The Competent Authority and District Revenue Officer, Cuddalore v. Chandrasekar

For appellants in both appeals : Mr.V.Srikanth, Additional Government Pleader(CS) For respondents 1 and 2 in CMA No.1577 of 2008 and respondent in CMA 2290 of 2008 : M/s.R.Vasudevan and P.N. Kapoor ----- COMMON JUDGMENT The Competent Authority, the District Revenue Officer, Cuddalore and the Inspector of Police, E.O.II, Cuddalore have filed the above two Civil Miscellaneous Appeal Nos.2290 and 1577 of 2008 challenging the orders dated 14.2.2008 and 15.4.2008 passed in O.A.No.1 of 2008 and I.A.No.38 of 2008 in O.A.No.1 of 2008 respectively by the Court of Special Judge, under Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997, Chennai-104.

2. The brief facts relevant for disposal of both the appeals are as follows:- The respondent Chandrasekar in both the case floated a company, viz., Sri Balaji Finance and Investments, at South Car Street, Chidambaram, Cuddalore District. The company was receiving deposits from public and was engaged in the business of individual financing and investments. The business ran into rough weather and the respondent defaulted in repaying the deposits. The depositors on failure to realise the amounts so deposited approached the second appellant, who investigated the matter and took steps against the respondent and others as per the provision of the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997.

3. Based on complaints received from depositors, the Government invoking the power granted under the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997 (Tamil Nadu Act 44 of 1997), hereinafter referred to as the "TNPID Act", passed G.O.Ms.No.925 Home (Courts-IIA) Department dated 22.9.2003 whereby and whereunder passed an ad-interim order, attaching the cash, movable and immovable properties of Sri Balaji Finance and Investment, Chidambaram, Cuddalore District and that of the respondent Chandrasekar and others, as set out in the Schedule to the G.O. and directed the Competent Authority, the first appellant herein to pursue action against the defaulter, as provided under the said TNPID Act.

4. Pursuant to the G.O.Ms.No.925 dated 22.9.2003, the Bank accounts of the defaulters operated in Madura Bank, Chidambaram was freezed. The details are set out in Serial Nos.1 to 6 of the Schedule to the G.O. The movable properties as mentioned in Serial Nos.1 to 69 and the immovable property, viz., terraced house situated at No.41, South Car Street, Chidambaram Town comprised in T.S.No.936 to the extent of 2774 square feet as mentioned in the Schedule to the G.O., were taken custody by the Competent Authority.

5. Thereafter, in the year 2008, the respondent Chandrasekar, who was running the affairs of the said company, filed an Original Application No.1 of 2008 under Section 9 of the TNPID Act before the Special Court seeking permission of the Court to accept the cash security in lieu of the attachment and cancel the ad-interim attachment in respect of the immovable property situated at No.41, South Car Street, Chidambaram Town comprised in T.S.No.936 to the extent of 2774 square feet. The respondent Chandrasekar offered a sum of Rs.28 lakhs as security so as to cancell the attachment. He, therefore, sought for cancelling the attachment made in G.O.Ms.No.925 dated 22.9.2003 in respect of the immovable property only.

6. Before the Special Judge, a counter-affidavit was filed by the Competent Authority, the District Revenue Officer, Cuddalore. Before the Special Court, it was contended by the Competent Authority that the default amount is Rs.51,10,400/-, whereas the respondent Chandrasekar's offer is only Rs.28 lakhs. Hence, the request of the respondent Chandrasekar for cancellation of the G.O.Ms.No.925 dated 22.9.2003 by just paying Rs.28 lakhs and without giving any security for the remaining defaulted amount should be rejected. The G.O. may be cancelled only on depositing the reasonable market value of the scheduled property.

7. On the contrary, it was contended by the respondent Chandrasekar before the Special Court that the interim attachment was not made absolute within the time specified under the TNPID Act. Therefore, the attachment should be cancelled and the possession of the immovable property should be handed over to the present respondent. In any event, he offered the amount as aforesaid to prove his bona fides.

8. Before the Special Court, the guideline register value was produced by the present appellants to state that the value of the attached property is more than the amount sought to be deposited for release of the immovable property.

9. The Special Court considered the rival contentions and in paragraph 18 of the order came to the conclusion that the offer of Rs.28 lakhs is near about the guideline value of Rs.30,65,270/- and hence the same can be accepted. The Court below also observed that there was no better offer by the present appellant department to disprove the value or the security offered. Relying upon the provisions of Section 9 of the TNPID Act, the Special Court passed the following order on 14.2.2008:- "21. In the result, the ad interim order of attachment effected by and under G.O.Ms.No.925 Home (Courts IIA) Department dated 22.9.2003 in respect of the petition mentioned property is cancelled in lieu of depositing the amount of Rs.28,00,000/- (Rupees Twenty eight lacs only) by the petitioner at Union Bank of India, Ayanavaram Branch, No.6, 2nd Cross Street, Venkatesapuram Colony, Ayanavaram, Chennai 23 for the fixed period of 6 months in favour of the Special Judge, Special Court under TNPID Act 1997, Chennai 104 in the credit of Crime No.1/2000 of E.O.W.II, Cuddalore within two weeks from to-day (14.2.2008) failing which, the petition shall stand dismissed and the ad interim order of attachment in respect of the petition mentioned property shall stand revived. Pronounced by me in open court this the 14th day of February 2008."

10. Consequent to the above order, it is stated that the respondent deposited the sum of Rs.28 lakhs on 28.2.2008. In spite of such deposit, the possession of the immovable property was not handed over. The respondent filed an Application I.A.No.38 of 2008 in O.A.No.1 of 2008 for a direction to the Competent Authority, the first appellant to hand over the possession of the property. The said application was heard and disposed of by an order dated 15.4.2008 and the relevant portion reads as follows:- "4. Once the attachment is raised in respect of any property u/s 9 of TNPID Act and, the attachment G.O. has no legal-effect with reference to that property and the G.O. stands cancelled by virtue of the court order. Under such circumstances, if the possession of the property has not handed over to the petitioner, it is nothing but disobeying the order passed in O.A.1/2008. There is no justification for keeping the possession of the property with the Competent Authority. Hence, the Competent Authority/District Revenue Officer, Cuddalore, is directed to hand over the possession of the petition mentioned property to the petitioner on or before 29.4.2008 and the petition is allowed accordingly. Call on 30.4.2008. Pronounced by me in open court this the 15th day of April, 2008." Aggrieved by the above two orders the present appeals have been filed by the Competent Authority, the District Revenue Officer, Cuddalore and the Inspector of Police, E.O.W.II, Cuddalore.

11. The main contention of the Competent Authority as well as the Inspector of Police, E.O.W.II, Cuddalore is that the immovable property which is sought to be released from attachment will fetch more value than what has been offered by the respondent. That apart it is contended that the respondent Chandrasekar should offer full security as the amount of Rs.28 lakhs will not be sufficient to satisfy the entire claim of the depositors.

12. Section 3 of the TNPID Act deals with the attachment of properties on default in return of deposits. Section 8 of the TNPID Act deals with attachment of property of mala fide transferees. Section 9 of the TNPID Act provides security in lieu of attachment. Sections 3, 8 and 9 reads as follows:- "3. Attachment of properties on default of return of deposits:- Nothing anything contained in any other law for the time being in force - (i) where upon complaints received from a number of depositors, that any Financial Establishment defaults the return of deposits after maturity, or fails to pay interest on deposit or fails to provide the service for which deposit has been made, or (ii) where the Government have reason to believe that any Financial Establishment is acting in a calculated manner with an intention to defraud the deposits, and if the Government are satisfied that such Financial Establishment is not likely to return the deposits, or to make payment of interest or to provide the service, the Government may, in order to protect the interests of the depositors of such Financial Establishment, pass an ad-interim order attaching the money or other property alleged to have been procured either in the name of the Financial Establishment or in the name of any other person from and out of the deposits collected by the Financial Establishment, or if it transpires that such money or other property is not available for attachment or not sufficient for repayment of the deposits, such other property of the said Financial Establishment or the promoter, partner, director, manager or member of the said Financial Establishment or a person who has borrowed money from the Financial Establishment to the extent of his default or, such other properties of that person in whose name properties were purchased from and out of the deposits collected by the Financial Establishment, as the Government may think fit, and transfer the control over the said money or property to the Competent authority. " "8. Attachment of property of mala fide transferees:- (1) Where the assets available for attachment of a Financial Establishment or other person referred to in section 3 are found to be less than the amount or value which such Financial Establishment is required to repay to the depositors and where the Special Court is satisfied by affidavit or otherwise that there is reasonable cause for believing that the said Financial Establishment has transferred (whether after the commencement of this Act or not) any of the property otherwise than in good faith and for consideration, the Special Court may, by notice, require any transferee of such property (whether or not he received the property directly from the said Financial Establishment) to appear on a date to be specified in the notice and show cause why so much of the transferee's property as is equivalent to the proper value of the property transferred should not be attached. (2) Where the said transferee does not appear and show cause on the specified date, or where after investigation in the manner provided in sub-section (5) of section 7, the Special Court is satisfied that the transfer of the property to the said transferee was not in good faith and for consideration, the Special Court shall order the attachment of so much of the said transferee's property as in the opinion of the Special Court equivalent to the proper value of the property transferred." "9. Security in lieu of attachment:- Any Financial Establishment or person whose property has been or is about to be attached under this Act may, at any time, apply to the Special Court for permission to give security in lieu of such attachment and where the security offered and given is in the opinion of the Special Court, satisfactory, and sufficient it may cancel, the ad-interim order of attachment or, as the case may be, refrain from passing the order of attachment."

13. Section 3 of the TNPID Act provides for attachment of properties in default of return of deposits, based on complaints from the individuals. Section 3 also provides for ad-interim order of attachment of money or other property alleged to have been procured either in the name of financial establishment or in the name of any other person by the financial establishment.

14. Section 8 of the TNPID Act is the power of the Special Court and it provides for attachment of property of mala fide transferee's, which is established by an investigation by the Competent Authority and placed it before the Special Court for passing appropriate order to attach such transferee's property as in the opinion of Special Court equivalent to the proper value of the property transferred. There is, therefore, two methods of attachment of property from the person concerned as per Sections 3 and 8 of the TNPID Act.

15. Section 9 of the TNPID Act provides for furnishing of security in lieu of attachment by the (a) Financial Establishment whose property has been or is about to be attached, (b) Person whose property has been attached and (c) Person whose property is about to be attached under the Act by way of an application to the Special Court to grant permission to give security in lieu of attachment subject to satisfaction of the Special Court.

16. Section 9 provides the method for giving the security in lieu of attachment as follows:- (a) The financial establishment can provide security in lieu of attachment. (b) The person whose property has been attached under the Act may provide security in lieu of attachment equivalent to the value of the property sought to be released and (c) By any person whose property is about to be attached for the value equivalent to the property to be released. In all three cases, the person concerned may apply to the Special Court praying for permission to give security in lieu of attachment. Once the security given, is in the opinion of the Special Court, satisfactory and sufficient, the Special Court is empowered to cancel the ad-interim order of attachment or it may refrain from passing the order of attachment as the case may be.

17. In the instant case, Section 8 of the TNPID Act does not apply. As far as immovable property mentioned in Schedule to G.O.Ms.No.925 dated 22.9.2003 is concerned, the respondent Chandrasekar has furnished cash security by depositing Rs.28 lakhs stating that it is the (market) value of the property to be released, which is attached under the G.O. The appellants on the other hand contends that the guideline value is Rs.30 lakhs and the market value is even more.

18. The Special Court is empowered to cancel the order of attachment or refrain from doing so, if the security offered in lieu of such attachment is satisfactory and sufficient in respect of the property which is sought to be released from such attachment. This is more clear from the last sentence of Section 9 where the emphasis is on refrain from passing an order of attachment. Section 9 deals with attachment as envisaged under Section 3 by the Government and under Section 8 by the Competent Court. The attachment, therefore, may be in respect of several properties or a particular identifiable property. It will vary from case to case. Accordingly, the security offered will also vary according to the property sought to be released from attachment. The security offered can be in respect of a particular property which is attached in terms of Section 3 or is sought to be attached by the Court in terms of Section 8. Further, Section 3 speaks of attachment of properties on default of return of deposits whereas Section 9 speaks of security in lieu of attachment.

19. In the instant case, to prove his bona fides, respondent Chandrasekar in addition to the sum of Rs.28 lakhs already offered, for cancelling the attachment for one property, has now produced before this court, a demand draft issued by the State Bank of India, Cuddalore O.T. Branch bearing No.306134 dated 4.9.2008 for a further sum of Rs.2 lakhs. Respondent has proved his bona fides that he has given sufficient security for the property sought to be released from attachment. The appellants, though stated that the market value is higher, have not established it by any acceptable evidence and that is recorded by the Special Court.

20. The Special Court analyzed the evidence on record in respect of the value of the property and accepted the offer made by the respondent Chandrasekar. Even before this Court, when it was pointed out that the guideline value is around Rs.30 lakhs, respondent Chandrasekar has offered a further sum of Rs.2 lakhs for release of the immovable property. Appellants are unable to establish that the amount offered and deposited by the respondent is unreasonable. Respondent's offer is supported by the guideline value as recorded by the Special Court. The appellants' plea of higher value cannot be accepted. Section 9 of the TNPID Act speaks of sufficient security to the satisfaction of the court and the Special Court has recorded its satisfaction.

21. Another issue which has to be considered for the purpose of upholding the order of the Special Judge is that Sub section (6) of Section 7 provides that the ad-interim order of attachment should have been made absolute within a period of 180 days from the date of receipt of an application under sub section (3) of Section 4 to make the attachment absolute. It is on record that such application was filed well beyond the period specified and no order has been passed by the Competent Court making the order of ad-interim attachment absolute. Therefore, there is no legal impediment in releasing the property in favour of the respondent.

22. The second respondent in C.M.A.No.1577 of 2008 filed an affidavit on 5.1.2009 as follows:- "2. I submit that I was impleaded as a party in this appeal order dated 30.09.2008. Hence I am filing this affidavit.

3. I submit that the value of the total deposit amount invested in C.C.No.124/04 was Rs.33,00,000/- out of which Rs.1,38,428/- (wrongly stated as Rs.1,38,4238/-) was admittedly paid to the depositors A.T.D.R. of Rs.28 lakhs (Rupees Twenty eight lakhs only) is lying with Special Court and another 2 lakhs (Two lakhs only) D.D. in favour of D.R.O. Cuddalore is being deposited in Special Court. Total amount paid so far is Rs.31,38,428/- and the amount payable to the depositors is Rs.31,61,572/-.

4. I further submit that I have no objection for selling the Gold and Silver Ornaments and other movable properties which were attached by the competent Authority except third parties property viz., 8 gold items weighing 161.45." The above said affidavit is recorded. In view of the above affidavit, it is made clear that the appellants can sell the above said movable property and the sale proceeds may be distributed to the depositors. The respondent has to establish his case for exclusion of the moveables and gold as stated in affidavit before the court below. The items mentioned in para 4 of the affidavit has to be separately dealt with by the Special Court.

23. The second respondent in C.M.A.No.1577 of 2008 filed another affidavit along with a petition on 5.1.2009 as follows:- "2. I submit that the value of the total deposit amount invested in C.C.No.124/04 was Rs.33,00,000/- out of which Rs.1,38,428/- was admittedly paid to the depositors and the balance payable amount is Rs.31,61,572/-.

3. I further submit that the house property was sold for a sum of Rs.28,00,000/- and the amount was deposited in the Special Court. The said amount has fetched a sum of Rs.91,000/- as interest totalling Rs.28,91,000/- which is now available for distribution to the depositors. If a sum of Rs.2,00,000/- is deposited it will be sufficient to pay 100% of the principal amount to the depositors.

4. I submit that only under such circumstances the Hon'ble Court ordered me to deposit a sum of Rs.2,00,000/- by way of demand draft in the name of the competent Authority and District Revenue Officer, Cuddalore. In compliance with such direction the petitioner is depositing a sum of Rs.2,00,000/- in favour of the competent Authority and District Revenue Officer, Cuddalore vide D.D.No.306134 dated 4-09-09 drawn on State Bank of India.

5. I further submit that apart from my house property Gold Articles weighing 522.964 Grams value at Rs.6,81,558/- and Silver item weighing 3852.18 gms., value at Rs.1,27,318/- and office furniture was also attached.

6. It is therefore prayed that this Hon'ble Court may be pleased to direct the Special Court to direct the District Revenue Officer, Cuddalore, after eschewing the promissory notes to compound the offence on distribution and the possession of the property to be handed over and thus render justice." In respect of the above prayer, it is made clear that the respondents can approach the court below for excluding their names.

24. At this point of time, this court is not concerned with the claim of one or other parties insofar as the movable property is concerned. It is for the Competent Court to decide such individual claims in accordance with law. The plea of compounding can also be considered as per law, if the bona fide claims of depositors are satisfied.

25. Therefore, in addition to the deposit of Rs.28 lakhs already made to the court below earlier and on further deposit of Rs.2 lakhs to be made, the order of the Special Court releasing the immovable property mentioned in the schedule to G.O.Ms.No.925 dated 22.9.2003 stands confirmed. The respondent is entitled to repossess the immovable property and the appellants have no serious objection for the release on further terms as above. The appellants can also proceed with the sale of the movable properties specified so as to discharge the claims of the depositors in accordance with law subject to appropriate orders by the competent court.

26. Counsel for the respondents submitted that they will seek permission to file application to compound the offence as provided in the Act as and when the claims of the depositors are discharged. Such application, if filed by the respondents, or other named accused, has to be dealt with by the Competent Court as provided under the Act.

27. The demand draft referred to in this order shall be produced before the Special Court along with copy of this order. Learned Additional Government Pleader (C.S.) states that the Competent Authority has a bank account in State Bank of India, Manjakuppam Branch, Cuddalore District for the purpose of the present case. He prayed that the sum of Rs.2 lakhs tendered by way of demand draft and the earlier deposit made should be transferred to the said account immediately so as to settle the claims of the depositors at the earliest. The Special Court shall forward the sum of Rs.2 lakhs now tendered and the earlier deposit made to the Competent Authority forthwith.

28. In the result both the appeals are ordered as follows:- (i) The orders dated 14.2.2008 and 15.4.2008 passed by the Court below/Special Court are confirmed. (ii) As and when the sum of Rs.2 lakhs is deposited and encashed by the competent authority, the order of the court below releasing the property will come into effect forthwith. (iii) As requested by the learned Additional Government Pleader (C.S.), the sum of Rs.28 lakhs already deposited and the sum of Rs.2 lakhs now tendered under demand draft drawn on State Bank of India, Cuddalore O.T. Brach bearing No.306134 dated 4.9.2008 to be transferred to the account of the first appellant held in State Bank of India, Manjakuppam Branch, Cuddalore District. (iv) On compliance of clause (ii) above, the respondents in both the appeals are entitled to take possession of the immovable property, viz., terraced house situated at No.41, South Car Street, Chidambaram Town comprised in T.S.No.936 to the extent of 2774 square feet as mentioned in the Schedule to the G.O.Ms.No.925 Home (Courts-IIA) Department dated 22.9.2003. (v) The appellants can also proceed with the sale of the movable and other properties after getting appropriate orders from the Competent Court so as to discharge the claims of the depositors in accordance with law. (vi) It is open to the respondents to approach the court below praying to direct the District Revenue Officer, Cuddalore, for eschewing the promissory notes if permissible in law and to compound the offence on payment and discharge of claims. (vii) With regard to the gold items weighing 161.45 grams mentioned in para 4 of the affidavit dated 5.1.2009 has to be separately dealt with by the Special Court. (viii) The affidavit filed on 5.1.2009 and also the petition with supporting affidavit filed on 5.1.2009 by the second respondent Ravi will form part of this judgment. (ix) There will be no order as to costs. (x) Consequently, connected miscellaneous petitions are closed.

19.1.2009 Index : No Internet: Yes Office to note:- "Issue copy on or before 22.1.2009". To The Special Judge Special Court under TNPID Act, Chennai-104. R.SUDHAKAR,J. Common Judgment in C.M.A.Nos.1577 and 2290 of 2008 19.1.2009