The Madurai Bench of the Madras High Court has held that Section 8 of the Tamil Nadu Protection of Interest of Depositors Act (TNPID Act) does not restrict the right to apply only to the Government or the competent authority, and that a stranger to the transaction has no locus standi to challenge the attachment order. The Court clarified that where a financial establishment commits default and transfers its properties to mala fide transferees, Section 8 of the TNPID Act, 1997 empowers any interested person or depositor to seek attachment of such transferee’s property before the Special Court.
However, once the attachment order is passed, only the concerned transferee has the locus standi to challenge it, and a stranger to the transfer has no right to maintain an appeal against such order, added the Court.
The Division Bench comprising Justice G.R. Swaminathan and Justice M.D. Sumathi noted that it was not in dispute that the financial establishment had committed default. To protect the interests of innocent depositors, the State of Tamil Nadu enacted the TNPID Act, 1997. Under the statutory scheme, the Government effects interim attachment of the properties of the financial establishment, and thereafter the competent authority (the jurisdictional District Revenue Officer) files an application before the Special Court to make the attachment absolute. Any interested person can also file an application for raising the attachment.
The Court observed that Ramu alleged that the property in question admittedly belonged to Srinivasan, the promoter, who sold it to Subbulakshmi, who in turn sold it to one Ramesh. Ramu contended that both Subbulakshmi and Ramesh were mala fide transferees. Section 8 of the TNPID Act specifically deals with attachment of properties of mala fide transferees, and the Court carefully perused this provision.
The Court further observed that unlike Section 3 (which specifically empowers the Government to effect attachment of properties of the financial establishment) and Section 4(3) (which empowers the competent authority to apply to the Special Court to make the interim order of attachment absolute), Section 8 contains no reference to the Government or the competent authority. Section 8 only requires that the Special Court be satisfied by affidavit or otherwise that there is reasonable cause for believing that the financial establishment had transferred property otherwise than in good faith and for consideration. The Court therefore concluded that any interested person or depositor can maintain an application under Section 8 of the Act.
On the second question regarding locus standi, the Court noted that Radhakrishnan claimed that Ramesh, the purchaser of the property from his wife Subbulakshmi, raised a dispute and that he (Radhakrishnan) decided to reconvey the property. Radhakrishnan claimed he had paid a substantial sum and that since the registration department declined to register the transaction, he was constrained to challenge the attachment. The Court referred to Rule 7 of the TNPID Rules, 1997, which clearly states that once an order of attachment has been made, subsequent transfers are null and void. Although Rule 7 refers to attachment made by the Government, the Court inferred that the same effect applies to attachment made by the Special Court as well.
Briefly, the case arises out of a financial establishment called Virutcham Agro Limited, Sivakasi, which was promoted by one Srinivasan @ Srinivasagan. He floated several companies that attracted investments from the general public, with several lakhs of rupees being deposited by depositors. The financial establishment committed default in repayment, following which a criminal case was registered by the Inspector of Police, Economic Offences Wing (EOW), Virudhunagar.
After investigation, a final report was filed and cognizance was taken on the file of the Special Court under the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997 (TNPID Act), at Madurai. Before the Special Court, one Ramu filed an application seeking attachment of certain properties. The Special Court allowed the application and directed attachment of the petition-mentioned properties.
