No leniency should be shown to non-banking financial companies which dupe innocent and gullible depositors of their hard-earned money by promising high rates of interest and later disappearing, the Supreme Court has said.
A Bench of Justices Markandey Katju and Gyan Sudha Misra made this observation while upholding the Tamil Nadu Protection of Interests of Depositors (in Financial Establishments) Act, which provided for attachment and sale of properties of such financial establishments for realisation of dues payable to depositors speedily. The Bench dismissed an appeal against a Madras High Court judgment which upheld the constitutional validity of the Act.
“The financial swindlers, who are nothing but cheats and charlatans having no social responsibility, but only a lust for easy money by making false promise of attractive returns for the gullible investors, had to be dealt with strongly.”
The Bench said: “Financial swindling and duping of gullible investors/depositors is not unique to India. It has been referred to in Charles Dickens' novel Little Dorrit, in which Mr. Merdle sets up a Ponzi scheme resulting in loss of the savings of thousands of depositors including the Dorrits and Arthur Clennam. In recent times there have been many such scandals e.g. the get-rich-quick scheme of the scamster Bernard Madoff in which the estimated losses of investors were estimated to be $ 21 billion. Non-banking financial companies have duped thousands of innocent and gullible depositors of their hard-earned money by promising high rates of interest on these deposits, and then done the moonlight flit, often disappearing into another State or even foreign countries leaving the depositors as well as the State police high and dry.
“As per the statistics of July 2002, about Rs. 1,945 crore was collected from over 19 lakh depositors, who were either poor or middle class persons, retired government servants and pensioners and their dependants, senior citizens or economically backward sections of society. The deposits were either siphoned off or diverted mala fide by these fraudulent financial establishments.
“The act of the financers in exploiting the depositors is a notorious abuse of faith of the depositors who innocently deposited their money with the former for higher rate of interest. These depositors were often given a small passbook as a token of acknowledgment of their deposit, which they considered as a passport of their children for higher education or wedding of their daughters or as a policy of medical insurance in the case of most of the aged depositors, but in reality in all cases it was an unsecured promise executed on a waste paper. The senior citizens above 80 years, senior citizens between 60 and 80 years, widows, handicapped, those driven out by wards, retired government servants and pensioners, and persons living below the poverty line constituted the bulk of the depositors. Without the aid of the impugned Act, it would have been impossible to recover their deposits and interest thereon.”
‘Rightly been enacted'
Justifying the harsh provisions, the Bench said: “The conventional legal proceedings incurring huge expenses of court fees, advocates' fees, apart from other inconveniences involved and the long delay in disposal of cases due to docket explosion in courts would not have made it possible for the depositors to recover their money, leave alone the interest thereon. Hence, in our opinion the impugned Act has rightly been enacted to enable the depositors to recover their money speedily by taking strong steps in this connection.”