The Honourable High Court of Madras in its order dt: 29.9.1999 in company application Nos.479 & 480 of 1999 filed by “M/s.
Anubhav Plantations Ltd. Company directed to form a specially dedicated police unit under the Economic Offences Wing, comprising of persons with skill and capable of acting with a sense of urgency, headed by an officer not less than the rank of a Police Commissioner so as to effectively investigate / deal with the cases relating to ‘non-banking financial companies and unincorporated financial institutions’ which collected money on deposits and thereafter defaulted to repay the same on maturity.
Accordingly, based on the above directions of the
Honourable High Court, Chennai “EOW-(Financial Institutions)” came into existence from 01.01.2000 as per the Govt. orders in GO.Ms.No. 1697/Home (Court ΙΙA) Department, dated 24.12.1999 to give effect to the Statute passed in 1997 in the Tamil Nadu Assembly as “The Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act 1997”. Normally referred as “TNPID” Act.
The State of Tamil Nadu is the Pioneer in enacting the law titled "
The Tamil Nadu Protection of Interest of Depositors Act ", 1997
The Act provides
- Action against Financial Institutions who failed to return the deposit / interest.
- Arrest of persons responsible.
- The Special Court for TNPID Act constituted help in the speedy trial, attachment and sale of properties and for distribution of the money to the depositors.
The offence is compoundable and this provision was introduced in Sec. 5A by Act 33/2003 so that the Financial Establishment and the partner will come forward to settle the amount to the depositors speedily. The Amendment in the Act came in to force from 10.11.2003.
SPECIAL ASPECTS OF TNPID ACT
Tamil Nadu Protection of Depositors (Financial Establishments) Act 1997
- Failure to return the deposit / interest – an offence-also failure to render service for which deposit is made-Sec 5
- 10 years Imprisonment and Rs.1 Lakh Fine. Sec-5.
- Sec 5A provides for compounding the offence.
- Attachment of money / property purchased out of deposits; if not sufficient. power to attach other property of the company / promoters / directors etc., Sec-3
- Borrower's property liable to attachment Sec-3
- Properties transferred other than for consideration / good faith liable for attachment. Sec-8.
- NBFCs originally exempted brought within the ambit of TNPID Act-Sec-2(3)
- Definition of Financial Institutions is widened to include companies registered under the Indian Companies registered under the companies Act.-Sec 2(3)
- Competent Authority is empowered to attach & sell the properties and disburse the money to the depositors – Sec 3 & 4.
Salient features of the amended TNPID Act-1997
- TNPID Act 1997 was amended on 10.11.2003.
- In section 2(2) of the act – Deposit includes deposits of money in installments and also for any service.
- Under section 2(3) – Financial establishments: A company registered under Companies Act - 1956 [Central Act –I of 1956] is also included.
- Under section -3 – attachment of properties: Properties of the borrowers can also be attached.
- Under section - 5A – Compounding of offences is amended “Competent Authority can compound the offences before the institution of the prosecution or after institution of the prosecution”.
The Additional commissioner of Land Administration was the only
Competent Authority until September 2004. As per G.O.No.1049/2004, Home /
Courts ΙΙ A, dated 26.08.04 the DROs of the districts have been notified as the Competent Authorities.
COMPETENT AUTHORITY FOR ATTACHMENT PROCEEDINGS
Competent Authority in TNPID Cases is the custodian for the attachment proceedings, takes possession of the Ad-interim attached properties. Get absolute attachment order and distribute the amount realized
equally to the depositors after the sale of Property.
COMPETENT AUTHORITY IN NON-TNPID CASES:
In Non-TNPID cases – if no Receiver / Official Liquidator / Administrator / Special Officer / Commissioner is appointed the Investigation Officer is to take possession of Property (After Absolute Attachment) and distribute the sale proceeds to the depositors after the conviction of the Criminal Case, as per the court order.
WHO IS AN OFFICIAL LIQUIDATOR?
Liquidator in the Ministry of Company affairs is appointed by the Hon’ble High Court when a Company files the winding up petition – The Liquidator takes charge of the Assets and Liabilities and disburses the amount to the creditors and claimants as per the orders of the High Court.
ADMINISTRATOR / SPECIAL
Administrator / Special officers may be appointed either by the Dept. of Company Affairs / Company Law Board or by the Hon’ble High Court. He take over the administration of the Company as per the directions of the Dept. of Company affairs / Company Law Board or Hon’ble High Court to collect money form the borrowers / debtors and distribute the collected amount to the depositors & other creditors
DEBT RECOVERY TRIBUNAL
DRTs are constituted to help Banks / Financial Institutions for recovery from the defaulters.
In cases where Insolvency Petitions are filed by the Accused an official Assignee is appointed by the High Court and he take over the Assets and liabilities of the company, dispose them and distribute pro-rata share as per the directions of the Court.
IN SHORT THE EOW- ΙΙ IS MAINLY RESPONSIBLE FOR THE CRIMINAL PROSECUTION AND TO IDENTIFY & ATTACH THE PROPERTIES FOR THE SETTLEMENT OF THE DEPOSITORS DUES.
REFUND OF MONEY TO DEPOSITORS IS DONE BY EITHER
Administrator / special officer
Debts recovery tribunal
State consumer forum
Any other agency appointed by the court.
Procedure for Identification &
Attachment of Property in TNPID Cases
Identification of movable & immovable property (action by EOW ΙΙ)
Proposal for ad-interim attachment sent to government (action by EOW ΙΙ)
Ad-interim G.O. issued by the government for
Attachment of the properties (action by Govt.)
Competent authority to take possession of
Properties once the ad-interim order is issued (action by DRO)
Competent authority to file a petition (O.A) for
Absolute attachment in the special court within 30 days on the GO issued by the government (action by DRO)
Competent authority to file a petition u/s. Sec 7(7)
For the sale of property in the special court after
Absolute attachment is obtained (action by DRO)
Sale of property can be done, and disbursement of
the sale proceed to the depositors can also be
made-under TNPID act even before the disposal of
The criminal case (action by DRO)
Sale proceeds to be disbursed to the depositors. (action by DRO)
Procedure for the identification &
Attachment of property in non-TNPID cases
Identification of property
(movables and immovable) (action by EOW II)
Proposal for authorisation G.O. sent to
Government (action by EOW II)
Authorisation G.O issued by the government for
Attachment of the properties (action by government)
I.O. To file petition in the Chief Small Causes Court.
Chennai / Sessions Court for absolute
Attachment (action by EOW ΙΙ)
Court to issue absolute orders for the properties
Attached (action by court)
The I.O to take possession
Of the properties after orders of absolute
Attachment (action by EOW ΙΙ)
After the conviction of the criminal case, the sale of properties is done and the amount realised may be disbursed to the depositors after getting clearance from the respective court (action by EOW ΙΙ)
Sale proceeds disbursed to the depositors. as per the order of the court (action by EOW ΙΙ)
COURT HANDLING THE
EOW- ΙΙ CASES
In some cases the Administrators are appointed by the High Courts & Liquidators by the Department of Company Affairs to take over the assets and liabilities and take action to settle the depositor’s money.
In case of financial institutions, which had defaulted not only to depositors, but also to other creditors then the claim have to be referred to the Debts Recovery Tribunal. In case any accused declares himself insolvent and files an Insolvency petition and is pending in the High Court, the court appoints an Official Receiver who should administer the properties and other affairs and settle the dues.
SPECIAL PUBLIC PROSECUTORS
There are two Special Public Prosecutors, appointed by the Government, who conduct the Criminal and Civil Proceedings before the Spl. Court under TNPID Act. One more Special Public Prosecutor, available at the EOW Hqrs. attends to the cases before the CMM and Addi. CMM Courts at Chennai. One Assistant Public Prosecutor Grade -1 in the EOW gives legal opinion for all matters.
- A Special Court has been constituted under TNPID Act at Chennai to try the cases registed under TNPID Act.
- Chief Metropolitan Magistrate, Addl.CMM, Chennai City try the Headquarter Non-TNPID cases.
- Chief Judicial Magistrate Court at Districts try the non-TNPID cases registered in the respective districts.
COURTS WHICH ARE EMPOWERED FOR THE ATTACHMENT OF PROPERTIES
- Special TNPID Court at Chennai – For TNPID Cases.
- Chief Small Causes Court Chennai For Non-TNPID cases.
- District Session Court at Districts For Non-TNPID cases of the respective districts.
Before enactment of TNPID Act the offenders of Economic Offences and Financial Frauds were booked under Sections 406, 409, 420, 120(b), 506(¡¡) r/w 34 IPC.
ESTABLISHMENT OF EOW – ΙΙ
Initially Economic Offences Wing – ΙΙ Units were established in the EOW HQrs at Chennai and all the other 29 Districts in the States, as per the orders of the Government in GO.M.S.No. 1697 HOME (Courts - ΙΙA) Department Dated (24.12.1999) However later, during 2004 due to the less reporting of cases, 13 District Units were wounded up on the orders of the Director General of Police.
The cases of finance company frauds pending under investigation with the local police including Chennai City Police were transferred to the Economic Offences Wing (Fls), for investigation. Fresh cases were also registered as numerous complaints started pouring in from the aggrieved depositors from all over the State against finance companies which had defaulted in payment of their matured deposits. The wing also deals with cases relating to Prize Chits, Chit Fund Frauds, Traders cases, cheating cases relating to financial institution etc.
FUNCTIONS OF EOW ΙΙ
- To Conduct Petition Enquiries.
- To Register the case, Investigate & file the final report in the Court.
- To Initiate the Attachment Proceedings of properties for getting G.O.& Liaison with the DRO after the
Ad-Interim Orders have been issued till the sale and disbursement of money to the depositors (TNPID Cases)
- Initiate proposal for getting order from Government, for attachment & obtain order of Absolute Attachment from Court. However sale of the attached properties can be done only after the conviction of the case. (Non-TNPID Cases).
- Liaison with the Administrator / special Officer / Official Assignee / Liquidator / debt Recovery Tribunal & others for the settlement of money to depositors.
- Interact with the RBI Officials from time to time with regard to the NBFC Frauds.
- Attend the State Level Co-Ordination Meeting (SLCC) conducted by the RBI once in 6 months.
- Attend the Regional Economic Intelligence Committee Meeting (REIC) conducted by the Income-Tax Department. Every month.
- Interact with the Registrar of Companies with regard to the Cases of Vanishing Companies.
- Administration of the Executive Personnel pertaining to the Headquarters.
The EOW - ΙΙ responsible of for the Enforcement of the following Acts:
- Tamil Nadu Protection of Interest of Depositors Act, 1997
- Indian Penal Code.1860
- The Criminal Law Amendment ordinance. 1994
- Prize Chits & Money Circulation scheme (Banning) Act, 1972.
There are 2 aspects
1. Handling of Criminal cases. 2. Settlement of Dues.
EOW- ΙΙ is exclusively responsible for handling the criminal cases. During the course of investigation, the I.O. has to.
- Find out the reasons for Default
- Initiate proposal for attaching the Movable & Immovable properties of the Institution, personal properties of the accused and borrowers of the defaulted companies.
- Send proposal to the Government for Ad-Interim attachment Government.
- Refer the matter to the Competent Authority regarding disposal of properties and settlement of dues.
TYPES OF CASES INVESTIGATED BY
As per the orders of the Director General of Police, Tamil Nadu in R.C. No.267733 / R.A.1(2)/02 dated 12.12.2002 the list of subjects to be handled by the Economic Offences Wing- ΙΙ
- All cases of Financial Institutions. Including NBFCs, whether registered or not.
- Offences (other than civil in nature) relating to Traders and involving large scale frauds / cheating/
- Cases relating to chit funds frauds of large scale (other than Chit Fund Act)
- Organized job racketing by travel & other agencies involving large-scale frauds.
- Cases involving large-scale frauds / cheating in violation of Prize Chits. & Money Circulation Schemes (Banning) Act.1978.
- Cases of organized & Technically advanced. Serious Large Scale Financial Frauds.
- Large scale corporate frauds where money was collected from public as investment, shares ad time-shares etc.
- Other incorporated and unincorporated bodies who collected money in large scale from public in any form namely promising return of money or materials.
- Financial frauds involving money laundering in large scale.
- All other cases referred to EOW by Govt, DGP and endorsed by the court from time to time.
NBFCs (NON-BANKING FINANCIAL COMPANIES)
Section 451(c) and (f) of RBI Act 1934 defines as to what is a non-banking finance company (NBFC). It is a company incorporated under companies Act-1956 or a corporation (Incorporated by an act of any legislative) or a cooperative society that a) Grants loan and advances b) Invests in shares, bonds and securities. c) Provide finance by means of hire purchase, equipment leasing, bill discounting, hypothecation loans, etc. d) conducts insurance business. e) Conducts Chits or kuries, f) Collects money in lump sum or other wise and awards prizes or gifts to person g) Receives deposits as its principles business under any scheme or arrangement or lending in various manners.
The following are now “Non-Banking Finance Companies”.
Institutions, which carry on as its main business
- Agricultural operations
- Industrial activity
- Purchase or sale of any goods (other than securities)
- Purchase, construction or sale of immovable properties (financing for immovable properties is NBFC activity)
UNINCORPORATED FINANCIAL ESTABLISHMENTS
It means an individual or an association of individual or a firm carrying on the business of financial institution as defined in class C of Section 45 of RBI Act if its principle business is that of receiving deposit under any scheme or arrangement or in any other manner or lending in any manner. The unincorporated bodies are not incorporated in Companies Act.
CHIT FUND CASES
’Chit’ means if a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money by way of periodical
instalments over a definite periods and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement be entitled to the prize amount. The person who is conducting the chit is called the foreman. And the others who subscribe money into the chit are called subscribers. The cases under the Tamil Nadu Prize Chits Banning Scheming Act are registered and investigated by the EOW unit. Other cases go to the Register of Chits, for remedy.
All the complaints lodged by and received from the Traders are registered and investigated by the EOW (Fls) units, as per the orders of the Government, communicated to the DGP, Tamil Nadu in Letter No.47586/police.8/2001-1 dt.19.6.2000 and the Circular memorandum issued by the
ADGP/EOW in RC.No86/camp/SP.EOW- ΙΙ/2000 dated: 31.7.2000.
RBI TRAINING AND THE STATE LEVEL COORDINATION COMMITTEE MEETING CONDUCTED BY RBI
Reserve Bank of India is the Regulatory Authority for the non-banking financial companies. RBI and
EOW- ΙΙ are conducting training programmers for the EOW officers once in three months for the new incumbents. RBI also conduct the State Level Coordination Committee Meeting once in six months. The
EOW- ΙΙ also organizes Training programmers for the investigation Officers every year to fine tune and update the investigation skill of the officers.
Act-State-Tamil Nadu Protection of Interests of Depositors in Financial establishment) Act,1997 (Tamil Nadu Act 44 of 1997) – Amendment- Tamil Nadu Protection of Interest of Depositors. (in Financial Establishments)Amendment Act, 2008 (TamilNadu Act 18 of 2008) – date of coming into force.
HOME (POLICE XIX ) DEPARTMENT
G.O.M.s.No.840 Dated :24.07.2008
The Following Notification will be published in the Tamil Nadu Government Gazette Extraordinary dated the 24th July 2008.
In exercise of the powers conferred by sub-section (2) of section 1 of the Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Amendment Act, 2008 (Tamil Nadu Act 18 of 20087), The Government of Tamil Nadu herby appoints the 24th day of July 2008 as the date on which the said At shall come into force.
(BY ORDERS OF THE GOVERNOR)
SECRETARY TO GOVERNMENT(i/c)
TAMIL NADU GOVERNMENT GAZETTE EXTRORDINRY
The following Act of the Tamil Nadu Legislative Assembly received the assent of the Governor on the 22nd May 2008 and is hereby published for general information:-
Act No.18 Of 2008
An Act further to amend the Tamil Nadu Protection of Interest of Depositors (In Financial Establishment) Act, 1997.
BE it enacted by the Legislative Assembly of the State of Tamil Nadu in the Fifty-ninth year the Republic of India as follows:-
Short title and commencement
1. (1) This Act may be called the Tamil Nadu Protection of Interest of Depositors (in Financial Establishment) Amendment Act, 2008.
(2) It shall come into force on such date as the State Government may be notification appoint.
Tamil Nadu Act 44 of 19
Amendment of Section 4
2. In Section 4 of the Tamil Nadu Protection of Interests of Depositors ( in Financial Tamil Nadu Establishments) Act, 1997 (hereinafter referred to as the principal Act), for Act sub-section (3), the following sub-section shall be substituted, namely:-
“(3) Upon receipt of the orders of the Government ;under Section 3, the competent authority shall apply within thirty days to the Special Court constituted under this Act of making the ad-interim order of attachment absolute and for a direction to sell the property so attached by public auction and realize the sale proceeds”
Amendment of Section 7
3. In Section 7 of the principle Act,-
(i) for sub-section (1), the following sub-section shall be substituted, namely:-
“(1) Upon receipt of an application under Section 4, the Special Court shall issue to the Financial Establishment or to any other person whose property is attached by the Government under Section 3, a notice accompanied by the application and affidavits and of the evidence, if any, recorded, calling upon him to sow cause on a date to be specified in the notice why the of order of attachment should not be made absolute and the property so attached be sold in public auction.
(ii) for sub-section (4), the following sub-section shall be substituted, namely:-
“(4) If no cause is shown and no objection are made on or before the specified date, the Special Court shall forthwith pass an order making the ad-interim order of attachment absolute and direct the competent authority to sell the property so attached by public auction and realize the sale proceeds.”
(iii) for sub-section (6), the following sub-section shall be substituted, namely:-
“(6) After investigation under sub-section (50, the Special Court shall pass an order, within a period of one hundred and eighty days from the date of receipt of an application under sub-section (3) of Section 4 either –making the ad-interim order of attachment absolute or varying it by releasing a portion of the property from attachment or canceling the ad-interim order of attachment and then direct the competent authority to sell the property so attached by public auction and realize the sale proceeds.
Provided that the Special Court shall not release from attachment any interest which it is satisfied that the Financial Establishment or the person referred to in sub-section (1) has in the property unless it is also satisfied that there will remain under attachment an amount or property of value not less than the value that is required for re-payment to the depositors of such Financial Establishment.”
(iv) sub-section (70 shall be omitted.
(v) in sub-section (8), the expression “under sub-section (7)” shall be omitted.
4. In Section 9 of the principle Act, for the expression “passing the order of Amendment of attachment”, the expression “passing the order under sub-section (6) of Section 7” shall be substituted.
Amendment of Section 9
(By Order of the Governor)
Secretary to Government,