Madras High Court
M/S. N.S.Agro Farm And Hatchery vs Competent Authority And on 24 January, 2014
Author: P.R.Shivakumar
Bench: P.R.Shivakumar
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 24.01.2014 CORAM THE HONOURABLE MR. JUSTICE P.R.SHIVAKUMAR C.M.A.Nos.1612 and 1613 of 2013 C.M.A.Nos.1612 of 2013 1.M/s. N.S.Agro Farm and Hatchery Rep. By its Managing Partner Mr.N.Suresh D.No.57, Nariyampallam Kaveripalayam (South) Siruvalur Gobichettipalayam (Taluka) Erode District 2.N.Suresh ...Appellants Vs. Competent Authority and District Revenue Officer Erode District Erode ...Respondent Civil Miscellaneous Appeal filed under Section 11 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1977 to allow this Civil Miscellaneous Appeal and set aside the order made in O.A.No.6 of 2013 passed by the learned Special Judge for Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997 and set aside the order of attachment in respect of EMU Birds. C.M.A.Nos.1613 of 2013 1. M/s. N/s.Agro Farm and Hatchery Rep. By its Managing Partner Mr.N.Suresh D.No.57, Nariyampallam Kaveripalayam (South) Siruvalur Gobichettipalayam (Taluka) Erode District 2.N.Suresh 3.Natarajan ...Appellants Vs. Competent Authority and District Revenue Officer Erode District Erode ...Respondent For Appellant :Mr.M.Seenivasagan for M/s.K.Karthik Jagannath For Respondents :Mr.T.Jayaramraj Government Advocate (CS) for Mr.M.Venugopal Civil Miscellaneous Appeal filed under Section 11 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997 to set aside the order made in O.A.No.25 of 2012 passed by the learned Special Judge for Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997, Coimbatore and set aside the order of attachment in respect of EMU Birds. J U D G M E N T
Both the Civil Miscellaneous Appeals C.M.A.No.1612 of 2013 and C.M.A.No.1613 of 2013 have been filed against the orders of the learned Special Judge under the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997 dated 12.04.2013 dismissing the application filed by the appellants as O.A.No.6 of 2013 for raising the interim order of attachment passed by the Government and allowing the application filed by the competent authority as O.A.No.25 of 2012 seeking confirmation of the attachment and permission to sell the attached assets of the appellants.
2. The facts leading to the filing of the appeals are as follows: The second appellant N.Suresh started a business in the name of M/s.N.S.Agro Farm and Hatchery, a partnership firm and he acted as the Managing Partner. In the guise of promoting the business of rearing EMU Birds, he entered into agreements with various farmers making them invest huge amounts. By the said agreement, the farmers had paid amounts ranging from Rs.1,00,000/- and above. In turn, he had promised to supply a few Emu Birds to be maintained by the investors at their places and certain amount was promised to be paid periodically (monthly) for the maintenance of such Emu Birds. Under the agreement with some of the investors, he has simply agreed to pay certain amount as share in the income derived from the Emu business run by him, without even involving the investors in the rearing of the Emu birds. In all the agreements, it was invariably provided that at the end of the contract period, those who were entrusted with the Emu Birds should return the Emu birds and the appellant would refund the amount received from the farmers (investors) without any interest. As it was also brought to the notice of the Government of Tamil Nadu, he was not in a position to fulfill the promise and committed default in payment of the amount as promised by him and on being satisfied that the appellant was not likely to return the deposits to the depositors, the State Government chose to pass an order of ad-interim attachment under Section 3 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997 in G.O.Ms.704, Home (Police XIX) Department, dated 21.09.2012 attaching the cash balance standing to the credit of Messrs N.S.Agro Farm and Hatchery and its Directors/partners Suresh and N.Sugandiradevi. In the said order of interim attachment, the District Revenue Officer, Erode was appointed as the Competent Authority and he was requested to pursue action in accordance with the procedure laid down in Sub-section (3) and (4) of Section 4 of the Act, namely Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997. A schedule attached to the said order of ad-interim attachment shows the deposits in the name of the firm and its partners totalling a sum of Rs.1,68,15,500.17. Simultaneously, another order of ad-interim attachment came to be passed by the Government in G.O.Ms.710, Home (Police XIX) Department, dated 21.09.2012 attaching 600 EMU Birds belonging to the first appellant firm at D.No.57, Nariyampallam, Kaveripalayam (Sourth), Siruvaloor, Gobichettipalayam, Erode District and transferring the control of the said birds to the Competent Authority, namely District Revenue Officer with direction to take follow up action.
3. Pursuant to the passing of the said order of ad-interim attachment attaching the movables, namely cash in the Bank Account and the Emu Birds, the Competent Authority, namely District Revenue Officer, Erode filed an application in O.A.No.25 of 2012 before the Special Judge under Section 4 (3) of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997, Coimbatore praying for an order making the ad-interim attachment absolute and also permitting the competent authority to sell the Emu Birds which were attached. The second appellant, besides filing an affidavit on behalf of the appellants praying for the dismissal of the above said application filed by the competent authority, filed an application O.A.No.6 of 2013 praying for raising the order of ad-interim attachment passed by the Government of Tamil Nadu in G.O.Ms.710, Home (Police XIX Department, dated 21.09.2012. The learned Special Judge under the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997, Coimbatore, after hearing, dismissed the application filed by the appellants, namely O.A.No.6 of 2013 and allowed the application filed by the competent authority, namely O.A.No.25 of 2012 on 12.04.2013 by separate orders, thereby making the ad-interim attachment made by the Government of Tamil Nadu under G.O.Ms.710, Home (Police XIX Department, dated 21.09.2012 attaching 600 Emu birds absolute and granting permission to the competent authority to sell those Emu birds.
4. As against the order passed in O.A.No.25 of 2012 making the attachment absolute and granting permission to sell the Emu birds, C.M.A.No.1612 of 2013 has been filed. As against the dismissal of the application filed by the appellants as O.A.No.6 of 2013 praying for raising the attachment, C.M.A.No.1613 of 2013 has been filed. Since the orders challenged in both the Civil Miscellaneous Appeals are interdependent, both the appeals were jointly heard and are being disposed of by a common judgment.
5. The points that arise for consideration in these appeals are:
"1) Whether the order of the Special Judge under the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act dated 21.09.2012 dismissing O.A.No.6 of 2013 filed by the appellants for raising the ad-interim attachment made by the Government of Tamil Nadu in G.O.Ms.704, Home (Police XIX Department, dated 21.09.2012 is defective warranting interference by this Court?
2) Whether the order of the Special Judge under the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act dated 21.09.2012 made in O.A.No.25 of 2012 making the ad-interim attachment made by the Government of Tamil Nadu in G.O.Ms.No. 710, Home (Police XIX Department, dated 21.09.2012 absolute is erroneous and liable to be set aside?"
6. The arguments advanced by Mr.M.Seenivasagan, learned counsel for the appellants and by Mr.T.Jayaramraj, learned Government Advocate (CS) appearing for the respondent (competent authority) were heard. The grounds of appeal, the impugned orders of the Court below and the other documents produced in the form of typed-set of papers were perused.
7. The persons against whom orders of ad-interim attachment were passed by the Government of Tamil Nadu in G.O.Ms.704, Home (Police XIX) Department, dated 21.09.2012 attaching the cash balance standing to the credit of Messrs N.S.Agro Farm and Hatchery and its Directors and G.O.Ms.710, Home (Police XIX Department, dated 21.09.2012 attaching 600 EMU Birds kept in their farm in exercise of their powers under Section 3 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1977(Tamil Nadu Act 44 of 1997), have come forward with these appeals after failing in their attempt to resist an application filed by the competent authority to get the ad-interim attachment made absolute and for an order permitting the competent authority to sell the movables and also after suffering an order of dismissal of their application for raising the ad-interim attachment, challenging the respective orders passed in O.A.No.25 of 2012 (application filed by the competent authority) and O.A.No.6 of 2013 (application filed by the appellants).
8. On receipt of a number of complaints from the depositors from whom the appellants collected deposits that they had committed default in returning the deposits after maturity and on being satisfied that the appellants were not likely to return the deposits to the depositors, the Government of Tamil Nadu chose to pass the said ad-interim orders of attachment in order to protect the interest of the depositors invoking the power under Section 3 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997. When the question of raising the said attachment or making the said attachment absolute was raised before the Special Judge under the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997, Coimbatore, the learned Special Judge, assigning reasons, held that the appellants were running a financial establishment and had collected deposits from various depositors; that they had committed default in returning the deposits and that the Government were satisfied based on reliable materials that the appellants were not likely to return the deposits to the depositors. In line with the said finding, the learned Special Judge chose to allow the application O.A.No.25 of 2012 filed by the Competent Authority, namely District Revenue Officer, Erode and make the ad-interim attachment passed by the Government of Tamil Nadu absolute and granted permission to the Competent Authority to sell the Emu Birds and use the proceeds of the sale for distribution among the depositors. Consequent to the said order, the learned Special Judge dismissed the application O.A.No.6 of 2013 filed by the appellants praying for raising the attachment.
9. Learned counsel for the appellants argued with vehemence that the appellants had floated a scheme for running Emu rearing farms, which business could not be termed financial business to hold the appellants to be running a financial establishment as per the definition found in the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997. It is his further contention that as per the scheme, the amounts collected from the farmers were intended to be used for providing the infrastructure at the farmers' places for rearing the Emu birds; that after making such infrastructure, a certain number of Emu birds would be entrusted to them for keeping and feeding them; that provisions had also been made in the agreements for the replacement of Emu birds by new birds in case of death of such Emu birds not due to any fault on the part of the farmers and that, as a remuneration for keeping the birds and for defraying the expenses of feeding the birds, a monthly recurring amount was agreed to be paid to the farmers. It is also the contention of the learned counsel for the appellants that as per the terms of the agreement, the eggs laid by the birds entrusted with the farmers should be handed over to the appellants and that at the end of the contract period, the Emu birds should be handed over to the appellants and the appellants in turn would repay the amount collected from the farmers without any interest. In this regard, the learned counsel for the appellants has made an attempt to contend that by the above said scheme, besides developing the business of rearing Emu birds, the appellants were providing employment to the farmers at their places for which they were given the monthly payments, which would be more than the expenditure to be incurred for feeding the Emu birds and that hence, the appellants did not enter into a venture, which was not viable.
10. On the other hand, it is the contention of the learned Government Advocate appearing for the respondent that the appellants had devised an ingenious method by which they wanted to make profit out of the money collected from the farmers and that the very scheme itself was quite unworkable as evidenced by the default committed by the appellants in returning the deposits made by the depositors even after maturity. It is the further contention of the learned Government Advocate that the monthly payments made to the depositors were intended for defraying the expenses of feeding the Emu birds entrusted with the depositors; that the very fact that the depositors, who would rear Emu birds, would have to return them at the end of the contract period besides handing over the eggs laid by the Emu birds to the appellants and get back the amount deposited by them without any interest would show that a fraud was sought to be played on the depositors by the appellants and that the appellants had made a device for enriching themselves wrongfully at the cost of the depositors. The learned Government Advocate drew the attention of the Court to some of the agreements and argued that the clauses found in the agreements themselves would show that the appellants had attempted to cheat the depositors and that the scheme projected by them as beneficial to the depositors was unworkable and it would not result in any benefit to the depositors.
11. The learned Government Advocate drew the attention of the Court to an agreement dated 10.10.2011 between the second appellant and one Palanisamy, to demonstrate how unworkable the scheme would be. In the first of the said agreements, the depositor, namely Palanisamy S/o.Ponnusamy Gounder had made a deposit of Rs.1,60,000/- and inturn he was provided with four number of Emu birds. It has been stated in the said agreement that a sum of Rs.8,000/- per month would be paid by the appellants to the above said depositor towards the maintenance of the said Emu birds. The agreement contains clauses to the effect that the said depositor would be responsible for the death of Emu birds due to any lapse in the maintenance or security of the birds; that the eggs laid by the Emu birds would be handed to the appellants; that the appellants would be liable to supply equal number of Emu birds for the Emu birds which would die naturally or due to decease; that at any point of time, the appellants could substitute the Emu birds at the appellants option and that at the end of the contract period, namely three years, the depositor should return the Emu birds to the appellants and he could get the amount deposited by him, namely Rs.1,60,000/- from the appellants without any interest. It has also been stated that the value of four Emu birds entrusted with the depositor Palanisamy was Rs.1,60,000/-. The same will show how tricky the agreement was. It is common sense that four Emu birds cannot cost that much of amount. The entire scheme propounded by the appellants seems to be collection of deposit with promise to pay a sum of Rs.8,000/- per month as interest disguised in the form of payment for maintaining the Emu birds. The said sum of Rs.8,000/- per month for a deposit of Rs.1,60,000/- will work out at an interest at the rate of 60% per annum. The cost of four number of grown up Emu birds may at the best amount to a few hundred rupees, in any event may not be more than Rs.4,000/- or Rs.5,000/-. The very fact that the appellants have promised to pay an amount equal to 60% per annum as return will make it clear that the appellants had indulged in speculative transaction without considering the viability.
12. Similar is the case of the other agreement. A sum of Rs.1,00,000/- was obtained by the appellants from the depositor. Under the said agreement he was not entrusted with Emu birds for rearing. On the other hand, the said amount was said to be obtained for the Emu bird rearing business of the appellants run in the name of N.S.Agro Farm and Hatchery and the return promised was payment of Rs.4,600/- per months besides the return of the principal at the end of the contract period, namely 5 years, without interest. The above said periodical return of Rs.4,600/- per month will work out to 55.2% per annum. It is quite obvious that in the Emu farm in which the appellants were having 600 Emu birds cannot earn such a profit, so as to enable them to pay interest at the rate of 55.2% per annum. Similar is the case of agreements with the other depositors.
13. The Government of Tamil Nadu had also received complaints from the depositors that the appellants had defaulted in payment of monthly returns and in repayment of the deposit amounts after their maturity. On a pragmatic approach, the Government and the Special Judge have arrived at a correct and inevitable conclusion that the appellants were not likely to return the deposits to the depositors and that in order to protect the interest of the depositors, the movable assets of the appellants should be attached. In this regard, the contention of the learned counsel for the appellants that the appellants would not come under the definition of financial establishments in accordance with the definition of the said term found in TANPID Act turns out to be untenable and unsustainable. As pointed out supra, the very fact that the appellants collected huge amounts from the depositors and entrusted a handful of Emu birds for rearing on behalf of the appellants and promised them high returns at the rate of 60% and 55.2% per annum, which returns were to be paid monthly, will no doubt show that the transaction was receipt of deposits by the appellants bringing the appellants well within the definition of financial establishments. The respondent has made a prima facie case that the appellants are not likely to return the deposits to the depositors as they had collected huge amounts from the depositors and the amounts available to the accounts of the appellants are proportionately less and that the value of the Emu birds would be negligible and it may even be termed a pittance.
14. The contention of the learned counsel for the appellants is that the amounts were collected from the farmers under a joint venture agreement for rearing Emu birds and that the same cannot be projected as deposits received. It is his further contention that for the amounts collected from the farmers, they were given employment of keeping the Emu birds at their places for which they were paid by the appellants and that therefore, the amount collected from the farmers cannot be termed deposits and the first appellant firm cannot be termed as a financial establishment answering the description of the said term found in Section 2(3) of the Act. Section 2(3) defines Financial Establishment as follows:
"Financial Establishment means an individual or an association of individual, a firm or a company, registered under the Companies Act, 1956 (Central Act 1 of 1956) carrying on the business of receiving deposits under any scheme or arrangement or in any other manner, but does not include a Corporation or Corporative Society owned or controlled by any State Government or the Central Government or a banking company as defined in Section 5(c) of the Banking Regulation Act, 1949 (Central Act 10 of 1949)".
In Section 2, the term "Deposit" has been described as follows:
"Deposit" means the deposit of money either in one lump sum or by installment made with the Financial Establishment for a fixed period, for interest or for return of any kind or for any service."
In this case it is not in dispute that the first appellant firm received huge amounts from various persons under a scheme alleged to be a joint venture agreement for the rearing of Emu birds. A study of the said scheme will make it clear that the amount collected by the appellants would fall well within the definition of deposits found in Section 2(2) of the Act. One of the agreements the appellants entered into with a person from whom the amount was received has been produced as Ex.B5 in O.A.No.25 of 2012. As per the said agreement, a sum of Rs.6,40,000/- had been received by the appellants from a customer by name Shanmugam, who was examined as RW1, in the above said application. As per the scheme provided in the said agreement, for a sum of Rs.6,40,000/- paid by Shanmugam, 16 grown up Emu birds had to be entrusted with the said Shanmugam for maintaining them. The feeds for the birds were agreed to be supplied by the appellants at their costs. At the end of the contract period, nearly three years, all the said Emu Birds were to be returned to the appellants and the investor, namely Shanmugam should get back the amount paid by him, namely 6,40,000/- without interest. Of course, the said Shanmugam gave evidence as RW1 stating that he had returned all the Emu birds and got back the amount paid by him. Besides incurring expenditure for putting up sheds and creating infrastructure at the place of the investor for keeping the Emu birds at the cost of the appellants, the appellants also undertook to supply the feeds at their cost. At the same time, the investor was to get Rs.28,000/- per month for the maintenance of the Emu birds. According to the submission made by the learned counsel for the appellants, the said amount was paid as salary for keeping the Emu birds. It was also stated in the said agreement that the value of 16 Emu birds was Rs.6,40,000/-, which cannot even be imagined. The returns promised under the agreement will work out an interest at the rate of 52.5% per annum. For keeping 16 Emu birds no sane person will venture to pay a sum of Rs.28,000/- per month as salary.
15. Similarly, in yet another agreement dated 10.10.2011 between the appellants and one Palanisamy, a copy of which has been produced as first document in the typed-set of papers, a sum of Rs.8000/- per month for keeping four Emu birds was agreed to be paid as against a sum of Rs.1,60,000/- paid by the said Palanisamy. For keeping four Emu birds, no sane person will venture to pay Rs.8,000/- per month. The grown up birds will not fetch even 1/10th of the amount agreed to be paid as monthly payment in the agreement. The above said two agreements will make it clear that the appellants running the first appellant firm are in receipt of deposits under a scheme designed to camouflage the interest agreed to be paid as wages paid to the depositors for maintaining the Emu birds. A close scrutiny of the terms of the agreements will make it clear that the amount agreed to be paid as monthly returns had nothing to do with the rearing of the Emu birds and in fact, deposits were collected by the appellants promising payment of interest in the form of payment for keeping Emu birds. By an ingenious method, the agreement has been prepared in such a way to give colour to such a transaction of receiving deposits as a joint venture agreement for rearing Emu birds. It shall be obvious from the fact that the farmers from whom the deposits were obtained by the appellants had nothing to do with the growth of the business of rearing Emu birds and they were not expected either to share loss or profit with the appellants. Under such circumstances, the Court below has rightly come to the conclusion that the transaction was nothing but a transaction of receiving deposits and the first appellant answered the description of "financial establishment" found in Section 2(3) of the TANPID Act.
16. This will be much more patent from an agreement dated 28.04.2012 entered into between the appellants and one Palanisamy. A copy of the said document has been produced as the second document in the typed-set of papers produced by the appellant. As per the said agreement, a sum of Rs.1,00,000/- was received by the second appellant on behalf of the first appellant firm for their Emu business in the name of N.S.Agro Farm and Hatchery. No Emu bird was entrusted with the said Palanisamy and no amount was agreed to be paid towards maintenance of such Emu birds. On the other hand, it was promised by the appellants that they would make payment of Rs.4600/- per month from the income derived from the Emu business. There is no proof as to how much was the income derived from the Emu business by the appellants. The said agreement will make it clear that the said transaction was only a money transaction by which the appellants received a deposit of Rs.1,00,000/- from Palanisamy with a promise to pay a sum of Rs.4600/- per month. The same will work at 55.2% per annum. Hence, this Court comes to the conclusion that the finding of the Court below that the first appellant firm answered the definition of "financial establishment" found in Section 2(3) of the TANPID Act and the amounts received by the appellants from various persons answered the definition of "Deposit" found in Section 2(2) of the TANPID Act and that such a finding cannot be successfully assailed. The attempt made by the appellant to assail the said finding has proved to be an utter failure.
17. The next point for consideration is "whether the appellants committed default in payment of the deposits and whether the satisfaction of the Government that the appellants were not likely to repay the deposits to the depositors is well founded?"
18. As per the contention of the competent authority, namely District Revenue Officer, Erode, complaints had been received to the effect that the appellants had collected deposits to the tune of Rs.23 Crores. As per Ex.A5-FIR, a case came to be registered stating that the first appellant firm had collected deposits from 193 persons to the tune of Rs.4,13,70,000/- and cheated them without repaying the same. It is the further submission of the competent authority that complaints had been received to the effect that deposits had been received by the appellants from 850 depositors to the tune of Rs.23 Crores. The amount available with the appellants in the Bank deposit is only a sum of Rs.1,68,15.500.17. The Emu birds found to be available in the farm of the appellants were counted as 600. Even the appellants would state that the total number of Emu birds available in their farms and with the farmers, who are maintaining them on behalf of the appellants, would account for 4388 birds (1200 in the farm of the appellants and 3188 in the farms of the customers). No proof to show the availability of such number of Emu birds have been produced. The appellants have also failed to prove that the Emu birds, if sold in the market, will fetch amount either sufficient for making payment to the depositors or more than the amount needed for making payment to the depositors. The contention that if the appellants are allowed to run the Emu business upto the end of the contract period, they will be in a position to earn profit and make payment to the depositors cannot be countenanced. Even assuming that there are about 4000 Emu birds, by no stretch of imagination, it can be assumed that the same will grow in such a large proportion to give the return of several crores of rupees sufficient to return the deposits to the depositors. Even when the appellants were asked as to whether they could make payment to the depositors and get the movables attached released from attachment, the second appellant, who figured as RW1, stated that he needed time and the payments could not be made to the depositors at once. The same will make it clear that the scheme floated by the appellants can be termed a misadventure and that a prima facie case that the scheme was aimed at the appellants enriching themselves at the cost of the depositors has been made out. In any event, the assets available with the appellants are highly disproportionate to the liability towards the depositors and the assets are grossly inadequate. Therefore, the finding of the Court below that the appellants were not likely to return the deposits to the depositors; that hence the interim order of attachment passed by the Government of Tamil Nadu attaching the movables of the appellants was liable to the made absolute and that permission should be granted to the competent authority to sell the movables for distribution among the depositors, does not suffer from any infirmity, defect or illegality justifying interference by this Court in exercise of its appellate power under Section 11 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1977. The same was the reason why this Court did not extend the interim stay granted beyond a particular date.
19. For all the reasons stated above, this Court comes to the conclusion that there is no merit in the appeals and both the Civil Miscellaneous Appeals C.M.A.No.1612 of 2013 and C.M.A.No.1613 of 2013 deserve to be dismissed.
In the result, both the appeals C.M.A.No.1612 of 2013 and C.M.A.No.1613 of 2013 are dismissed. However, there shall be no order as to costs.
24.01.2014 Index:yes/no Internet:yes/no gpa To Competent Authority and District Revenue Officer Erode District Erode P.R.SHIVAKUMAR.J., gpa C.M.A.Nos.1612 and 1613 of 2013 24.01.2014