L.S. Synthetics Ltd. Vs.
Fairgrowth Financial Services Ltd. & Anr  Insc 519 (6 September 2004)
N. Santosh Hegde,S.B.
Sinha & A.K. Mathur With C.A. No. 4269 Of 2003 And C.A. No. 4270 Of 2003 S.B.
These appeals arising out of the judgments and orders dated 21st March 2003
passed by the Special Court at Bombay in Miscellaneous Petition Nos. 71, 72 and
99 of 1999 involving similar questions of law and fact were taken up for
hearing together and are being disposed of by this common judgment.
The fact of the matter, however, is being noticed from Civil Appeal No. 4268
A notification was issued on 2.7.1992 by the Custodian notifying the
Respondent No. 1 as a notified party in terms of the provisions of the Special
Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992
(for short "the said Act").
The Appellant herein obtained short term loans amounting to Rs.
14.25 lakhs from the notified party during the period 1.4.1991 to 6.6.1992
as specified in the said Act. The Custodian called upon the Appellant herein to
furnish particulars of the said loans pursuant to or in furtherance whereof the
Appellant herein accepted the same to be outstanding as on 30.6.1992 in the
books of Respondent No. 1 payable to him. On the said amount of loan, interest
at the rate of 21% per annum was payable.
The Appellant herein was directed to deposit the principal amount by the
Custodian which was not complied with. The concerned Chartered Accountant,
however, gave a certificate to the effect that a sum of Rs. 14.25 lakhs was
advanced as loan to the Appellant by the Respondent No. 1 with interest at 21%
per annum and that the total sum outstanding was Rs.
34,98,967.04/-. The Respondent No. 1 thereafter initiated a proceeding
before the Special Court praying for a direction upon the Appellant herein to
pay to the Custodian a sum of Rs. 34, 99,900.68/- on behalf of his behalf.
The contentions of the Appellant before the Special Court were that it
having furnished full details of the amount in question to the Custodian in
1993, the claim was barred by limitation and the said Act did not enable the
Respondent herein to recover any time barred debts from it. It was further
urged that the transaction in question having not arisen out of transactions in
securities, the Special Court had no jurisdiction to deal with the matter. It
was also contended that in that view of the matter Section 9A of the said Act
must be read down.
By reason of the impugned judgment, the Special Court, however, rejected the
said contentions holding that once a property is found to be owned by a
notified party, all claims relating thereto must be adjudicated upon by the Special
Following its earlier decision of the Tribunal in A.K. Menon, 180], the Special
Court held that the provisions of the Limitation Act would have no
application to the proceedings under the said Act. It was consequently ordered:
"(a) I hereby direct Respondent No. 1 to pay to the Custodian on behalf
of FFSL Rs. 14.25 lacs with interst at 15% per annum from the date on which the
loan(s) have been advanced upto payment." SUBMISSIONS:
Mr. G.L. Sanghi, learned senior counsel appearing on behalf of the Appellant
would contend that the advances made by the Respondent being not transactions
of the nature specified in the Act, an application filed by the notified party
was not maintainable. It was submitted that the provisions of the said Act and
in particular those contained in Section 9A must be read down so as to uphold
the constitutionality of the said Act. Strong reliance in Corporation of India
Ltd. and Others [1995 Supp (3) SCC 81].
The learned counsel would further submit that by reason of the provisions of
the said Act, the plea of limitation which could have been taken by the
Appellant, had a suit been filed by the Respondent No. 1 against it, would
still be available as the transaction is of civil nature. It was argued that
only because a statutory attachment comes into force by reason of Section 3(3)
of the Act, the property of the notified party does not vest in the Custodian.
In any event, Mr. Sanghi would argue that the notified party had no locus to
initiate the proceedings before the Special Court.
The learned counsel would, in the alternative, submit with reference to
Civil Appeal Nos. 4269 and 4270 of 2003 that there being no agreement to pay
interest, the Special Court erred in directing such payment of interest without
arriving at a finding that any demand in relation thereto was made in terms of
the provisions of the Interest Act.
Mr. Subramonium Prasad, learned counsel appearing on behalf of the
Respondent, on the other hand, would argue that as all properties stood
attached in terms of the said notification on 22.7.1991 and all amount
recovered are required to be utilized towards the dues of the notified person;
an application at the instance of the notified person was maintainable.
The learned counsel would submit that the Special Court could initiate a suo
motu proceeding and as it has a duty to issue direction(s) as regards the
attached property and in that view of the matter, the provisions of the
Limitation Act will have no application. Strong reliance in this Nagpur 206].
It is not in dispute that the Respondent No. 1 herein has advanced loan to
the Appellant by different cheques amounting to Rs. 14.25 lakhs which were to
be repaid at the interest rate of 21% per annum, the details whereof are as
"Cheque No. Date Amount 234285 28.01.92 1,50,000 244746 27.04.92
3,50,000 244825 06.05.92 1,00,000 246029 25.05.92 1,00,000 246038 25.05.92
75,000 246159 09.06.92 6,50,000" The said Act was enacted to provide for
the establishment of a Special Court for the trial of offences relating to
transactions in securities and for matters connected therewith or incidental
thereto. A Special Court is established under Sub-Section (1) of Section 5 of
the said Act. Not only all prosecutions relating to offences committed under
the said Act are to be initiated before the Special Court in terms of Section 7
of the Act, by reason of Section 9A thereof which was inserted by Act 24 of
1994 with effect from 25th January, 1994, the Special Court is empowered to
exercise all such jurisdiction, powers and authority as were exercisable
immediately before such commencement by any Civil Court in relation to any
matter or claim inter alia relating to any property standing attached under
Sub-section (3) of Section 3 thereof.
In terms of the provisions of the said Act, the Custodian has three
functions to perform:
(i) to notify a person in the Official Gazette, on being satisfied on
information received that he has been involved in any offence relating to
transactions in securities during the period specified therefor;
(ii) He has the authority to cancel any contract or agreement relating to
the properties of the notified persons which, in his opinion, has been entered
into fraudulently or for the purpose of defeating the provisions of the Act as
specified in Section 4.
(iii) He is required to deal with the properties in the manner as directed
by the Special Court.
By reason of Sub-section (2) of Section 3 of the Act, the Custodian who may
be appointed under Sub-section (1) thereof is entitled to notify a person on
satisfying himself that he is involved in any offence relating to transactions
in securities, wherefor he may rely upon the information received from any of
the sources specified in Rule 2 of 1992 Rules. Sub- section (3) of Section 3
provides for a non-obstante clause in terms whereof any property movable or
immovable belonging to the notified person shall stand attached simultaneously
with the issue of the notification.
JURISDICTION OF THE SPECIAL COURT:
The jurisdiction of the Special Court is of wide amplitude. Subject to a
decision in appeal therefrom, its decision is final.
In this case, the notified person himself had disclosed that a sum of Rs.
14.25 lakhs is owing and due to it from the Appellant. The debt at the hands of
the Appellant payable to the Respondent being admitted, we have no hesitation
to hold that the same would be subject matter of attachment.
The debt in question is capable of being attached being a property belonging
to the notified party and upon such attachment the consequences provided
therefrom would ensue and in that view of the matter the Special Court will
have jurisdiction to pass an appropriate order in relation thereto by issuing
appropriate directions in terms of the provisions of the said Act.
As the Special Court had the requisite jurisdiction to deal with the
attached property, it is immaterial whether the factum of the statutory
provisions is brought to its notice by the notified party himself or by the
Custodian. The Court has the requisite jurisdiction; nay a duty to apply itself
to the said question once the matter is brought to its notice.
The jurisdiction of the Special Court, it is not correct to contend, is
confined only to the illegal transactions in securities and properties acquired
by the notified person out of the same. Once the properties are attached under
Sub-section (3) of Section 3, the Custodian has no other option but to apply
the same in such a manner as the Special Court may direct.
before the Special Court. The Special Court, as would appear from the plain
wordings of the said Act, is entitled to direct the Custodian as regard
application of any property which stands attached. It may, therefore, do so at
the instance of the notified person apart from the Custodian. It can also
initiate a proceeding suo motu once attachment of any property belonging to a
notified person is brought to his notice.
READING DOWN OF SECTION 9A OF THE ACT :
The primal question which, however, arises for consideration is whether a
statutory attachment in terms of Sub-section (3) of Section 3 of the said Act
would apply only in relation to a property which was the subject-matter of the
transactions in securities.
Application of all properties belonging to the notified person who,
according to the Custodian, might have committed an offence within the meaning
of the provisions thereof evidently for the purpose of discharge of such
liabilities is obviated by reason of Section 11 of the said Act which reads as
"11. Discharge of liabilities. - (1) Nothwithstanding 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 Section 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." It is not a case where
a third party right is involved as was the case in Another [(1994) 4 SCC 246].
The purpose of the said Act is to discharge the liabilities of the Government
Banks, financial institutions, mutual funds, etc.
and for the said purpose, the statute itself provides that all properties
belonging to the notified person shall stand attached. Once a statutory
attachment comes into force, although the properties in question unlike the
provisions of some other Acts do not vest in the Custodian but the same
evidently remain under the control of the Special Court. There is, in our
considered opinion, no basis to hold, as has been urged by Mr. Sanghi, that
only those properties belonging to the notified person which are subject matter
of the transactions in securities would stand attached and for that purpose
Section 9A of the said Act is not required to be read down.
HARSHAD SHANTILAL MEHTA:
Our attention has been drawn by Mr. Sanghi to paragraph 14 of Harshad
Shantilal Mehta (supra) which reads as follows:
"14. It has also been submitted before us by one of the notified
parties (Dhanraj Mills v. Custodian) that properties belonging to notified
persons which have no nexus with the transactions in securities of the notified
person during the "statutory period", also cannot be attached under
Section 3. Reliance is placed on the decision of the Bombay High Court in the
case of Hitesh Shantilal Mehta v.
Union of India ((1992) 3 Bom CR 716) (to which one of us was a party) in
this connection. Our attention is drawn to the following passage in the High
Court's judgment : (at p. 719) "If the person ... approaches the Special
Court and makes out, for example, a case that the property which is attached
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." Hence a property
not having any nexus with the illegal dealings in securities can be released
from attachment by the Special Court in an appropriate case." This Court
in paragraph 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.
Therein indisputably this Court was referring to a judgment of the Bombay
High Court but did not pronounce finally on the correctness or otherwise
In Hitesh Shantilal Mehta (supra) 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 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 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.
In Harshad Shantilal Mehta (supra), it was , inter alia, opined :
28 It was, therefore, expected that the available funds from attached assets
would be speedily restored to the banks and financial institutions. It was also
expected that even after the discharge of tax liabilities for the relevant
period, substantial funds would be left over for being paid to the banks and
financial institutions concerned." CANARA BANK:
In Canara Bank (supra) this Court was concerned with transfer of an
application pending before the Company Law Board in terms of Sub-Section (2) of
Section 9-A of the Act and only in that context, it was observed:
"10. Sub-section (1) of Section 9-A is divisible into two parts. By the
first part, the Special Court is empowered to exercise, on and from the
commencement of the Amendment Ordinance, all such jurisdiction, powers and
authority as were exercisable before such commencement by any civil court. By
the second part, the Special Court is empowered to exercise such jurisdiction,
powers or authority in regard to the matters or claims therein specified, which
include matters or claims arising out of transactions in securities entered
into between the stated dates in which a notified person is involved. So read,
the Special Court has the jurisdiction, powers and authority of a civil court
to exercise the same in regard to matters or claims arising out of transaction
in securities entered into between the stated dates in which a notified person
is involved. Sub-section (1) of Section 9-A, therefore, invests the Special
court with the jurisdiction, powers and authority necessary for the purposes of
entertaining matters or claims of the nature specified therein. Sub- section
(2) provides for the transfer of such matters or claims pending in any court to
the Special Court on the commencement of the Amendment Ordinance.
And sub-section (3) expressly debars any court other than the Special Court
from exercising any jurisdiction, powers or authority in relation to such
matters or claims." LIMITATION:
The contention as regards the applicability of the Limitation Act must be
considered having regard to the foregoing findings .
Act, 1963 is applicable only in relation to certain applications and not
all applications despite the fact that the words "other proceedings"
were added in the long title of the Act in 1963. The provisions of the said Act
are not applicable to the proceedings before bodies other than courts, such as
quasi-judicial tribunal or even an executive authority. The Act primarily
applies to the civil proceedings or some special criminal proceedings. Even in
a Tribunal, where the Code of Civil Procedure or Code of Criminal Procedure is
applicable; the Limitation
Act, 1963 per se may not be applied to the proceedings before it. Even in
relation to certain civil proceedings, the Limitation Act
may not have any application. As for example, there is no bar of limitation for
initiation of a final decree proceedings or to invoke the jurisdiction of the Court
under Section 151 of the Code of Civil Procedure or for correction of
accidental slip or omission in judgments, orders or decrees; the reason being
that these powers can be exercised even suo motu by the Court and, thus, no
question of any Insurance Corporation of India and others, AIR 1970 SC 209,
Hindustan Laxmibai (supra)] Even no period of limitation is prescribed in
relation to a writ proceeding.
S.N. Variava, J. in A.K. Menon, Custodian (supra), whereupon the learned
Special Court has placed reliance, observed:
"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 remain is
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
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." We respectfully agree with the said view.
We may, however, add that the attachment of the properties of the notified
party being for specific purposes, i.e., for the purpose of discharging his
liabilities, the Special Court is bound to pass appropriate orders in relation
thereto. A property once attached shall remain under attachment till an
appropriate order is passed. It is, therefore, idle to contend that even in
respect thereof the provisions of the Limitation Act
would apply. The Court while issuing directions to the Custodian in relation to
the attached property for the purpose of discharge of the liability of the
notified person must pass an appropriate order. So long the claims or other proceedings
initiated before the Special Court as regard discharge of liability of the
notified person continue, the attachment remains in force. A proceeding before
the Special Court is not a suit for recovery of an amount. The proceedings
before the Special Court are extraordinary in nature. Distribution of the
assets of a notified person may take a long time but it would bear repetition
to state because all the claims filed before the Special Court are disposed of,
the property of the notified person stands attached. In other words, the
provisions of the Limitation
Act would inter alia apply only when a suit is filed or a proceeding is
initiated for recovery of an amount and not where a property is required to be
applied towards the claims pending before the tribunal for the purpose of
discharge of the liabilities of the notified person in terms of Section 11 of
the said Act.
A Special Court having regard to its nature and functions may be a court
within the meaning of Section 3 of the Indian Evidence
Act, 1872 or Section 3 of the Limitation Act,
1963 but having regard to its scope and object and in particular the fact
that it is a complete code in itself, in our opinion, the period of limitation
provided in the schedule appended to the Limitation Act,
1963, will have no application. For the applicability of Section 29(2) of
Act, the following requirements must be satisfied by the Court invoking the
(1) There must be a provision for period of limitation under any special or
local law in connection with any suit, appeal or application.
(2) Such prescription of the period of limitation under such special or
local law should be different from the period of limitation prescribed by the
Schedule to the Limitation
In terms of the provisions of the said Act, no period of limitation is
prescribed, evidently because the Parliament thought it to be wholly
unnecessary. Once the statutory operation relating to the attachment of the
property belonging to a notified person comes into being, the duties and
functions of the Special Court start. In relation to the duties and functions
required to be performed by a court of law, no period of limitation need be
prescribed. Furthermore, Section 13 of the said Act provides for a non-
obstante clause which has been used as a devise to modify the ambit of
provisions of law mentioned therein or to override the same in the specified
circumstances. [See T.R. Thandur vs. Union of India and Others (1996) 3 SCC
690 para 8]. The said Act does not provide for any period of limitation, the
reasons wherefor have been noticed hereinbefore and in that view of the matter,
in our considered opinion, Articles 19, 28 and 55 providing for period of
limitation prescribed would have no application.
Section 13 of the said Act provides for a non obstante clause which is of
wide amplitude. In a case of conflict between the said Act and any other Act,
the provisions of the former shall prevail.
[2001 (2) SCALE 1], this Court held :
"10The Legislature being aware of the provisions of Section 22 under
the 1985 Act still empowered only the Special Court under the 1992 Act to give
directions to recover and to distribute the assets of the notified persons in
the manner set down under section 11(2) of the 1992 Act. This can only mean
that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to
prevail over the provisions of any other law including those of the Sick Industrial
Provisions) Act, 1985. It is a settled rule of interpretation that if one
construction (sic constructions) leads to a conflict, whereas on another
construction, two Acts can be harmoniously constructed then the latter must be
adopted. If an interpretation is given that the Sick Industrial
Companies (Special Provisions) Act, 1985, is to
prevail then there would be a clear conflict if it is held that the 1992 Act is
to prevail." A statute of limitation bars a remedy and not a right.
Although a remedy is bared, a defence can be raised. In construing a special
statute providing for limitation, consideration of plea of hardship is
irrelevant. A special statute providing for special or no period of limitation
must receive a liberal and broader construction and not a rigid or a narrow
one. The intent and purport of the Parliament enacting the said Act furthermore
must be given its full effect. We are, therefore, of the opinion that the
provisions of the Limitation
Act have no application, so far as directions required to be issued by the
Special Court relating to the disposal of attached property, are concerned.
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 directed to be released in his favour or in favour of any other person.
It does not appear from the judgment of the Special Court that any argument
was advanced before it that there did not exist any agreement as regard payment
of interest. No such contention has even been raised in the Memorandum of
Appeal or in the Affidavit filed before the Special Court.
In fact, it is admitted that the Custodian and the Appellant exchanged
certain correspondences in this behalf in the year 1992.
We do not find any merit in the contention of Mr. Sanghi that the Special
Court had no jurisdiction to issue any direction for payment of interest. The
said direction, in our opinion, could have been issued having regard to the
fact that the attached amount was being utilized by the Appellants; assuming
that there existed no agreement in relation thereto. As the attached property
remained in the hands of the Appellant and they had applied the same for their
own benefit, the Special Court was entitled to grant interest by way of
We, therefore, hold:
(i) A notified party has the requisite locus to bring the fact to the notice
of the Special Court that certain sum is owing and due to him from a third
party whereupon a proceeding can be initiated for recovery thereof by the
Custodian and consequent application thereof in discharge of the liability of
the notified person.
(ii) Sub-section (3) of Section 3 should be literally construed and so
construed all properties belonging to the notified person shall be subject to
attachment which may, consequently, be applied for discharge of his liabilities
in terms of Section 11 of the said Act.
(iii) The provisions of Limitation Act,
1963 have no application in relation to the proceedings under the said Act.
For the reasons aforementioned, we do not find any merit in these appeals
which are dismissed accordingly. No costs.