Plea In Bombay High Court Against Govt's “Unlimited” Power To Attach Property Of Anyone Connected To Company Under Protection Of Depositors Act

The Bombay High Court has issued notice on a writ petition challenging the Government’s “unlimited” and “unrestricted” power to attach properties of anyone connected to a company under the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999.

Section 4 of the MPID meant for the protection of depositors allows even personal property of the promoter, director or “such other person” to be attached if a financial institution fails to give a depositor what he was promised and if the “Government is satisfied”. However, it doesn’t specify the parameters for government satisfaction.

The petition filed by Shrinika Infra Ltd. states that Section 4 of MPID should be struck down as it goes against the principles of reasonableness and due process of law found in Article 21, read with Article 14, 19(1)(g) of the Constitution of India.

“It is entirely illegal to provide a unilateral and an autonomous power and/or jurisdiction to Government to (i) proceed against the properties of such other persons, (ii) as per its own discretion (iii) without according to any reasoning and (iv) absence of recording any reasons, if any. It is submitted that section 4 of the MPID Act is adversarial, unconstitutional and illegal.”

Shrinika cautioned against giving the Government the sole discretion to attach properties. “The consequences of such autonomous power is fatal and destructive not only to the rights of such other persons but the original objects & reasons of the MPID Act itself.”

The petition filed by Shrinika’s proprietor Omprakash Jain, claimed that despite not being named in the charge sheet in 2016 under the MPID Act, the State Home Department issued two attachment orders against him in 2019. The case was from 2013, where in an FIR was registered after the depositor said he hadn’t received promised returns.

The petition does a thread bare analysis of Section 4 of MPID in four parts.

At the outset the plea states there are “multiple layers of illegality and/or unconstitutionality and/or lack of clarity in section 4 of the MPID Act” having grave consequences on the right and liabilities of the parties in any given legal proceedings.

PART 1

1. Notwithstanding anything contained in any other law for time being in force (i) Where upon complaints received from the depositors or otherwise, the Government is satisfied that any Financial Establishment has failed.

The petitioner says there is no clarity on the material based on which the government would arrive at a satisfaction neither is there a provision to hear the Financial Establishment before attachment. Thus “breaching the fundamental principles of natural justice enshrined in the Constitution of India.

The Government has been given complete un-bridled power without any obligation to record reasons, the plea states.

PART II

Definition- (ii) where the Government has reasons to believe that any Financial Establishment is acting in a calculated manner detrimental to the interest of the depositors with an intention to defraud them.

The plea states that the government’s reasons must be based on an enquiry or investigation. Otherwise, an aggrieved party will never know the basis of attachment, the plea adds.

PART III

Definition- and if the Government is satisfied that such Financial Establishment is not likely to return the deposits or make payment of interest or other benefits assured or to provide the services against which the deposit is received, the Government may, in order to protect the interest of the depositors of such Financial Establishment, after recording reasons in writing, issue an order by publishing it in the Official Gazette, attaching the money or the property believed to have been acquired by such Financial Establishment either in its own name or in the name of any other person from out of the deposits…

The petitioners state that “not likely” is a vague term, moreover, this part of the definition leaves much room for assumption and presumption and unguided subjectivity. Moreover, there may arise a situation where a financial may need some more time to repay.

PART 4

13. The Petitioners state that the fourth part is unwarranted, arbitrary and indiscriminate. The fourth part of the said section fails to consider the basic principles of criminal jurisprudence and precedents as laid down by the various Courts since times immemorial in relation to fundamentals of criminal law.

PART IV

This part of the definition, there is an absence of mens rea qua the promoter, member, director, manager or partner, according to the petitioner. The effect of the fourth part of the said section is that properties of afore mentioned persons can be attached by the Government, if the property of Financial Establishment is either not available for attachment or is not sufficient to repay the depositors.

“Therefore, a partner or a manager or such other persons as mentioned in the fourth part of the said section even if they have no connection with the activities of the main accused or a Financial Establishment, the present section empowers the Government to attach the properties of such other persons. Such power is completely arbitrary and without the authority of law.”

The plea further states that proceeding towards the properties of such other persons, who have no connection or association with the activities of the company but are a part of the same on account of their post and/or job-profile is arbitrary, unwarranted and directly contravenes Articles 300A, 21, Article 19 and Article 14 of Constitution of India.

The matter will now come up on April 6, 2023.