Orissa High Court
Rashmita Patra vs State Of Odisha & Others ... Opposite ... on 24 September, 2021
Author: S. K. Panigrahi
Bench: S.K. Panigrahi
AFR
HIGH COURT OF ORISSA, CUTTACK
CRLMC No.1296 of 2021
(In the matter of application under Section 482 of the Criminal
Procedure Code)
Rashmita Patra ... Petitioner
Versus
State of Odisha & Others ... Opposite Parties
For Petitioner : M/s. Ashwini Kumar Das and
S. Das, Advocates
For Opposite Party: Mr. J.P. Patra, ASC (OPID),
PRESENT
THE HONOURABLE SHRI JUSTICE S.K. PANIGRAHI
Date of Hearing: 02.09.2021 Date of judgment: 24.09.2021
S. K. Panigrahi, J.
1. In the present application, the petitioner seeks to challenge the criminal proceeding vide CT Case No.14/2018 and I.A. No.3/2019 in relation to EOW Bhubaneswar P.S. Case No.17/2018, pending before the court of the learned Presiding Officer, Designated Court, under the O.P.I.D. Act, Cuttack for the offences punishable under Sections 420/406/467/ 468/471/120-B of the I.P.C. read with Section 6 of the Odisha Protection of Interests of Depositors (in Financial Establishments) Act, 2011.
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2. The succinct facts of the case as narrated by the informant is that in November 2021, he was apprised about the availability of a 2400 sq.ft. plot in Jatani Tehsil near IIT through an advertisement issued by M/s. Z-Infra Construction Pvt. Ltd. (hereinafter 'Company'). He then contacted Prasan Kumar Patra (hereinafter 'co-accused'), MD of the Company to purchase the aforementioned plot. The co-accused assured the informant of absolute right and title of the land after conversion of the plot in question, and construction of a peripheral wall with an accessible road attached to the said plot. The co-accused also allegedly represented that the land belonged to the Company; the cost of the plot is Rs.3,60,000/- and its conversion and the boundary wall would cost Rs.35,000/- and Rs.60,000/- respectively. Thereafter, the informant booked the plot and paid the amount against the plot, and its conversion and the boundary wall. Although, the plot was registered in his name, the road was not constructed as promised. He then allegedly came to know that the Company doesn't have the right and title over the plots over which the connecting road was supposed to be constructed. He alleges that the Company has intentionally defrauded him and 600 other Page 2 of 21 // 3 // persons by selling them such disconnected plots over many false promises and fabricated documents to dupe around Rs.12 Crore.
3. On receipt of such information from the informant, the petitioner and the other accused were arrested and on recommendation of the EOW Bhubaneswar, their properties were attached to protect the interest of the investors.
4. Learned Counsel for the Petitioner submitted that the petitioner is the Director of the Company and she is the wife of the co-accused. The co-accused holds 60 percent shares of the Company while the petitioner holds the remaining 40 percent shares. Learned Counsel further contends that notwithstanding the aforementioned accusations, the petitioner and the co-accused are being erroneously prosecuted under the OPID Act. He clarifies that the petitioner and her 'real estate' business is ultra vires in so far as the operational jurisdiction of the OPID Act as the Company doesn't qualify to be a 'Financial Establishment' as per the provisions of the Act. Learned Counsel further submitted that the police wrongfully arrested the petitioner and the co-accused, without perusing the contents of the complaint. The present case should clearly be dealt with Page 3 of 21 // 4 // under the Real Estate (Regulation and Development) Act, 2016 and Odisha Real Estate (Regulation and Development) Rule, 2017 which specifically deals with the subject of 'real estate'.
5. Per Contra, learned Counsel for the OPID, vehemently opposed the instant application by stating that it was a case of planned cheating and fraud. He relied on the agreements to contend that the accused persons had defaulted in fulfilling their part of the promise to deliver plots with a connecting road as well as to return the amount paid to them. He also submitted that the provision of the OPID will squarely apply to the present case and that the provisions of the Real Estate Regulation and Development Act, 2016 have no application whatsoever to the present case.
6. Heard Mr. Ashwini Kumar Das, learned Counsel appearing for the petitioner and Mr. J.K. Patra, learned Additional Standing Counsel for OPID and perused the case records.
7. I had an opportunity to deal with the ambiguities concerning the object and application of the OPID Act in Mahasweta Page 4 of 21 // 5 // Biswal v. State of Odisha1. Here, I would like to reiterate my stance:
"The Odisha Protection of Interests of Depositors (in Financial Establishments) Act, 2011 envisages a situation where multitudes of small depositors are defrauded by dubious corporations by luring them with unscrupulous schemes which promised Utopian returns. The object of the Act is tailored to clear-cut situations where hapless depositors are defrauded by dubious "schemes" floated by such dubious "Financial Establishments" as provided under section 2 (d) of the Act. It is imperative that the background of the Act needs to be understood before dealing with the legislation. In recent times a legion of such dubious corporations have burgeoned in different parts of the country which have been alluring naïve investors by promising them quixotic returns under the schemes floated by them. Such companies are essentially sham or paper companies with no real businesses, which arduously market such devious machinations in the form of lucrative "schemes". Gullible common folk mostly acting out of avarice invest in such schemes which promise them the moon, hoping to make quick bucks Such schemes loosely find their origin in "collective investment schemes" which were monitored by SEBI, the capital market regulator and guidelines framed by it from time to time. However, over the period, such Machiavellian paper companies began to erupt across the country mostly in rural and backward areas having designed the "schemes," with a promise to the depositors with high returns and sometimes even assured some sham services to give it the colour of genuine transactions. This court, on numerous occasions has, unfortunately, come across many such cases where thousands of gullible depositors have lost their hard-earned monies. Cognizant of the shamelessly rampant 1 2020 SCC OnLine Ori 633 Page 5 of 21 // 6 // advertising and marketing that were being carried out (almost on a war footing) by such companies, the legislatures across various states of the country were compelled to bring such enactments to curb the menace that was spreading fast and deep. It is with this backdrop that the legislation in question needs to be viewed with proper perspective."
8. On the same note, the Apex Court while dealing with the constitutionality of parimateria legislations of Tamil Nadu, Pondicherry and Maharashtra observed in M/s. New Horizon Sugar Mills v. Govt. of Pondicherry2 :
"It has also to be noticed that the objects for which the Tamil Nadu Act, the Maharashtra Act and the Pondicherry Act were enacted, are identical, namely, to protect the interests of small depositors from fraud perpetrated on unsuspecting investors, who entrusted their life savings to unscrupulous and fraudulent persons and who ultimately betrayed their trust."
[emphasis supplied]
9. Now, coming to the ambiguities perpetrated from the definition clause of the Act, a conscientious perusal of the said Section of the OPID Act would indicate that the legislature has intentionally kept the ambit of the definition quite wide and pervasive. The same is not hard to fathom, looking at the fact that the State Government wanted to enact a law that would take within its fold the rapidly 2 (2012) 10 SCC 575 Page 6 of 21 // 7 // evolving scams being propagated through these sham Companies or "Financial Establishment" by way of such "schemes". The OPID Act is not focused on the transaction of banking or the acceptance of deposits, but it is focused more on the delinquency of collecting money from a community or collective body of depositors, from amongst the public with a firm eye on public interest.
10. The term deposit is derived from the Latin word "depositus", which essentially means "to put down". The Merriam-Webster dictionary defines the term "deposit" as "to place especially for safekeeping" and being in the nature of a pledge. In the backdrop of the submissions made to advance the challenge of the petitioner, it is necessary to take a deeper look into the definitions of 'Deposit' and 'Financial Establishment' vide Section 2(b) and 2(d) of the OPID Act respectively:
"2. (b) "deposit" includes and shall be deemed always to have included any receipt of money, or acceptance of any valuable commodity, to be returned after a specified period or otherwise, either in cash or in kind or in the form of a specified service, by any Financial Establishment, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include-Page 7 of 21
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(i) amount raised by way of share capital or by any way of debenture, bond or any other instrument covered under the guidelines given, and regulations made, by the SEBI, established under the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(ii) amounts contributed as capital by partners of a firm;
(iii) amounts received from a Scheduled Bank or a co-operative bank or any other banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(iv) any amount received from,
(a) a State Financial Corporation, or
(b) any public financial institution specified in clause (72) of section 2 of the Companies Act, 2013 (18 of 2013), or
(c) any other institution that may be specified by the Government in this behalf;
(v) amount received in the ordinary course of business by way of,-
(a) security deposit,
(b) dealership deposit,
(c) earnest money,
(d) advance against order for goods
or service;
(vi) any amount received from an individual or a firm or an association of individuals not being a body corporate, registered under any enactment relating to money lending which is for the time being in force in the State; and
(vii) any amount received by way of subscriptions in receipt of a Chit.Page 8 of 21
// 9 // Explanation I.- "Chit" has the meaning as assigned to it in clause (b) of section 2 of the Chit Funds Act, 1982 (40 of 1982);
Explanation II.- Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be deposit for the purposes of this clause;".
2. (d) "Financial Establishment" means an individual or an association of individuals, a firm or a Company registered under the Companies Act, 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 a co-operative society owned or controlled by any State Government or the Central Government, or a banking company as defined under clause (c) of section 5 of the Banking Regulation Act, 1949;"
Section 2 (b) of the Act seems to intentionally couch the definition of "deposit" expansively in order to take care of any emergent situations arising in the future. However, it is amply clear that the provisions relate to a Company whose primary business under its Memorandum or Articles of Association would be doing the business of accepting or receiving "deposits". It also further contemplates that the said "deposits" must be made pursuant to any "scheme or arrangement or in any other manner" which by necessary implication must mean that in order to accept such deposits the Company in question must float a scheme or enter into Page 9 of 21 // 10 // an arrangement with the depositor with the sole objective of accepting such deposits. Moreover, the fact that the "deposit" is supposed to be made for a "specified period"
puts mere sale/purchase agreements outside the very ambit of this Section.
11. Section 5 of the OPID Act envisages that every Financial Establishment which carries on its business in the State shall mention the details pertaining to its authority to carry on such business. This provision envisages that financial establishments which carry on "such business" shall be mandatorily required to register under the provisions of the Act. The expression "such business" would necessarily mean such Companies whose the primary business is accepting or receiving "deposits". Section 6 of the Act provides that in case where the "Financial Establishment" defaults in the return of deposits or fails to render service for which deposit has been made every person responsible for the management of the affairs of the financial Establishment shall be punished with imprisonment which may extend up to 10 years. In cases of sale/purchase agreements of real estate, these agreements typically provide for the "consideration" to be paid for the plot/flat/apartment Page 10 of 21 // 11 // purchased. The question of any return on this deposit(s) or payment of interest on such deposits does not arise. This provision also invariably points to the fact that real estate transactions were not intended to be covered under the provisions of this Act.
12. Another peculiarity regarding the applicability of this Act to real estate transactions is on account of Section 10 of the said Act which provides for attachment of the Financial Establishments in cases where the deposit is not paid back or default in payment to the investors. The operation of the aforesaid provision also covers such situations where the Financial Establishment has transferred any of the property held by it to any other transferee. Typically, if this provision was to be applied in sale/purchase of real estate, it will precipitate a situation where one buyer claiming default on his deposit with the builder/real estate developer can invoke the provisions of this Act and seek attachment of the assets of the Real Estate Company. Consequently, the operation of Section 10 of the Act would result in a piquant situation where one lone buyer while claiming refund of his deposit would cause attachment of the other properties so constructed, irrespective of the fact as to whether such Page 11 of 21 // 12 // properties have been transferred to other transferees, i.e., creating third party rights by the Company. It is a situation which invariably arises when the provisions of the Act are invoked in real estate transactions especially where a Company has sold multiple real estate properties. Such an erroneous and chaotic situation could not have been the intention of the legislature considering the practices, problems and complexities involved in the real estate sector.
13. In the case of Viswapriya [India] Limited v. Government of Tamil Nadu3, the Hon'ble Madras High Court while interpreting their corresponding Depositors' Protection Act has held that the definitions in Penal Law are not intended for semantic debates by trained legal minds, but it is intended for the lay and the laity to understand and Act. If an ordinary person reads the definition of the word "Financial Establishment", he will have no doubt in his mind that if he carries on the business of receiving deposits and fails to repay the amount, he will have to face penal consequences. In contrast, a man who is not into the business of receiving deposits, but into the business of ordinary manufacturing or mercantile sale/purchase for 3 2015 SCC OnLine Mad 10349 Page 12 of 21 // 13 // instance, this definition will not and should not instil fear, for that would be deleterious and counterintuitive to the progress of a developing society. If it is viewed from any other angle, an ordinary manufacturing or a trading Company or a Company whose business is not accepting deposits cannot be prosecuted under the TNPID Act for default in paying its depositor, although their liability under the Companies Act or any other penal law applicable would not stand extinguished. It could never have been the intention of the Legislature to give unbridled power to the police to destroy legitimate businesses in this country and reduce our countrymen to penury. The entire efforts of the Crime Branch are to catch the developers and instil a fear psychosis among the builders/developers by wrongly invoking the OPID Act which is neither conducive to the flat buyers nor to the developers/realtors in that process the real estate sector is going to be destroyed.
14. At this juncture, I must confess that there cannot be a straight-jacket formula to this dilemma, however, certain factors must weigh with the court while deciding if the Company in question is a "Financial Establishment" within the meaning of the Act. Such factors would be the principal Page 13 of 21 // 14 // nature of business of the Company; the objects clause in the MoA or AoA; the manner of collection of monies by it; whether the same would amount to "deposits" within the Act; the nature of the transaction entered into by the Company; the nature of the "scheme" under which the deposits are accepted etc and most importantly whether it can be said that the monies so paid were in the nature of any "consideration", such as transfer of immovable property in exchange for a consideration as in the present case. Such factors must be fully considered to understand the true nature of the transaction which will help the Court to ascertain as to whether the transactions are genuine business transactions or a mere con job which were intended to be thwarted by the legislation in issue.
15. As emanates from the aforesaid discussion, it can be concluded that the object of the Act in question was never intended to apply to real estate transactions simpliciter and doing so is nothing more than misplaced or mis- adventurous experimentation with the Act. It is, in essence, a beneficial social protection enactment but its mindless application to real estate transactions, will lead to absurd and unintended consequences. It is thus concluded that it Page 14 of 21 // 15 // could never have been the intention of the legislature to apply the provisions of the Act to neat real estate transactions and the application of the Act thereto will lead to absurd situations contrary to the legislative intendment.
16. At this juncture, I consider it apposite that in order to determine whether or not a "financial establishment" is in the business of accepting or receiving "deposits", the very nature of the transaction involved has to be examined. In 63 Moons Technologies Ltd. v. State of Maharashtra and Ors.4, the Hon'ble High Court of Bombay conducted a similar exercise to determine if a transaction involving trading on the platform of NSEL was of the nature of accepting deposits. After an elaborate perusal of the bye laws, rules and regulations governing the transaction, the Hon'ble High Court of Bombay was pleased to hold that the transaction entered on the platform of NSEL was not the one of deposit of the amount or commodity and if it is not so within the meaning of Section 2(c) of the MPID Act, then NSEL cannot be held to be a financial establishment and proceeded against under the provisions of the MPID Act. 4 2019 SCC OnLine Bom 1648 Page 15 of 21 // 16 // Similarly, in Ashish Mahendrakar v. State of Maharashtra and Ors.5, the Hon'ble High Court of Bombay when posed with the question of whether inter corporate deposits could come within the definition of "deposit" held that the intendment of the MPID Act was not to regulate the business transactions between the two companies, even when the transaction has a mild flavour of deposit, after embarking on a journey to examine the pith and substance of the transaction.
17. The case at hand, it is evident that the alleged "deposit" was made as a part of the consideration for purchase of an immovable property. Subsequently, the plot was registered in the informant's name but it came to light that there was alleged misrepresentation pertaining to whether or not the petitioner and co-accused had the absolute rights over the nearby plots which were essential for constructing a connecting road. These are the issues which is the subject matter of other legislations and not of OPID Act.
18. The instant case is a classic example of a commercial transaction gone awry which has been strenuously given the 5 2019 SCC OnLine Bom 1865 Page 16 of 21 // 17 // colour of a criminal offence. It has been submitted that MoA and bye-laws of the Company clearly mention that they deal in real estate and projects relating thereof. The informant has purchased the impugned plot after full payment against its quoted price. It is further highlighted by the learned Counsel for the petitioner that the impugned plot was registered in the name of the informant and ROR was also issued in his favour. Evidently, this transaction doesn't qualify as 'deposit' under OPID Act and Section 6 is not attracted because the land title has been transferred after appropriate consideration. There are no remaining dues in nature of "interest or for return in any kind or for any service"
as far as the purchase of plot is concerned. It, thus, emerges that the principal nature of the business of the Company was real estate and the "deposits" collected by it were in furtherance of sale of immovable properties primarily in the nature of consideration thereof. The dominant intention of the parties was the transfer of the immovable property and therefore, it cannot be said that the nature of the transaction was more than a simple agreement to sale.
19. The relevant law tailor-made for such situations would be the Real Estate (Regulation and Development) Act, 2016 Page 17 of 21 // 18 // which categorically caters to such situations. RERA Act was enacted to achieve three main purposes, increase investments in the real estate sector by ensuring security, fairness and transparency; protecting buyers and regulating developers. Specifically, Section 12 of RERA, 2016 clearly stipulates that if a person has sustained any loss or damage by reason of an incorrect or false statement contained in a notice or advertisement for a plot/building, he shall be compensated in the manner as provided in the RERA Act. Further, Section 18 of the RERA Act casts a clear duty on the promoter to compensate the buyers in case the promoter fails to discharge any obligation/causes loss/fails to complete or give possession of the plot. Section 19(4) of the RERA Act lays down that an allottee is 'entitled' to claim the refund of amount along with interest and compensation. The provisions of the Real Estate (Regulation and Development) Act, 2016, in fact, provide for umpteen fail-safe mechanisms to prevent most of the maladies associated with such cases. A plain reading of the Act illustrates how simplified the process of filing complaints for violation have been made in order to injunct any unnecessary litigations arising out of builder-buyer relations. The entire idea was to prevent the Page 18 of 21 // 19 // property related disputes which are being perilously brought within the dragnet of criminal proceedings. This Court laments to note that the provisions of the said Act which, despite being a well thought out Code by itself, is not being resorted to. Instead, such circuitous proceedings are being resorted which is neither to the benefit of homebuyers nor to the real estate sector at large.
20. As a side note it may be mentioned that, the real estate sector being a core sector in the economy plays a critical role. It contributes about 6% to the GDP and generates large-scale employment. The health of the real estate sector has many socio-economic implications and a strong bearing on consumers' sentiment. Furthermore, the real estate sector has strong linkages with the other core sectors of the economy, such as steel and cement, etc.
21. Without going into the question of legislative competence, it has to be borne in mind that the source of power for every legislation is derived from one of the three lists present in the Seventh Schedule of the Constitution of India. That being the case, it is pertinent to note that in the case of New Horizon Sugar Mills Limited (supra), the Hon'ble Supreme Court has, in terms, observed that the power to enact the Page 19 of 21 // 20 // pari materia legislations of Tamil Nadu, Pondicherry and Maharashtra Act, is derived by the State from Entries 1, 30 and 32 of the State List, which involves the business of unincorporated trading and money-lending. In my view, the objective of the State legislature by enacting the OPID Act was aimed at protecting the interest of gullible depositors who were fraudulently conned into participating in a scheme or arrangement with unscrupulous financial establishments involved in the business of receiving such deposits. By no stretch of imagination could the provision of the OPID Act be contemplated to mean that the intendment of the State legislature was to bring simple transactions pertaining to sale/transfer of immovable property within the purview of the Act.
22. In view of the aforesaid discussions, at this stage, this Court does not deem it appropriate to interfere with the proceeding vide CT Case No.14/2018 and I.A. No.3/2019 in relation to EOW Bhubaneswar P.S. Case No.17/2018, pending before the court of the learned Presiding Officer, Designated Court, under the O.P.I.D. Act, Cuttack under Section 482 Cr PC in so far as Sections 420/406/467/468/471/120-B of the I.P.C. are concerned. Page 20 of 21
// 21 // However, in so far as the prosecution under Section 6 of the OPID Act is concerned, an offence thereunder is not made out as the OPID Act cannot be allowed to govern the field of Real Estate transactions simpliciter as the consideration paid for transfer of immovable property do not fall under the definition of "deposit" as defined under Section 2(b) of the OPID Act and as a sequitur the proceedings under Section 6 of the OPID Act stands quashed.
23. It is clarified that the trial court shall proceed with a fair trial uninfluenced by any of the observations made hereinabove.
24. The CRLMC is accordingly disposed of.
(S.K.Panigrahi) Judge Orissa High Court, Cuttack The 24th day of September, 2021/AKK/LB/AKP Page 21 of 21