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.