RASILA S MEHTA Vs CUSTODIAN, NARIMAN BHAVAN, MUMBAI
Bench: P. SATHASIVAM,B.S. CHAUHAN, , ,
Case number: C.A. No.-002924-002924 / 2008
Diary number: 9472 / 2008
Advocates: KAMINI JAISWAL Vs
ARVIND KUMAR TEWARI
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2924 OF 2008
Smt. Rasila S. Mehta .... Appellant(s)
Versus
Custodian, Nariman Bhavan, Mumbai .... Respondent(s)
WITH
CIVIL APPEAL NO. 2915 OF 2008,
CIVIL APPEAL NO. 3377 OF 2009
AND
CIVIL APPEAL NO. 4764 OF 2010
J U D G M E N T
P. Sathasivam, J.
1) Civil Appeal No. 2924 of 2008 has been filed by Smt.
Rasila S. Mehta, mother of late Harshad S. Mehta and Civil
Appeal No. 2915 of 2008 has been filed by Smt. Rina S. Mehta,
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sister-in-law of late Harshad S. Mehta against the final
judgment and order dated 26.02.2008 passed by the Special
Court under the provisions of the Special Court (Trial of
Offences Relating to Transactions in Securities) Act, 1992
(hereinafter referred to as “the Act”) at Bombay in Misc.
Petition Nos. 2 and 1 of 2007 respectively whereby the Special
Court dismissed their petitions challenging the notification
dated 04.01.2007 issued by the Custodian exercising powers
under Section 3(2) of the Act notifying the appellants.
2) Civil Appeal No. 3377 of 2009 has been filed by Smt.
Jyothi H. Mehta, widow of late Shri Harshad S. Mehta and six
others against the judgment and order dated 13.03.2009
passed by the Special Court in approving Report No. 19 of
2008 filed by the Custodian in respect of outstanding dues
towards Flat Nos. 32A, 32B, 33, 34A, and 34B on the Third
Floor and 44A, 44B and 45 on the Fourth Floor together with
terrace area on the Third Floor and eight car parking space in
Madhuli Cooperative Housing Society Limited, Worli belonging
to late Harshad S. Mehta as well as other related notified
entities of the Harshad Mehta Group.
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3) Civil Appeal No. 4764 of 2010 has been filed by Smt.
Rasila S. Mehta challenging the order dated 07.05.2010
passed by the Special Court in approving Report No. 23 of
2009 of the Custodian on outstanding dues of Madhuli
Cooperative Housing Society Limited, Worli as on 31.03.2009
towards Flat No. 31 on the Third Floor belonging to her being
a notified party.
4) Since all the parties in the above appeals are family
members of late Harshad S. Mehta and the orders challenged
were of the Special Court, the same are being disposed of by
the following common judgment.
5) Brief Facts:
a) Sometime in 1992, it was noticed that frauds and
irregularities involving colossal amounts of money were
committed by certain stock brokers and other persons as also
by certain banks and financial institutions. The amounts
involved in the said frauds and/or irregularities were
estimated to run into several thousand crores. The Central
Government, therefore, formed an opinion that it was
necessary to take immediate steps to try offences relating to
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such transactions in securities and for matters connected
therewith or incidental thereto. The President of India
thereupon promulgated an Ordinance on 6th June 1992 known
as the Special Court (Trial of Offences Relating to Transactions
in Securities) Ordinance 1992 and the said Ordinance came
into force on the same day. The said Ordinance with certain
modifications became the Act when the assent of the President
was given thereto on 18th August 1992 and the said Act was
deemed to have come into force on 6th June 1992, namely, the
date on which the said Ordinance had been promulgated.
b) On 6th June, 1992 the Central Government had also
framed certain rules under the provisions of Section 14 of the
said Ordinance known as the Special Court (Trial of
Offences Relating to Transactions in Securities) Rules, 1992
(hereinafter referred to as ‘the Rules’). The said rules came into
force on the 6th June 1992 and continue in force after the
enactment of the Act under section 15(2) of the Act and/or
Section 24 of the General Clauses Act, 1897.
c) The object of the Act, as apparent from the provisions
thereof, is to ensure that offences relating to securities were
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expeditiously tried and it, therefore, provides for the
establishment of a Special Court. The Act also provides that
an appeal lies from the judgment, sentence or order, not being
interlocutory order, of the said Special Court to the Supreme
Court of India both on facts and on law. An important object of
the said Act is to ensure speedy recovery of the huge amounts
involved, to punish the guilty in such irregularities or fraud, to
restore confidence in and maintain the basic integrity and
credibility of the banks and financial institutions.
d) On 13.05.1992, the Central Bureau of Investigation (in
short “the CBI”) issued freeze orders under Section 102 of the
Code of Criminal Procedure (in short ‘the Code) on all the bank
accounts of Smt. Rasila S. Mehta and Smt. Rina S. Mehta on
the ground that the appellants are recipients of monies
diverted by M/s Harshad S. Mehta from banks and financial
institutions. This was a preventive measure taken by the CBI
which powers are normally invoked pending investigation to
bring within their fold, any property which is the subject-
matter of an offence. Since then, all the charge-sheets came to
be filed by the CBI after thorough investigation and trial has
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been completed in several cases. Based on the provisions of
the Act, on 08.06.1992, the Custodian notified 29 entities
except the appellants (Smt. Rasila S. Mehta and Smt. Rina
S. Mehta) in the Mehta family comprising four brothers, the
wives of three brothers, their three HUFs, a partnership firm,
three brokerage firms in the family and 15 corporate entities
promoted by them. These persons were notified on the basis
of information/complaint received from the Ministry of
Finance in which the Janakiraman Committee report was
cited and relied upon.
e) On 25.01.1994, an amendment was carried out in the
Act, wherein, Section 9-A was inserted to confer civil
jurisdiction to the Special Court. Smt. Rasila S. Mehta and
Smt. Rina S. Mehta were active investors and had built up a
portfolio of investments which has appreciated in value over
the years, more particularly, during the last three years. They
own one each of the nine flats at Madhuli Cooperative Housing
Society Limited which are merged/amalgamated with other
flats under the occupation of the joint family. The bank
accounts and shareholdings of these appellants are held
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jointly where the appellants are the first holders and their
family members are joint/second holders. Due to the fact that
joint/second holders are notified entities, the assets of the
appellants have been treated as attached on and from
08.06.1992 and the same are being managed by the Custodian
for the last 15 years. On 21.07.2006, the Custodian preferred
a common Misc. petition No. 20 of 2006 against Smt. Rasila S.
Mehta and Smt. Rina S. Mehta seeking relief of a declaration
that the said appellants are benamis and fronts of late
Harshad S. Mehta and other notified entities and, therefore,
their assets should be utilized in discharge of their liabilities.
The appellants also filed M.A. No. 291/2006 on 11.09.2007
seeking relief of a declaration that all the assets belonged to
them and they were the first holders, namely, bank accounts
and fixed deposits and the shareholdings may be declared as
free from attachment.
f) On 04.01.2007, the Custodian issued a notification
notifying both the appellants under Section 3(2) of the Act for
which a public notice was published in the newspapers on
06.01.2007.
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g) On 19.01.2007, Smt. Rina S. Mehta filed Misc. Petition
No. 1 of 2007 and on 18.06.2007, Smt. Rasila S. Mehta filed
Misc. Petition No. 2 of 2007 for the relief of de-notification
under Section 4(2) of the Act. It transpired that the appellants
were notified on the basis of the alleged complaint by Canbank
Financial Services Ltd. (in short “Canfina”). On considering
the materials, the Special Court, by impugned order dated
26.02.2008, dismissed the petitions filed by the appellants –
Smt. Rasila S. Mehta and Smt. Rina S. Mehta.
h) Inasmuch as the other two appeals relate to the orders
passed on the report submitted by the Custodian, there is no
need to traverse all the details as stated therein.
6) Heard Mr. I.H. Syed, learned counsel for the appellants,
Mr. Subramonium Prasad, learned counsel for the Custodian,
Mr. K.K. Venugopal, learned senior counsel for
intervenor/Standard Chartered Bank and Mr. Tushad Cooper,
learned counsel for intervenor/State Bank of India.
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7) Mr. Syed, learned counsel for the appellants after taking us
through the relevant provisions of the Act, Rules and the
materials available with the Custodian as well as the
reasonings of the Special Court raised the following
contentions:
(i) The impugned notification is non-reasoned and non-
speaking. The validity of a statutory order must be judged by
a court of law by the reasons mentioned in the order itself and
a statutory order cannot be explained and supplemented by
fresh reasons in the shape of affidavit or otherwise whereas in
the present case the Special Court accepted the same which is
contrary to settled law.
(ii) Delay of 15 years in passing the order of notification is
unreasonable. The explanation offered for delay is also
unacceptable.
(iii) Material relied upon in passing the order of notification
i.e. Canfina’s letter dated 28.12.2006 is not supported by an
affidavit which could not have been relied upon as it is
contrary to proviso to Rule 2 of the Rules.
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(iv) Reliance on the reports of Joint Parliamentary Committee,
Jankiraman Committee, IDG and Chartered Accountants’ by
the Custodian is unacceptable.
(v) Pre-decisional hearing by the Custodian was required to be
given and in the case on hand such opportunity was not
afforded.
(vi) No effective post-decisional hearing as the materials relied
upon was not supplied in time.
(vii) The Special Court erroneously held the transaction to be
benami in general on the basis of Chartered Accountants’
reports without examining individual transactions.
(viii) The onus to establish the validity, correctness, legality,
propriety of the notification order is on the Custodian but
wrongly shifted on the appellants.
(ix) Satisfaction of Custodian while passing an order of
notification should be objective and based on materials as
provided in the Rules.
(x) The Special Court erroneously held that the meaning of the
phrase “involved an offence” has attained finality by this
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Court, though the said question was left open. In any event,
the case of the Custodian was that a sum of Rs. 50 crores was
diverted by M/s Harshad S. Mehta to the appellants during
the period 01.04.1990 to 06.06.1992. In such event, monies
transferred/diverted from the banks/financial institutions can
only be recovered from the appellants and nothing more.
(xi) The jurisdiction of the Special Court is limited to the
statutory period only, i.e. 01.04.1991 to 06.06.1992.
(xii) No interest can be levied on the notified parties as per the
judgment of this Court in Harshad Shantilal Mehta vs.
Custodian and Ors. (1998) 5 SCC 1.
8) On the other hand, Mr. Subramonium Prasad, learned
counsel for the Custodian heavily relying on the circumstances
for passing the Act, the statement of Objects and Reasons and
the relevant provisions submitted that:
(i) The impugned order of the Special Court is valid and the
appellants have not made out any case for interference by this
Court.
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(ii) As per Section 4(2) of the Act, it is for the appellants to
show to the Special Court that they are not involved in any
offence in securities between 01.04.1991 to 06.06.1992.
(iii) A perusal of various reports like the Auditor’s report,
Janakiraman Committee’s report, report of Inter Disciplinary
Group (IDG), report of Vinod K. Aggarwal and Company
coupled with materials placed and discussed, the impugned
decision of the Special Court cannot be faulted with.
(iv) From the materials placed, it is clear that the appellants
are nothing but front benamidars of Harshad S. Mehta and
there is no acceptable material to show that the appellants
were having sufficient funds in their hands due to the
purchase and sale of shares by placing acceptable materials
such as income-tax returns etc. Inasmuch as the Special
Court is manned by or presided over by a sitting Judge of High
Court, sufficient safeguards are provided in the Act and, in
any event, the appellants have no way prejudiced.
(v) As per the provisions of the Act and interpreted by this
Court on various occasions, it is for the appellants to make
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out a case before the Special Court that they are not involved
in any offence or that they have no nexus.
9) Mr. K.K. Venugopal, learned senior counsel for
intervenor/Standard Chartered Bank and Mr. Tushad Cooper,
learned counsel for intervenor/State Bank of India assisted
the Court by highlighting the object and salient features of the
Act as well as huge financial implications on the banks due to
the act of Harshad S. Mehta in the sale and purchase of
shares. They also highlighted that crores of public monies
were lost due to the conduct of Harshad S. Mehta and his
family members which resulted in huge financial loss to the
banks.
10) Before going into the rival submissions, it is necessary to
trace the history of enactment of the Act. The Special Courts
Act, 1992 (27 of 1992) was legislated to meet the necessity of
establishing Special Courts for trial of offences committed in
relation to Transactions in Securities Act, 1992. Reserve Bank
of India found that large scale irregularities and malpractices
were found in Government and other securities through
brokers in collusion with Bank employees. This legislation was
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enacted to meet this situation. It is a short Act containing
only 15 sections. It deals with establishment of Courts, defines
jurisdiction and powers of Special Court. It also defines civil
jurisdiction of such Special Courts. Provision of arbitration
was reserved and appeal could also be preferred under the
Act. Much protection was given for acts done in good faith and
punishment for contempt was also provided so that the
provisions of the Act would be more strictly implemented.
11) Objects & Reasons:
The Statement of Objects and Reasons is as follows:-
“(1) In the course of the investigations by the Reserve Bank of India, large scale irregularities and malpractices were noticed in transactions in both the Government and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions. The said irregularities and malpractices led to the diversion of funds from banks and financial institutions to the individual accounts of certain brokers.
(2) To deal with the situation and in particular to ensure speedy recovery of the huge amount involved, to punish the guilty and restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992, was promulgated on the 6th June, 1992. The Ordinance provides for the establishment of a Special Court with a sitting Judge of a High Court for speedy trial of offences relating to transactions in securities and disposal of properties attached. It also provides for appointment of one or more custodians for attaching the property of the
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offenders with a view to prevent diversion of such properties by the offenders.”
12) It is settled law that the objects and reasons of the Act are
to be taken into consideration in interpreting the provisions of
the statute. It is incumbent on the court to strive and
interpret the statute as to protect and advance the object and
purpose of the enactment. Any narrow or technical
interpretation of the provisions would defeat the legislative
policy. The Court must, therefore, keep the legislative policy
in mind while applying the provisions of the Act to the facts of
the case. It is a cardinal principle of construction of statute or
the statutory rule that efforts should be made in construing
the different provisions, so that each provision may have
effective meaning and implementation and in the event of any
conflict a harmonious construction should be given. It is also
settled law that literal meaning of the statute must be adhered
to when there is no absurdity in ascertaining the legislative
intendment and for that purpose the broad features of the Act
can be looked into. The main function of the Court is to
merely interpret the section and in doing so it cannot re-write
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or re-design the section. Keeping all these principles in mind,
let us consider the relevant provisions.
13) Relevant Provisions:
As per Section 2(b), ‘Custodian’ means “the Custodian
appointed under sub-section (1) of Section 3.” Section 2(c)
‘securities’ includes.—
“(i) shares, scrips, stocks, bonds, debentures, debenture stock, units of the Unit Trust of India or any other mutual fund or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ii) Government securities; and (iii) Rights or interests in securities;”
and as per Section 2(d) ‘Special Court’ means “the Special
Court established under sub-section (1) of Section 5.” Among
all the provisions Sections 3 and 4 are relevant which read as
follows:
“3. Appointment and functions of Custodian.---(1) The Central Government may appoint one or more Custodian as it may deem fit for the purposes of this Act.
(2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after the 1st day of April, 1991 and on and before 6th June, 1992, notify the name of such person in the Official Gazette.
(3) Notwithstanding anything contained in the Code and any other law for the time being in force, on and from the date of notification under sub-section (2), any property, movable or
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immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification. (4) The property attached under sub-section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct.
(5) The Custodian may take assistance of any person while exercising his powers or for discharging his duties under this section and section 4.
4. Contracts entered into fraudulently may be cancelled.--(1) If the Custodian is satisfied, after such inquiry as he may think fit, that any contract or agreement entered into at any time after the 1st day of April, 1991 and on and before the 6th June, 1992 in relation to any property of the person notified under sub-section (2) of section 3 has been entered into fraudulently or to defeat the provisions of this Act, he may cancel such contract or agreement and on such cancellation such property shall stand attached under this Act: Provided that no contract or agreement shall be cancelled except after giving to the parties to the contract or agreement a reasonable opportunity of being heard.
(2) Any person aggrieved by a notification issued under sub- section (2) of section 3 or any cancellation made under sub- section (1) of section 4 or any other order made by the Custodian in exercise of the powers conferred on him under section 3 or 4 may file a petition objecting to the same within thirty days of the assent to the Special Court (Trial of Offences Relating to Transactions in Securities) Bill, 1992 by the President before the Special Court where such notification, cancellation or order has been issued before the date of assent to the Special Court (Trial of Offences Relating to Transactions in Securities) Bill, 1992 by the President and where such notification, cancellation or order has been issued on or after that date, within thirty days of the issuance of such notification, cancellation or order, as the case may be; and the Special Court after hearing the parties, may make such order as it deems fit.”
Section 9 speaks about procedure and powers of Special Court
and by way of an amendment with effect from 25th January,
17
1994, Section 9-A was inserted to confer jurisdiction, powers,
authority and procedure of Special Court in respect of civil
matters. As per Section 10, against any judgment, sentence or
order, not being interlocutory in nature of the Special Court,
an appeal shall lie to the Supreme Court both on facts and on
law. Like Sections 3 and 4, another important section is
Section 11 which reads as under:
“11. Discharge of liabilities.- (1) Notwithstanding anything contained in the Code and any other law for the time being in force, the Special Court may make such order as it may deem fit directing the Custodian for the disposal of the property under attachment.
(2) The following liabilities shall be paid or discharged in full, as far as may be, in the order as under :-
(a) all revenues, taxes, cesses and rates due from the persons notified by the Custodian under sub- section(2) of Sec. 3 to the Central Government or any State Government or any local authority.
(b) all amounts due from the person so notified by the Custodian to any bank or financial institution or mutual fund ; and
(c) any other liability as may be specified by the Special Court from time to time.”
Section 13 makes it clear that the provisions of the Act shall
have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in any
instrument having effect by virtue of any law, other than this
Act, or in any decree or order of any Court, Tribunal or other
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authority. Section 14 empowers the Central Government to
make rules for carrying out the provisions of the Act.
14) Based on the above statutory provisions, let us consider
the claim of the appellants, stand taken by the Custodian and
the reasonings of the Special Court in passing the impugned
orders.
15) Discussion:
The objects of the Act are two fold:
(a) to punish the guilty, and (b) to ensure speedy recovery of the huge amount involved.
“Amount involved” means the amount of the banks and
financial institutions alleged to have been diverted to the
accounts of the offenders during the statutory period from
01.04.1991 to 06.06.1992.
16) The attached properties can be dealt with by the Special
Court under sub-Sections (3) and (4) of Section 3, sub-Section
(2) of Section 4, Sections 9-A and 11 of the Act. Section 3(3) of
the Act provides for an automatic attachment of all properties
as a consequence of Notification. The object provides the
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attachment of all properties of the offender with a view to
prevent diversion of such properties. The said provision is a
preventive provision.
17) Section 11 provides for disposal and sale of attached
properties extinguishing the rights and title of a notified party,
which is a punitive provision. Section 3 of the Act provides for
appointment and functions of the Custodian. Sub-section (2)
of Section 3 postulates that the Custodian may, on being
satisfied on information received that any person has been
involved in any offence relating to transactions in securities
after the 1st day of April, 1991 and on and before 06.06.1992
(the statutory period), notify the name of such person in the
Official Gazette. Sub-section (3) of Section 3 contains a non
obstante clause providing that on and from the date of
notification under sub-section (2), any property, movable or
immovable, or both, belonging to any person notified under
that sub-section shall stand attached simultaneously with the
issue of the notification and sub-section (4) of Section 3 makes
it clear that such attached property shall be dealt with by the
Custodian in such manner as the Special Court may direct.
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18) In the Ordinance which preceded the Act, there was no
provision for giving post facto hearing to a notified person for
cancellation of notification, but such a provision has been
made in the Act, as would appear from Section 4(2) thereof.
Sub-section (2) of Section 4, however, provides for a hearing as
regards correctness or otherwise of the notification notifying a
person in this behalf, in the event an appropriate application
therefor is filed within 30 days of the issuance of such
notification. Section 5 provides for establishment of the
Special Court. Section 7 confers exclusive jurisdiction of
Special Court. A perusal of the Act makes it clear that any
prosecution in respect of any offence referred to in sub-section
(2) of Section 3 pending in any court is required to be
transferred to the Special Court. Section 9 provides for the
procedure and powers of the Special Court. Section 9-A,
which was inserted by Act 24 of 1994 with effect from
25.01.1994, confers all such jurisdiction, powers and
authority as were exercisable, immediately before such
commencement by any civil court in relation to the matter
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specified therein. The Act provides for stringent measures. It
was enacted for dealing with an extraordinary situation in the
sense that any person who was involved in any offence relating
to transaction of any security could be notified, whereupon all
his properties stood attached. The provision contained in the
Act being stringent in nature, the purport and intent thereof
must be ascertained having regard to the purpose and object it
seeks to achieve.
Provisions with regard to Attachment
19) The vires of Sections 3(2), 3(3) and 3(4) of the Ordinance
was challenged before the High Court of Bombay in Writ
Petition No. 1547 of 1992 Hitesh S. Mehta vs. Union of India
& Anr., 1992 (3) Bomb. C.R. 716. It was argued before the
Bombay High Court that there is no provision for hearing at
the stage of notification i.e. Section 3(2) and also at the stage
of attachment of all properties i.e., Section 3(3). Therefore, the
provisions are contrary to the principles of natural justice and
be struck down. The Division Bench of the High Court in
paragraph 8 of the said judgment observed as follows:
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“Had the provision been confined to Section 3, sub-sections (2) and (3), the argument which is advanced before us would have had considerable force. It is undoubtedly true that neither in sub-Section (2) nor in (3) is there any provision for any hearing being given to the person who may be notified; nor is there any provision for any reasoned order being passed by the Custodian at the time when he notifies such a person. There is, however, a further sub-Section, namely, sub-Section (4) of Section 3 which provides as follows:
Section 3 (4) : The property attached under sub-Section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct.
This sub-section clearly contemplates that the power of the Custodian to deal with the property of a person who has been notified is subject to the orders and directions of the Special Court. Now, in the first place, the Special Court under the Ordinance is a Court presided over by a sitting Judge of a High Court. This itself is a check on any arbitrary exercise of powers by the Custodian. Secondly, the power of the Special Court to give directions to the Custodian in respect of any attached property must necessarily bring within its ambit, the power to order the release of such property or any part of its from attachment. If the person who is aggrieved by his name being notified under sub-section (2) approaches the Special Court and makes out, for example, a case that the property which is attached or a portion of its has no nexus of any sort with the illegal dealings in securities belonging to banks and financial institutions during the relevant period and/or that there are no claims or liabilities which have to be satisfied by attachment and sale of such property, in our view, the Special Court would have the power to direct the custodian to release such property from attachment. In the same way, if ultimately, the Special Court, after looking at all the relevant circumstances, comes to the conclusion that the entire property should be released from attachment, we do not see any reason why such a direction also cannot be given by the Special Court under Section 3, sub-section (4). In such a situation, if the entire property is required to be released from attachment, the Special Court, in our view, can also direct the Custodian that the name of the notified person should be de-notified. This would be a necessary
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consequence of the power of the Special Court to give proper directions in connection with the property which the Custodian seeks to attach. If sub-section (4) is read in this light, the grievance of the petitioner relating to the validity of powers granted to the Custodian under Section 3 would not survive.
The above-said paragraph of Hitesh S. Mehta’s judgment was
relied upon by this Court in Harshad S. Mehta vs.
Custodian (supra).
20) This Court in L.S. Synthetics Ltd. vs. Fairgrowth
Financial Services Ltd. & Anr. (2004) 11 SCC 456
considered the judgment of Harshad S. Mehta (supra) and in
paragraphs 27 to 29 observed as under:
“27. This Court in para 14 was merely recording the submissions of one of the notified parties. Even a question as to whether all properties of notified persons would be subject to the statutory attachment under sub-section (3) of Section 3 of the said Act or not did not arise for consideration therein.
28. Therein indisputably this Court was referring to a judgment of the Bombay High Court but did not pronounce finally on the correctness or otherwise thereof. 29. In Hitesh Shantilal Mehta the Bombay High Court appears to have merely held that in appropriate cases the Special Court would have the power to direct the Custodian to release such property from attachment, in the event, it is found that the property which is attached has no nexus with the illegal dealings in securities belonging to banks and financial institutions during the relevant period and/or there are no claims or liabilities which have to be satisfied by attachment and sale of such property. Once it is held that a debt can be the subject-matter of attachment, the provisions of sub-section (3) of Section 3 of the said Act would squarely be applicable in view of the fact that the same was the
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property belonging to a notified person. This position in law is not disputed. Such attached property, thus, if necessary, for the purpose of discharging the claims and liabilities of the notified person indisputably would stand attached and can be applied for discharge of his liabilities in terms of Section 11 of the said Act.”
21) In paragraphs 45, 46 and 47 of Jyoti Harshad Mehta
& Ors. vs. Custodian & Ors. (2009) 10 SCC 564 this Court
held as under:
“45. It is contended by the learned counsel for the appellants Mr Syed that if any of the properties or assets of the notified parties have no nexus with the illegal securities transactions, the same can be released from attachment or at least need not be sold.
46. It has further been argued that no evidence has been adduced that loans given by M/s Harshad S. Mehta to his family members or monies used by Shri Harshad Mehta for purchase of his flat were acquired from the tainted funds. It is submitted by the appellants that unless it can be shown that the properties in question were acquired from the tainted funds they would be liable to be released from attachment. It is argued that the fact that the properties had been purchased much before the securities scam would go on to show that they had no nexus with the funds diverted therefrom.
47. In our opinion the arguments advanced on behalf of the appellants need to be rejected at the outset because a plain reading of the sections of the Special Act would clearly point otherwise. In our opinion the attachment of all the properties in terms of sub-section (3) of Section 3 of the Special Act is automatic. The attachment restricts sale of the properties which have been acquired from illegal securities transaction. The sub-section specifically mentions that on and from the date of the notification, “any property, movable or immovable, or both”, belonging to any person notified under the Act shall stand attached. …………………..”
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22) In Ashwin S. Mehta vs. Custodian & Ors. (2006) 2 SCC
385 in paragraph 15, this Court observed as under:
“15. The Act provides for stringent measures. It was enacted for dealing with an extraordinary situation in the sense that any person who was involved in any offence relating to transaction of any security may be notified, whereupon all his properties stand attached. The provision contained in the Act being stringent in nature, the purport and intent thereof must be ascertained having regard to the purpose and object it seeks to achieve. The right of a person notified to file an application or to raise a defence that he is not liable in terms of the provisions of the Act or, in any event, the properties attached should not be sold in discharge of the liabilities can be taken at the initial stage by filing an application in terms of sub-section (2) of Section 4 of the Act. But, at the stage when liabilities are required to be discharged, the notified persons may raise a contention inter alia for the purpose of establishing that the properties held and possessed by them are sufficient to meet their liabilities. In terms of the provisions of the Act, the Special Court had been conferred a very wide power.”
23) Section 9-A was inserted by an amendment dated
25.01.1994 conferring jurisdiction, powers, authority and
procedure of Special Court in civil matters. In view of this
amendment, this Court in paragraph 41 of Harshad Mehta’s
case (supra) observed as under:
“41. ......... If, according to any of the banks or financial institutions, any of the properties attached belongs to the bank or financial institution concerned, it is open to that bank or financial institution to file a claim before the Special Court in that connection and establish its right to the property attached or any part thereof in accordance with law. Obviously, until such a claim is determined, the property attached cannot be sold or distributed under Section 11……..”
26
24) This Court in Ashwin S. Mehta’s case (supra), in
paragraphs 51 and 52 observed as under:
“51. ……..It was, thus, necessary for the learned Special Court to arrive at a firm conclusion as regards the involvement of the individuals with Harshad Mehta, if any, and the extent of his liability as such.
52. Furthermore, the question as regards liability of the parties should have been determined at the stage of Section 9-A of the Act. ……… It does not appear that claims inter se between the entities within the so-called group had ever been taken into consideration. The Custodian does not appear to have preferred claims before the Special Court on behalf of the largest lender on the so-called group against those he had to recover loans. Such claims may also be preferred.”
25) As regards Section 11, the properties which stand
attached by the Custodian are used to discharge the liabilities
in full as far as may be in the order prescribed under Section
11(2) of the Special Court Act. There is nothing in the Act
which suggests that only such properties which belong to the
notified party and which have been acquired by the use of
tainted funds alone can be attached for the purposes of
distribution under Section 11 of the Act. Section 3(3)
postulates that on and from the date of notification all
properties movable, immovable or both, belonging to the
27
notified party on and from the date of the notification stand
attached. Attachment of all the properties in terms of Section
3(3) of the Act is automatic. The said section does not provide
any qualification that the properties which are liable to be
attached should relate to the illegal transactions in securities
in respect of which the Act was brought in force. Had the
Parliament intended otherwise it would have specifically
provided for the same as was done under the Smugglers and
Foreign Exchange Manipulators (Forfeiture of Property) Act,
1976. A reading of Section 11 of the Act further provides that
all the properties which stand attached to the Special Court
under Section 3(3) are available for distribution under Section
11 of the Act. There is again nothing which suggests that the
distribution must be restricted only to sale of such properties
which have been acquired by use of tainted funds. The
statutory period is irrelevant for the attachment of properties
and sale of the same. All properties which are attached would
be liable to be sold for redemption of liabilities till the date of
notification under Section 11 of the Act.
28
26) The Custodian filed Misc. Petition No. 20 of 2006 on
21.07.2006 against the appellants for the recovery of the
money alleged to have been advanced by the three brokerage
firms i.e., M/s Harshad S. Mehta, M/s Ashwin Mehta and M/s
J.H. Mehta to the appellants and prayed that the appellants be
declared benami/front of late Harshad S. Mehta and/or his
group, and the assets be utilized for discharging the liabilities
of late Harsahd S. Mehta and/or his group. On 04.01.2007,
the Custodian notified the appellants and subsequently on
23.01.2007 withdrew the said M.P. No. 20 of 2006 after the
notification.
27) The appellants filed Misc. Petition Nos. 1 & 2 of 2007
challenging the validity of the Notification dated 04.01.2007
before the Special Court. The Special Court dismissed the
said petitions and granted the prayer in Misc. Petition No.20 of
2006 filed by the Custodian.
28) This Court in L.S. Synthetics (supra) in paragraphs 35,
36 and 42 held as under:
“35. S.N. Variava, J. in A.K. Menon, Custodian whereupon the learned Special Court has placed reliance, observed:
29
“19. It is thus that the said Act lays down a responsibility on the Court to recover the properties. So far as monies are concerned, undoubtedly the particular coin or particular currency note given to a debtor would no longer be available. That however does not mean that the lender does not have any right to monies. What is payable is the loan i.e. the amount which has been lent. The right which the creditor has is not a ‘right to recover’ the money. The creditor has the title/right in the money itself. An equivalent amount is recoverable by him and the title in any equivalent amount remains with the lender. Thus the property which a notified party would have is not the right to recover but the ‘title in the money itself’. Thus under Section 3(3) what would stand attached would be the title/right in the money itself. Of course what would be recoverable would be an equivalent of that money. Once the money stands attached then no application is required to be made by any parties for recovery of that money. It is then the duty of the court to recover the money. No period of limitation can apply to any act to be done by a court. Therefore in all such applications the only question which remains is whether on the date of the notification the right in the property existed. If the right in the property existed then irrespective of the fact that the right to recover may be barred by limitation there would be a statutory attachment of that property. Once there is a statutory attachment of that property the court is duty-bound to recover it for the purposes of distribution. There can be no period of limitation for acts which a court is bound to perform. In this case since the court is compulsorily bound to recover the money there can be no limitation to such recovery proceedings. To be remembered that Section 3(3) as well as Section 13 provide that provisions of the said Act would prevail over any other law. This would include the Limitation Act.
36. We respectfully agree with the said view.
42. Only in the event, all the claims as provided for under Section 11 of the said Act are fully satisfied, the amount belonging to the notified person can be
30
directed to be released in his favour or in favour of any other person.”
29) The same position is reiterated in para 56 of the
judgment in Jyoti Harshad Mehta’s case (supra) wherein this
Court held that,
“……It is true that to such an extent all properties would be liable to be sold which are needed for redemption and not beyond the same. What should be kept uppermost in the mind of the Court is to see that the liabilities are discharged and not beyond the same. It is with that end in view that the powers of the Special Court contained in Sections 9A and 11 must be construed.”
30) Whether there are sufficient provisions for pre and
post decisional hearing thereby ensuring Rules of Natural
Justice?
Section 3(2) of the Special Courts Act confer power to
Custodian to notify a person in the Official Gazette on being
satisfied on information received that such person was
involved in any offence relating to transactions in securities
during the statutory period 01.04.1991 to 06.06.1992.
Though Mr. Syed contended that the appellants are entitled to
hearing even at the stage of Section 3(2), we are unable to
accept his claim. Section 3(2) does not give any right of
31
personal hearing to the person being notified. In the absence
of any such right there is no pre-decisional hearing The
provisions of the Act do not provide for a pre-decisional
hearing before notification but contains an impeccable milieu
for a fair and just post decisional hearing. The fact that it does
not provide for a pre-decisional hearing is not contrary to the
rules of Natural Justice because the decision of the Custodian
to notify does not ipso facto takes away any right of the person
thus notified or imposes any duty on him. This also has to be
read in the light of the judgment of Swadeshi Cotton Mills v.
Union of India, (1981) 1 SCC 664 which reads as under:
“Rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is not possible to make an exhaustive catalogue of such rules. But there are two fundamental maxims of natural justice viz. (i) audi alteram partem and (ii) nemo judex in re sua. The audi alteram partem rule has many facets, two of them being (a) notice of the case to be met; and (b) opportunity to explain. This rule cannot be sacrificed at the altar of administrative convenience or celerity. The general principle--as distinguished from an absolute rule of uniform application-- seems to be that where a statute does not, in terms, exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. Conversely if the statute conferring the power is silent with regard to the giving of a pre-decisional hearing to the person affected and the administrative decision taken by the authority involves civil consequences of a grave nature, and no full review or
32
appeal on merits against that decision is provided, courts will be extremely reluctant to construe such a statute as excluding the duty of affording even a minimal hearing, shorn of all its formal trappings and dilatory features at the pre-decisional stage, unless, viewed pragmatically, it would paralyse the administrative process or frustrate the need for utmost promptitude. In short, this rule of fair play must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. The court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, the core of it must, however, remain, namely, that the person affected must have reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise.”
(Emphasis supplied)
31) Attachment of property is a natural consequence of
notification and not sale of the property. The power to order a
sale of the property lies only with the Special Court under
Section 11 and at this instance where the notified person can
be adversely affected, Section 4(2) provides that any person
aggrieved by the notification can file a petition objecting the
same within 30 days of the date of the issuance of the
notification. The Special Court is presided over by a sitting
Judge of the High Court. All material before the Custodian is
placed before the Special Court which independently analyses
all the material while deciding the application filed by the
notified party challenging the notification. This amounts to
33
post decisional hearing satisfying the principles of natural
justice. Also a pre-decisional hearing would frustrate the
entire purpose of the Act. If there is time given to Show Cause
why a person should not be notified, that time could
practically be utilized to further divert the funds, if any, so
that it becomes even more difficult to trace it.
32) Notification of the appellants:
As stated earlier that some time in 1992, it was noticed
that frauds and irregularities involving huge amounts of
money running into several thousand crores were commited
by certain financial brokers and financial institutions. The
Central Government, to combat with the situation,
promulgated an ordinance on 6.6.1992 known as the Special
Court (Trial of Offences relating to Transactions in Securities)
Ordinance, 1992. On 08.06.1992 Mr. Harshad S. Mehta (since
deceased) and 28 members of his group including his family
members/entities were notified under the Ordinance. It is
pertinent to mention here that the complete details of the
transactions of Harshad Mehta were not known. At that time
the appellants - Mrs. Rasila Mehta (mother of Harshad Mehta)
34
and Mrs. Rina Mehta (sister-in law of Harshad Mehta and wife
of Sudhir Mehta) were not notified because their involvement
and diversion of funds to them was not clear. The Reserve
Bank of India constituted the Janakiraman Committee to look
into the diversion of funds. The Janakiraman Committee in
March 1993 brought out the 4th Interim Report. Para 2.3 of the
said report reads as under:
“2.3 In the names of HSM and his family members, the bank’s Adayar branch, Madras granted 19 individual overdrafts against shares. Significantly, all the current accounts, which were opened between April and June, 1991 were introduced by the same person viz. Branch Manager Shri Bakshi Varunkumar, Adayar branch, Madras and a cheque book was issued only in the name of one account holder, Smt. Jyoti H. Mehta. All the overdrafts limits were sanctioned between 20 April, 1991 and 24th July, 1991 and on the very day of sanction, the overdrafts amounts were transferred to Smt. Jyoti H. Mehta’s current account for operational convenience. This facility also appears to have been extended, as HSM was a ‘significant customer’.”
Similarly, the Joint Parliamentary Committee established to
enquire into the irregularities in securities and bank
transactions also found out the involvement of the family
members of Harshad Mehta. Para 17.21 of the Report reads
as under:
“17.21 In January, 1992 Smt. Rasila Mehta, mother of HSM and Shri Hitesh Mehta, brother of HSM received US $ 5 lakhs each from Popular Espanol Las Palmas, Spain on the
35
advice of Giorgia Pvt. Ltd., New York under the Immunity Scheme, 1991. Smt. Rasila Mehta also received US $ 96, 331 as per advice of Morgan Guaranty Trust Co. New York also under the Immunity Scheme, 1991. As Shri Niranjan J Shah had narcotic and hawala business links, it was suspected that the said remittances were arranged through him.”
In accordance with the recommendations of the Joint
Parliamentary Committee a group known as Inter Disciplinary
Group (IDG) for tracing the end use of funds was set up by the
Reserve Bank of India. The findings of the IDG read as under:
“3.5.2 On the basis of reliable and specific information, action under Section 132 of the Income Tax Act was taken on 23.07.1993, during which shares valued at Rs. 22.69 crores were seized. Records of Income Tax investigations indicated that investment in these shares had been made in the names of dummy companies and individuals at the behest of the HMG. About 30 defunct Private Limited Companies appear to have been ‘purchased’ and the shares transferred in their names. Further enquiries led to identification of further 50 dummy companies and over 40 individuals. Enquiries have revealed that they were apparently fronts, since they were located in chawls, shops, etc. and prima facie could not have been made such huge investments. Considerable assistance was made available by CBI in identifying employees and associates of HMG.
3.5.3 Action under Section 132 was thereafter conducted on 27.08.1993 at more than 30 premises. The search confirmed that the shares had been transferred in the names of these companies and individuals by the HMG. Documents seized indicated the possibility of investments of market value of over Rs. 50 crores in the names of Smt. Rasila Mehta, mother of Harshad Mehta and Smt. Reena Mehta, wife of Sudhir Mehta. Statements recorded of various persons confirmed that they had merely allowed their names as benamidars of HMG. In addition, persons found in premises given as addresses of various companies stated that they had allowed their premises to be used as mailing
36
addresses, and no companies existed there. They also stated that the shares received at these addresses were handed over mainly to one Shri Vinod Mehta, an uncle of HSM, who died in February, 1993. Subsequent to his death, these were handed over to his wife, Smt. Vanita Mehta who confirmed that her husband was receiving these shares, and that after his death she had, on instructions from HSM, handed them over to his representative. The involvement of the HMG in the matter of transfer of shares in benami names was corroborated by recorded statements of HSM and Sudhir Mehta. The total shareholding of HMG in benami shares identified so far comes to 81.65 lakh shares in 131 companies of market value (as in June, 1995) of Rs. 453 crores.
4.7 Problems in tracing:
4.7.1. The identification of end use of funds was a laborious process involving examination and correlation of every investment transaction of the brokers and banks. The following were among the more important constraints: - Entries in the books of one counterparty bank did not
correspond with that of the other counterparty. - There was mismatch between seller and payee or
buyer and payer. - The investment records did not depict the true
character of the deals. Actual recipient and issuer of cheque were not known.
- Often, and more particularly in the case of HMG, entries in broker’s current account at SBI, Bombay only revealed the net effect of all bankers cheques received and issued on his behalf on a particular day. On days when the value of cheques issued equaled the value of cheques received there was no entry in his current account.
- Transactions with banks/financial institutions whose investment account was maintained by the same routing bank was difficult to analyze as the payments and receipts were netted and only the net effect reflected in the bank accounts. One to one correspondence between security transactions and payments was difficult to establish as entries did not reflect true details of the transactions.
- Accounts of the brokers had not been prepared.”
37
33) Mr. Syed heavily contended that the Custodian and the
Special Court ought not to have based reliance on these
reports since the appellants were not afforded opportunity to
go through the contents of the same. This objection is liable to
be rejected. First of all, there is no criminal prosecution
against these appellants and in the event of prosecution, all
documents relied on by them could be furnished. These are all
materials from various bodies constituted by the Reserve Bank
of India/Government of India about the scam created at the
instance of Harshad Mehta. These bodies consist of experts in
various fields, particularly, from the financial side. The Special
Court is fully justified in relying on these Reports.
34) This Court in Childline India Foundation & Anr. Vs.
Allan John Waters & Ors., JT 2011(3) SC 750, while
considering the plight of street children in Bombay, heavily
relied on the evidence of PW-2 & PW-3, who were the members
of NGOs, who highlighted the plight of street children in a
shelter home at Bombay. Similar objection was raised in that
case about the admissibility and reliability of those witnesses.
Rejecting the said objection, this Court held that though based
38
on the statements of PWs 2 & 3, members of NGOs the
accused persons cannot be convicted but taking into account
their initiation, work done, interview with the children,
interaction with the children at the shelter homes which laid
the foundation for the investigation and to that extent their
statements and actions are reliable and acceptable. By
applying the same analogy, inasmuch as the scam relates to
accounts and money transactions by way of transfer of shares
through nationalized banks and financial institutions, various
committees were appointed by the Union of India which
collected relevant materials and unearthed the persons
involved, hence the Custodian and the Special Court are
justified in relying on those reports in order to ascertain the
correctness or otherwise of the transactions. Accordingly, we
reject the objection of the counsel for the appellants relating to
the report of various Committees mentioned above.
35) The Special Court, vide its order dated 03.08.1993
allowed the application of the Custodian for appointing
Auditor. The Minutes of the Order read as under:
“1. Order in terms of prayer (a)
39
2. Order in terms of prayer (b) & (c), Respondents 2 and 3 to furnish the information within 6 weeks.
3. To enable the 1st Respondent to furnish the said information one or more of the following persons, viz., Mr. Harshad Mehta, Mr. Ashwin Mehta, Mr. Pankaj Shah and Mr. Atul Parekh and a computer specialist will be entitled to attend the offices of the 1st Respondent between 10 a.m. to 6 p.m. A representative of the Custodian and the C.B.I. will be present for which prior intimation will be given. The said persons will be entitled to operate the computers in the presence of the officers of Respondent Nos. 2 and 3 and if necessary hire a personal computer to compile the requisite information.
4. The Custodian will appoint one or more auditors to prepare and audit the accounts of the 1st Respondent from 1st April, 1990. The auditors will be entitled to obtain all requisite information and documents from the Respondents or any other person in possession of the same. They will be entitled to use the computers of Respondent no.1 and the requisite hard discs and floppy discs will be made available to the auditors by Respondents No. 2 and/or 3. The remuneration of the auditors will be determined by the Custodian. The persons named in Clause 2 will assist the auditors. The auditors will complete the work and submit a report to court as expeditiously as possible and preferably within 3 months. The auditors will be entitled to furnish reports from time to time as the work is completed.
5. The remuneration payable to the auditor to be released from the bank account of the Respondent No.1.
6. Liberty to apply.”
36) The Special Court vide its order dated 03.02.1994
appointed M/s Kalyaniwalla & Mistry, M/s Kapadia Damania
& Co. and M/s Natwarlal Vepari & Co., Chartered Accountants
firms for the purposes of preparing Statements of Accounts
40
and liabilities of the notified parties i.e. the Harshad Mehta
Group for the period 01.04.1990 to 08.06.1992.
37) It was the grievance of the Custodian that the notified
parties were not at all cooperating in the process of auditing.
The accounts of the notified parties where significant diversion
of funds had taken place were not completed due to non-
cooperation of members of M/s Harshad Mehta Group. When
their non-cooperation was brought to the notice of the Special
Court, the members of the Harshad Mehta Group had given an
undertaking to fully cooperate with the Auditors. Rasila S.
Mehta, the appellant herein had filed an application being
M.A. No. 467/1999 for lifting the attachment over assets
which she was owning jointly with the other members of the
family. In the said application, the Custodian filed a reply
highlighting the complete non-cooperation of the group in
completing the accounts.
38) The important aspect is that the appellants have not
explained the source of their income. The outstanding Income
tax from the appellants for the Assessment Years 1988-89 to
1993-94 is as under:
41
1988-89 Rs.2,005
1989-90 Rs. 0
1990-91 Rs.2,54,595
1991-92 Rs.2,65,38,345
1992-93 Rs.11,55,28,951
1993-94 Rs.4,46,40,586
The appellants are house-wives having no independent source
of income. It is impossible for such persons to have such huge
amounts of money unless they were the beneficiaries of
monies diverted by late Harshad Mehta and his other family
members who were notified and firms belonging to the
Harshad Mehta Group. The appellants have not been able to
reveal their source of income either to the Custodian or to the
Income Tax authorities.
39) It is relevant to point out that in a letter dated
22.03.1996 addressed to the Assistant Commissioner of
Income Tax the appellant – Rasila P. Mehta has stated as
under:
“3) Please be informed that as far as my source of funds is concerned for making investments or taking trading positions to the extent the funds are required the same are from the following:
42
a) Capital plus profits b) Borrowings c) Proceeds from sale of shares and debentures.
4) As far as borrowings are concerned, the same is resorted in two ways. I have obtained loans from my family members, particularly, Shri Harshad S. Mehta which is as and by way of monies advanced to me through cheques or payments made on my behalf. The other way of borrowing is through enjoying a running current account with the brokerage firms in my family of M/s Harshad S. Mehta, M/s Ashwin S. Mehta and M/s Jyoti Mehta which are partly paid-unpaid. Under this arrangement for transactions undertaken by me at these respective brokerage firms my account is debited and credited for each and every transaction, i.e. for every purchase made by me my account gets debited and for every sale effected by me my account with these brokerage firms gets credited. I state that barring a few exceptions payments for these transactions have not been exchanged on a transaction to transaction basis and the account is in the nature of a running account. I state that for the borrowings effected under both the methods. I have agreed to pay interest to the lender. I state that the same is computed on the basis of deliveries performed for purchase and sale of shares. I state that in cases where I have purchased the shares for delivery and the delivery has not been tendered to me, for the purposes of computation of interest the debit will not be reckoned. I say that thus on the net outstanding balance after giving credit to each party on account of non- delivery of share the amount payable at the end of month is arrived at which is mentioned for the computation of interest (not on compounded basis). I state that as such interest is payable on the amounts borrowed by me and the same constitutes my expense. I humbly submit that this expense is allowable as a deduction from my taxable income. In support of my above and other related contentions I am also pleased to enclose confirmation letters of the three brokerage firms of M/s Harshad S. Mehta, M/s Ashwin S. Mehta and M/s J.H. Mehta. I further submit that due to course of events and multiple raids and our groups accounting system having gone haywire and the delivery status of all the transactions remaining unascertained we have not been able to precisely compute my interest liability for the earlier as well as the present year.
43
5) I state that I follow an accrual method of accounting for all my income as well as expenses which system of accounting is being followed by me for a number of years. I state that pending finalization of my payable figure for which effort is being made to arrive at the figure and on the basis of the minimum amount due by me I have made the provision of interest payable by me in my books of accounts and the extract of my account in this regard is being forwarded separately to your kindself. I submit that since my books of accounts are in the process of being drawn I am not in a position to make a provision of the precise figures of interest amount much as I would like to do. I submit that in this regard the respective brokerage firms have to assist and furnish substantial particulars. I further state that the provision made by me is in fact on a conservative basis though the interest payable by me would be higher that the provision. I humbly request your kindself to take note of above and grant me a deduction of the same from the income that your kindself is arriving for the present year. In case your kindself is not inclined to accept my submissions or allow me the deduction of above expenses then kindly give me an opportunity to make further representation in this regard more so as it vitally affects determination of my taxable income”.
40) A perusal of the above letter shows that there was no
proper maintenance of accounts and there was no cooperation
at all. Even, late Harshad Mehta in his letter and declarations
to the Income Tax Authorities in which the appellant Rasila
Mehta is a signatory had admitted that the family is a joint
Hindu family where all are living together and that the
business is such that it requires very close control at the
operational level.
44
41) It is relevant to note that in a letter dated 21.01.1991 late
Harshad S. Mehta informed the following particulars about
source of payments for acquisition of flats in Madhuli, Worli by
the entities of his family to the Deputy Director of Income Tax
(Investigation), Mumbai.
“My transactions in the Capital and Money markets, especially the latter, result in a continuous stream of funds and securities moving in and out. These transactions result in large but transient positive balances in my bank accounts on any given day. Running up of such current liabilities constitutes payables to my clients/constituents which include, inter alia, corporates and banks. Such funds, though transient in nature, tend to acquire semi- permanency in view of the daily operations in the Money Market and result in a pool of funds float. This float of funds has been utilized for acquisition of flats as well as for making investments in shares, pending accrual of income, in future, when such liabilities are automatically washed off. In point of fact, deferred and future incomes have been financed in advance by the float. I now enclose, on behalf of my family and myself details of payments made to M/s Crest Hotels Pvt. Ltd. the owners of the 9 (nine) flats, at “Madhuli”, Worli in the firsthalf of 1990 and extracts of the relevant Bank Accounts of the concerned members of my family, reflecting the payments and corresponding receipts in the bank. Details of transactions which resulted in credit balances in my accounts on those particular dates on which the payments for these flats were effected are also enclosed. You will appreciate that all my family members have been financed through my business operations.”
42) Another important aspect relates to final declaration
made by Harshad S. Mehta and all his family members
including Rasila S. Mehta under Section 132(4) of the Income
45
Tax Act, 1961. The following material from his statement
dated 24.01.1991 is relevant:
“First of all, I would like to put on record a few things about my family members. I take justifiable pride in asserting that it is the combination of the efforts of all the members of my family that has been responsible for our expansion and growth in terms of volume since 1988. Each and every member of the family is taking charge of some or the other vital functions in the organization creating controls and checks which are so very essential for generating, maintaining and reaping the fruits of any business activity. Almost all of them are very well attained and qualified and do business in their individual capacities and possess a sound and thorough knowledge of Investments, Finance and are authorized agents of the Unit Trust of India or members of the recognized Stock Exchange in Bombay. All of them take active interest in Investments in the Stock Market. Ours is an investor family committed to growth through capital appreciation and holds a mix of both short term and long term portfolio of shares. In brief, we owe our success to our coordinated endeavours and investment philosophy. The sharp growth in income in the last two years from 1988 is only after entering the Money Market. …. ……
Our family is run as a Joint Hindu Family. We, all live together. Our joint effort is one of the most important factors that has contributed to the growth of our business. Our business is such that it requires very close control at the operational level. The different members of the family have taken charge of various areas of crucial importance in our business e.g. Research, On-the-floor, trading, dealing in Money Market, Share Handling, Accounts, Finance, etc. My wife Mrs. Jyoti Mehta and Ashwin’s wife Mrs. Deepika Mehta while handling other functions in the office, also work as authorized clerks and hold the necessary badge for entry into the trading floor of the Stock Exchange, Bombay. ….. … … ”
43) It is also useful to refer the letter of Smt. Rasila S. Mehta
dated 25.06.2007 addressed to Mukund M. Chitale & Co.,
46
Chartered Accountants, Mumbai wherein she admitted that
during the relevant period i.e. in 1990s she and all her family
members actively associating in the brokerage firms and
companies promoted by them jointly. She also admitted that
she had a running account with brokerage firms of M/s
Harshad S. Mehta, M/s Ashwin Mehta and M/s J.H. Mehta.
44) All the above details clearly show their association with
brokerage firms being handled by Harshad S. Mehta and also
their interest and entitlement in the transactions of their joint
family business.
45) The firms of M/s Kalyaniwalla & Mistry, M/s Kapadia
Damania & Co. and M/s Natwarlal Vepari & Co. did not
complete the audit and as permitted by the Special Court, vide
Order dated 16.10.2003, the Custodian was permitted to
appoint another Auditor. The Custodian, vide its Order dated
05.11.2003, appointed M/s Vyas & Vyas Chartered
Accountants to audit the accounts and also to investigate
fraudulent and illegal transactions entered into by M/s
Harshad S. Mehta Group and his notified entities as referred
to in Janakiraman Committee Report, IDG Report and reports
47
based on the audit of the banks conducted by the RBI and the
charge-sheet filed in the Special Court. M/s Vyas & Vyas
submitted their report in respect of Harshad S. Mehta Group.
Even in the said report, Vyas & Vyas pointed out the complete
non-cooperation on the part of the appellants and the group
while auditing the accounts. In the report, on review of un-
audited accounts of M/s Harshad S. Mehta regarding the
diversion of funds it was observed as under:
“12 Diversion of funds
12.1 HSM diverted his funds to his family members as and when he received funds generated form PSU banks and financial institutions. We have drawn a statement of funds diverted to family members and his associate companies in Annexure No. 7. We have also checked these figures from the audited reports of his family members and associate companies and comparative chart is enclosed in Annexure No. 6A.
12.2 Further we studied the end use of funds diverted to family members and associate companies of HSM group and found that either funds were used for purchase of immovable properties or for purchase of shares and securities. HSM has not charged interest from his family members and his associate companies. The details of end use (broadly) by HSM group are also enclosed.
12.3 It is a case of one man show i.e. Mr. H.S. Mehta, who generated funds from PSU banks and financial institutions and diverted funds to his group entities. There is no ban on payment/receipt of funds from one family member to another member of the family. But then all prudential norms should have been followed. In this case no interest was charged/paid and there are huge differences in the balances of both the books.
48
12.4 The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people where therefore the corporate character is employed for the purpose of committing illegality or for defrauding other the corporate character should be ignored and will look at the reality behind the corporate veil.
12.5 We have found that these corporate bodies are merely cloaks behind which lurks HSM and/or member of his family are involved and the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud revenue and other people. Finally to get protection by law, in case HSM gets exposed the property belonging to his family members may be protected.
12.6 Further we have studied the accounts of Smt. Rasila Mehta and Reena Mehta who is not notified parties and their accounts were not subject to audit. The total balances outstanding in the books of M/s HSM of both the entities are as under as on 8/6/92:
Smt. Rasila Mehta 10,82,65,860.74 Dr Smt. Reena Mehta 6,33,35,834.69
We are enclosing the copies of accounts of Smt. Rasila Mehta and Reena Mehta appearing in the books of M/s HSM. From the accounts we observed that M/s HSM paid a sum of Rs. 30 Lacs on 16th April 1990 and a sum of Rs. 1259000/- on 18th April 1990 to Rasila Mehta. These are the dates when other members of the family purchased flat in ‘Madhuli’. Therefore in our opinion these funds were diverted by M/s HSM to Smt. Rasila Mehta (mother) for purchase of flat in ‘Madhuli’. Further we have also observed that M/s HSM debited the account of Smt. Rasila on account of purchases of shares in different companies. Similarly in case of Smt. Reena Mehta huge quantity of share were purchased by her, which were funded by M/s HSM. Copy of accounts of Mrs Rasila & Mrs Reena Mehta is enclosed in annexure No.5E
12.7 The above funds diverted by HSM to his family members were certainly for purchase of immovable properties and shares. Therefore all assets so called belonging to above persons should go back to HSM only.”
49
46) On a complaint, filed by Canbank Financial Services Ltd.
(wholly owned subsidiary of Canara Bank), the Custodian
notified the Appellants on 04.01.2007. The appellants filed
petitions challenging the order of notification under Section
4(2) of the Act. The Special Court looked into all the materials
including the Audit Report submitted by M/s Vyas & Vyas. A
summary of the accounts produced by M/s Vyas & Vyas is as
under:
Ledger Account of Mrs. Rasila S. Mehta for the period 1.4.1991 to 8.6.1992 in the books of accounts of various entities of Harshad Mehta Group.
SUMMARY
M/s Harshad S. Mehta Opening Balance as on 01.04.1990
ADD: 3227047.30
i) Shares purchased 275393709.50 ii) Funds transferred 110184616.44
Total debits 388805373.24
LESS CREDITS:
1990-91 71135919.00 1991-92 195090538.50 8TH June 1992 16948055.00 283174512.50
Debit balance as on 08.06.1992 105630860.74
50
ADD:
Loans & Advances due to M/s 2635000.00
Harshad S. Mehta as per Balance Sheet as on 08.06.1992.
Total Debits 108265860.74
Mr. Harshad S. Mehta
Opening Balance as on 01.04.1991 NIL
ADD:
i) Shares purchased NIL ii) Funds transferred 5000000.00
Debit balance as on 08.06.1992 5000000.00
LESS CREDITS:
1991-92 NIL 8TH June 1992 NIL
Total Debits 5000000.00
M/s Jyoti H. Mehta
Opening Balance as on 08.06.1992 As per client control – AR summary 117899544.00
ADD:
i) Interest receivable (as per Annexure E of Balance Sheet) 2500000.00
Total Debits 120399544.00
Mrs. Jyoti H. Mehta
Opening Balance as on 01.04.1990 179550.00
ADD: i) Shares purchased NIL
51
ii) Funds transferred 18000.00
Total Debits 197550.00
LESS CREDIT:
Debit balance as on 31st March 1991. NIL The balance is as per Trial balance as on 8th June, 1992. 197550.00
M/s Ashwin S. Mehta
Opening Balance as on 01.04.1990 117756.00
ADD:
i) Shares purchased 149166082.25 ii) Funds transferred 300.00
Total debits 149048626.25
LESS CREDITS:
1990-91 88034149.00 1991-92 47414656.84 8TH June 1992 649373.00 136098178.84
Debit balance as on 08.06.1992 12950447.41
Mr. Ashwin S. Mehta
Opening Balance as on 01.04.1991 NIL
ADD:
i) Shares purchased 204085.50 ii) Funds transferred NIL
Total Debits 204085.50 Less Credits NIL
Total Debits 204085.50
Mrs. Deepika A. Mehta
52
Opening Balance as on 08.06.1992 20500.00 (As per Trial Balance of Mrs. Deepika A. Mehta)
Ledger Account of Mrs. Rina S. Mehta for the period from 1st April, 1990 to 8th June, 1992 in the books of accounts of various entities of Harshad Mehta Group:
SUMMARY:
M/s Harshad S. Mehta
Opening balance as on 01.04.1990 NIL
ADD:
i) Shares purchased 72918112.75 ii) Funds transferred 32239980.94
Total Debits 105158093.69
LESS CREDITS:
1990-91 NIL 1991-92 41822259.00 41822259.00
Debit Balance as on 08.06.1992. The balance is the same as on 31.03.1992 (as per the copy of client control accounts as on 08.06.1992.) 63335834.69
Mr. Harshad S Mehta
Opening balance as on 01.04.1991 NIL
ADD:
i) Shares purchased NIL ii) Funds transferred 3500000.00
Total Debits 3500000.00
53
LESS CREDITS: NIL
Total Debits 3500000.00
Balance as on 08.06.1992 is the same as on 31.03.1992 (As per trial balance as on 08.06.1992)
M/s Jyoti H. Mehta Opening balance as on 08.06.1992 50757937.00
As per client control – AR Summary (extracts of report of M/s Jyoti H. Mehta)
Add: Interest receivable 3000000.00 Total Debits 53757937.00
Mrs. Jyoti H. Mehta Opening balance as on 08.06.1992 131000.00 (as pretrial balance as on 8th June 1992)
M/s Ashwin S. Mehta
Opening balance as on 01.04.1990 NIL
ADD:
i) Shares purchased 102293155.00 ii) Funds transferred 4929687.50
Total Debits 107222842.50
LESS CREDITS:
1990-91 NIL 1991-92 50936485.00
Total Debits 56286357.50
Mrs. Deepika A. Mehta
Opening Balance as on 08.06.1992 8300.00 (As per Trial Balance of Mrs. Deepika A. Mehta)
54
After perusing the Report of M/s Vyas & Vyas, the Special
Court came to a conclusion that the appellants are only fronts
of late Harshad S. Mehta. It further concluded that the
appellants are only housewives and were given loan by the
brokerage firms for purchase of shares. The Special Court,
therefore, rightly held that the money and assets were diverted
to the appellants by the brokerage firms who were notified
parties. Mr. Syed objected to the order of the Special Court for
fully relying on the Auditor’s report. We reject his objection for
the following reasons. First of all, the issue relates to
accounting of several persons. Several volumes of accounts
relating to various members of late Harshad Mehta’s family
have to be scrutinized. The Court and members of the bar are
not conversant with the accounting procedures and in such
event assistance from an established Chartered Accountant
Firm is needed. In fact, even during the course of arguments
in respect of questions by the Court, Mr. Syed himself sought
the assistance of persons who are conversant with
accountancy. In view of complicity in the matter, there is
nothing wrong on the part of the Special Court getting report
55
from M/s Vyas and Vyas who are recognized Chartered
Accountants. The order of the Special Court does not suffer
from any infirmity and there was sufficient material before the
Custodian to arrive at a satisfaction that monies had been
diverted by late Harshad S. Mehta to the appellants.
47) Whether the appellants being not involved in offences
in transactions in securities could have been proceeded
against in terms of the provisions of the Act?
The contention of the appellants that since they have not
been charged for any offence, they cannot be notified under
the Act. According to the appellants, the phrase “involved in
the offence” could only mean “accused of the offence” and
since they are not charged with any offence they can not be
notified. In construing the above mentioned words which are
used in association with each other, the rule of construction
noscitur a sociis may be applied. It is a legitimate rule of
construction to construe words in an Act of Parliament with
reference to words found in immediate connection with them.
The actual order of these three words in juxtaposition
indicates that meaning of one takes colour from the other. The
56
rule is explained differently: 'that meaning of doubtful words
may be ascertained by reference to the meaning of words
associated with it. (vide Ahmedabad Teachers’ Association
vs. Administrative Officer, AIR 2004 SC 1426).
48) Therefore, in the present case the nature of “offence”, in
which the appellants are allegedly involved, is to be taken into
consideration. The Act does not create an offence for which a
particular person has to be charged or held guilty. Thus the
phrase “involved in the offence” would not mean “accused of
the offence”. Also, the appellants could have been reasonably
suspected to have been involved in the offence after
consideration of the various reports of the Janakiraman
Committee, Joint Parliamentary Committee and the Inter
Disciplinary Group (IDG); and also the fact that 28 members of
the M/s Harshad S. Mehta group including his family
members/entities were notified under the Special Act
Ordinance itself. The above factual matrix was sufficient for
the satisfaction of the Custodian to notify the Appellants. The
object of the Act is not merely to bring the offender to book but
also to recover what are ultimately public funds. Even if there
57
is a nexus between a third party, an offender and/or property
the third party can also be notified. The word “involved” in
Section 3(2) of the Special Court Act has to be interpreted in
such a manner so as to achieve the purpose of the Act. This
Court in Ashwin S. Mehta vs. Custodian & Ors., (2006) 2
SCC 386 has observed as under:
“Although, we do not intend to enter into the correctness or otherwise of the said contention of the appellants at this stage, however, there cannot be any doubt whatsoever that they being notified persons, all their properties would be deemed to be automatically attached as a consequence thereto. For the said purpose, it is not necessary that they should be accused of commission of an offence as such.”
49) In Jyoti H Mehta & Ors. vs. Custodian & Ors., (2009)
10 SCC 564, this Court from para 33 to 38 has held that the
Special Court Act is a special statute and is a complete code in
itself. The purpose and object for which it was created was to
punish the persons who were involved in the act for criminal
misconduct in respect of defrauding banks and financial
institutions and its object was to see that the properties of
those who were involved shall be appropriated for the
discharge of liabilities of not only banks and financial
institutions but also other governmental agencies. In
58
construing the statute of this nature the court should not
always adhere to a literal meaning but should construe the
same, keeping in view in the larger public interest. For the
said purpose, the court may also take recourse to the basic
rules of interpretation, namely, ut res magis valeat quam
pereat to see that a machinery must be so construed as to
effectuate the liability imposed by the charging section and to
make the machinery workable. The statutes must be
construed in a manner which will suppress the mischief and
advance the object the legislature had in view. A narrow
construction which tends to stultify the law must not be
taken. Contextual reading is a well-known proposition of
interpretation of statute. The clauses of a statute should be
construed with reference to the context vis-à-vis the other
provisions so as to make a consistent enactment of the whole
statute relating to the subject-matter. Furthermore, even in
relation to a penal statute any narrow and pedantic, literal
and lexical construction may not always be given effect to.
The law would have to be interpreted having regard to the
subject-matter of the offence and the object of the law it seeks
59
to achieve. The purpose of the law is not to allow the offender
to sneak out the meshes of law. The courts will reject the
construction which will defeat the plain intention of the
legislature even though there may be some inexactitude in the
language used. Reducing the legislation futility shall be
avoided and in a case where the intention of the legislature
cannot be given effect to, the courts would accept the bolder
construction for the purpose of bringing about an effective
result. The courts, when rule of purposive construction is
gaining momentum, should be very reluctant to hold that
Parliament has achieved nothing by the language it used when
it is tolerably plain what it seeks to achieve.
50) Whether Canfina is a Financial Institution and
whether the complaint filed by Canfina is invalid?
The complaint has been received from Canfina which is a
100% subsidiary of Canara Bank, a nationalized bank. The
term financial institution has not been defined under the Act.
It became necessary to enact the Special Court Act because of
the large scale irregularities which came to light as a result of
the investigations by the Reserve Bank of India into the affairs
60
of various banks and financial institutions whose monies were
siphoned out. Thus the Statement of Objects and Reasons
makes it clear that the purpose and the object of the Act was
to recover and return monies to those banks and financial
institutions from whom the monies were siphoned out. It is
thus clear that the bodies which were sought to be covered
were the banks and financial institutions whose affairs were
investigated into by the Reserve Bank of India. The
investigation was conducted by the Reserve Bank of India
through Janakiraman Committee; the Joint Parliamentary
Committee, and the Inter Disciplinary Group. The affairs of
Canfina were also investigated by the various committees as a
financial institution. It has come to light that there were large
scale siphoning out of monies from Canfina also as held by the
Special Court in its order dated 25.06.1997 in the matter of
Fairgrowth Financial Services Vs. Andhra Bank in Misc.
Petition No. 222 of 1996.
51) It is the argument of learned counsel for the appellants
that Canfina should not be treated as a Financial Institution
after the rejection of the Reserve Bank of India to consider
61
Canfina as a Financial Institution. But this straight jacket
definition should be applied to the provisions of other Acts like
the Debt Recovery Act, the Companies Act, the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 etc. The term “Financial
Institution” for the purposes of this Act should be interpreted
in accordance with the Statement of Objects and Reasons of
the Act.
52) Thus, at the very inception of this Act are the
investigations by the Reserve Bank of India and these
investigations were carried on by the Janakiraman Committee.
The Act was intended to be applied to the workings of the
banks and financial institutions (though not covered by the
strict definition of the term but involved in the securities scam
of 1992) into whose affairs the Janakiraman Committee had
investigated. Canfina, was one such non-banking financial
institution that Janakiraman Committee had investigated and
thus it was meant to be covered under the Act.
53) These sources of information have been illustrated in
Rule 2 of the Rules, which reads as under:
62
“ 2. Sources of information: The Custodian appointed under sub-section (1) of section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as the Act) may entertain for consideration any information or complaint in writing submitted personally or sent by post to him by ----- (a) the Reserve Bank of India; (b) any bank or financial institution (c) any enforcement or investigating agency or department of the Government; (d) any officer or authority of the Government; (e) any person who is engaged in transactions of securities as a dealer, agent or broker; (f) any other person whose rights or interests in securities are affected: (g) any other source including reports and proceedings before the Special Court established under the Act or any Court or Tribunal for the time being in force as the Custodian may deem fit at any point of time. Provided that the information or complaint sent by any person referred to in clauses (e) and (f) shall not be entertained by the Custodian if it is not accompanied by an affidavit signed by that person and duly verified by a Magistrate or a Notary Public.”
Thus the claim of Canfina falls under Section 11(2)(b) of the
Act and their complaint falls under Rule (2)(b). Thus the fact
that it was not accompanied by an affidavit signed by that
person and duly verified by a Magistrate or a Notary Public,
does not make it an inappropriate complaint for consideration
by the Custodian.
54) Further, Rule 3 illustrates situations whereby the
Custodian may reject a certain complaint which is not
accompanied by copies of documents referred to in the
63
information or complaint, or is vague or does not contain the
name and address of the sender. This rule also does not make
it mandatory on the Custodian to reject a complaint if it does
not accompany the above details. If the material information
or the documents received by the Custodian are sufficient in
his opinion, to reveal that a person is involved in an offence
referred to in sub-section (2) of section 3 of the Act, he may
proceed to notify the name of the person under that sub-
section. Thus the satisfaction of the Custodian is of a
subjective nature and is not violative of Natural Justice. The
power to deal with the property ultimately lies with the Special
Court.
55) In view of the same, we are in entire agreement with the
conclusion arrived at by the Special Court and unable to
accept any of the contentions raised by counsel for the
appellants.
56) Claims for maintenance, repair charges, interest and
penalty for belated payment (Civil Appeal Nos. 3377 of 2009
and 4764 of 2010)
64
With regard to the above appeals filed against the orders
of the Special Court approving their report of the Custodian for
realization of certain amounts payable to the Society towards
repairs and maintenance charges, interest and penalty for
belated payment, learned counsel for the appellants again
raised various objections, inasmuch as the claim of the
Custodian depends upon the outcome of the other appeals i.e.
Civil Appeal Nos. 2924 of 2008 and 2915 of 2008 and in view
of our conclusion on these appeals, we are not inclined to go
into all those details once again. Since we agree with the
claim of the Custodian and various steps taken by him and
the ultimate order of the Special Court in the normal
circumstance, present appeals are also to be dismissed. We
have already noted that Smt. Jyoti H. Mehta and six other
family members of late Harshad S. Mehta were notified under
the Act. Upon enforcement of the aforesaid Act, all the
properties of late Harshad S. Mehta and his family members,
including the six appellants in Civil Appeal No. 3377 of 2009
apart from other corporate entities stood attached by the
Custodian. As a consequence thereof, all eight residential
65
properties/flats of the appellants, namely, residential flat Nos.
of 32A, 32B, 33, 34A, 34B, 44A, 44B and 45 in the Madhuli
Cooperative Housing Society Limited at Dr. Anne Besant Road,
Worli, Mumbai continue to remain attached under the Act by
the Custodian. Since the aforesaid eight residential properties
remain attached with the Custodian their upkeep/repair is
essential so that the market value of the said attached
properties does not get depreciated and that they may fetch
best market value as and when the same are permitted to be
sold by the Special Court so as to pay the liabilities of the
Government, Banks, Financial Institutions as well as other
decree holders under the provisions of Section 11(2) of the Act.
57) It was highlighted by the Custodian that as per the rules
and bye-laws of the Cooperative Housing Societies in Mumbai,
which are incorporated under the provisions of the
Maharashtra Cooperative Societies Act, all the owners of the
residential properties/flats, as the members of the Housing
Society are liable to pay such amount as may be determined
by the Society towards the upkeep, maintenance and repairs
of the flats as well as common areas and amenities in the
66
housing complex. In view of the same, the Cooperative
Housing Societies are entitled to recover all the arrears and
charges from the members who have not paid the society in
time.
58) The appellants herein are notified parties who are the
owners of the attached properties and have failed to pay to the
Madhuli Cooperative Housing Society Limited their
contribution towards the maintenance charges, interest
thereon and the charges incurred towards the repair of the
attached property by the Society. The total dues demanded by
Madhuli Cooperative Housing Society Limited vide its letter
dated 12.03.2009 relating to the eight attached properties in
question is Rs.1,87,97,011/-. The Custodian has furnished
break-up of the same as follows:
“i. Maintenance Charges & Rs. 1,62,80,811-00 Interest thereon.
ii. Repairs of 8 Flats. Rs. 25,16,200-00”
59) Learned counsel for the Custodian submitted that as per
the scheme of the repair and upkeep of the attached
properties, the maintenance charges including the interest for
the delayed payment is to be borne by the notified
67
parties/entities occupying the attached property, whereas the
charges incurred by the society towards the repair of the
attached properties is to be paid by the Custodian from the
attached account of the notified parties. Regarding payment of
maintenance and repair charges, there cannot be any doubt
that the Custodian is liable to pay the same to the society.
However, the Custodian has claimed interest for arrears of
maintenance charges as claimed by the Housing Society.
60) In the same way, in Civil Appeal No. 4764 of 2010, the
appellant, namely, Rasila S. Mehta, a notified party who is the
owner of the attached property failed to pay to the Madhuli
Cooperative Housing Society Limited her contribution towards
maintenance charges, interest thereon and also the charges
incurred by the Society towards repair of the attached
property. The total dues demanded by the Madhuli
Cooperative Housing Society Limited, vide its letter dated
21.06.2010 qua the attached property is Rs.21,06,230/- and
breakup of the same is as follows:
“i. Maintenance Charges Rs. 2,59,759-00 ii. Repairs Rs. 9,57,501-00 iii. Interest Rs. 8,88,970-00”
68
61) As discussed earlier, unless the attached properties are
properly maintained and as per the scheme, the repair and
upkeep of the attached properties are to be followed by the
Custodian and on the orders of the Special Court.
62) It is also brought to our notice that during the course of
hearing, either before the Special Court or in this Court,
certain amounts have been paid/deposited by the appellant.
Considering the fact that the appellants are agitating the
matter at the hands of the Custodian, the Special Court and
before this Court, we feel that the appellants need not be
burdened with interest and penal charges for non-payment of
maintenance and repair charges to the society. Accordingly,
while sustaining the claim of the Custodian as approved by
the Special Court in view of the reasons mentioned above, we
clarify that the Custodian is not permitted to collect interest
and penalty charges from the arrears of maintenance and
repair charges. This position is also clear from the decision of
this Court in Harshad Shantilal Mehta vs. Custodian &
Ors, (1998) 5 SCC 1. The Custodian is free to adjust the
69
amounts deposited by the appellants on the orders of this
Court or the Special Court. With the above direction, the
impugned order in both the appeals is modified to the limited
extent.
63) In the light of the above discussion, we do not find any
merit in Civil Appeal Nos. 2924 of 2008 and 2915 of 2008 and
accordingly they are dismissed. Civil Appeal Nos. 3377 of
2009 and 4764 of 2010 are disposed of granting the relief to
the extent mentioned in para 62. No order as to costs in all
the appeals.
....…………………………………J. (P. SATHASIVAM)
...…………………………………J. (DR. B.S. CHAUHAN)
NEW DELHI; MAY 6, 2011.
70