weapon for ensure recovery of public dues.

The judgment initially considers that constitutionally TNPID was upheld by the Supreme Court in KK Bhaskaran’s case [(2011) 3 SCC 793] and what applies to TNPID applies equally to MPID. Yet not even a single TNPID case was brought to the notice of Supreme Court in the context of attachment. The Madras High Court has consistently interpreted similar provisions in the TNPID Act and held in various cases such as P. Palanisamy v. District Revenue Officer cum Competent Authority [2023 SCC Online Mad 6270], A. Hafeezur Rahman v. DSP, judgment dated March 24, 2021 in CMA No. 96/2021, etc, that ‘other property’ need not have any link with the deposit collected and they can be attached if the financial establishment’s assets have been found lacking. Even the judgment of the Nagpur Bench of Bombay High Court in Chandraprakash Wadhwani v. State of Maharashtra, referred therein equally did not consider any TNPID judgment nor was the plain language of the MPID applied. Instead the para from the Bombay High Court’s judgment is incorrectly quoted as from KK Bhaskaran’s case. More importantly, the judgment does not note that the SLP (Crl.) No. 8062/2018 in Chandraprakash Wadhwani v. State of Maharashtra, was dismissed in limine on 01.10.2018 by simply recording that ‘The SLP is dismissed’ i.e. it was not heard on merits. Instead the Supreme Court in its judgment refers to an order in an Interim Application in NSEL matter, where the principles in Chandraprakash Wadhwani’s case are applied without their correctness being in dispute; this can hardly be said to be an affirmation of its correctness.

The Bombay High Court’s judgment and the Supreme Court judgment clearly fail to recognize the principle of compensation and lifting of corporate veil which were the hallmark of the state laws. A thief cannot be heard to say that he cannot be asked to compensate the aggrieved person out of his own assets merely because he has spent what he stole, and if the thief be a company its directors hiding behind its corporate personality can equally have no respite when they were engaging in a fraudulent scheme designed to default from the start.

The deposit schemes essentially begin as a deception to raise public funds by offering lucrative schemes designed to default, which monies are then spent or spirited away through creative acts of money laundering before any legal action is begun and when reckoning does come, the financial establishment has barely any assets remaining and as far as civil liability is concerned the directors’ assets can now go scot free because their own properties, either pre-existing or otherwise, are not traced to deposits collected from the public, making them immune from attachment under the law as laid down.

Further what was not pointed out that this issue was raised but not decided in the Bombay High Court’s judgment in 63 Moons Technologies Ltd. v State of Maharashtra, 2019 SCC OnLine Bom 1648 and the matter was decided on other grounds. The High Court judgment was finally reversed in State of Maharashtra v. 63 Moons Technologies Ltd., (2022) 9 SCC 457 which upheld the attachment of all notified properties of the promoter company. Therefore, the IA which was decided much later in WP(C) No. 995/2019 on 23.01.2019 and referred to by the Court as an affirmation was far from it, rather the only issue before it was “The only prayer made by the applicants are in the context of the requirement of the respondent No.3 State of Maharashtra to attach the monies to which trail has been found out by the forensic audit report obtained by the State Government.” This has nothing to do with the larger issue of untainted properties being liable for attachment.

Equally inapplicable is the reference to the SAFEMA and the judgment in Attorney General for India v Amratlal Prajivandas, (1994) 5 SCC 54, when the SAFEMA Act was only concerned with ‘illegally acquired property’ and did not have a provision to attach ‘equivalent’ untainted property if tainted property was unavailable to attach’ (precisely why that law was ineffective) hence such a provision was never under consideration under that judgment and the judgment could not be said to have laid down the law on an issue not before it; which the PMLA Act has fixed by re-defining ‘proceeds of crime’ over a number of amendments. Thus, ‘equivalent’ untainted property can be attached when the tainted property is not available as held in Vijay Madanlal Chaudhary v Union of India, 2022 SCC Online SC 929, para 68. What is interesting is that the SC later in Pavana Dibbur v. The Directorate of Enforcement, 2023 SCC OnLine SC 1586 the court inter alia seemed to have held otherwise referring to an older version of the definition. However, the Appellate Tribunal in Vishal Mehta’s case [2025 SCC OnLine ATSAFEMA 4] and Sohit Chaturvedi’s case [2025 SCC OnLine ATSAFEMA 9] deferred to the correct law laid down in Madanlal Chaudhary’s case.

Similarly, the Depositor Protection Act specifically made it clear that ‘other property’ would be attached when ‘property purchased out of deposits is not found sufficient’, which has no parallel in the SAFEMA law.

Thus, referring to SAFEMA when law of attachment has travelled far beyond now turns the clock back decades. It is only a matter of time that accused across the country, not just Maharashtra, rely on the judgment to insulate their own properties while having squandered public deposits without recompense.

Unless the judgment is reconsidered, depositor protection laws and ongoing litigation may well be pointless except in those case where by chance the directors did not have time to spirit away the funds and kept them on the books of the financial establishment.

One might even challenge the entire CPC as it permits attachment of virtually every property of a judgment-debtor and not merely ‘tainted’ property. Should not then execution proceedings be limited to assets which represent the proceeds arising from the delinquent conduct and not otherwise? The judgment certainly needs to be reconsidered, at the earliest considering the large number of such fraudulent schemes in the country.