Harshad Mehta Vs. Custodian & Ors.  INSC 1408 (7 August 2009)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.5176 OF
2009@ D-25207 OF 2008 Mrs. Jyoti Harshad Mehta and others .... Appellants
Versus The Custodian and others ....Respondents
and/or application of the provisions of the Special Court (Trial of Offences
Relating to Transactions in Securities) Act, 1992, (hereinafter, for the sake
of brevity, referred to as `the Special Act') is involved herein.
out of an order dated 25th July, 2008 passed by the learned Judge, Special
Court at Mumbai in Misc. Petition No.41 of 1999.
HISTORICAL BACKGROUND The history as well as the purpose and object for which
the Special Act was enacted, in view of the several decisions rendered by this
Court, is now well-settled. The Reserve Bank of India in course of an
investigation conducted by it, had inter alia opined that Harshad Mehta (since
deceased), along with his other associates had diverted a huge amount of public
funds belonging to Public Sector Banks and Financial Institutions for short
term investments in the securities market.
Inquiry Committee was thereafter constituted under the Chairmanship of Shri
Janakiraman. The said Committee in its report had noticed a large number of
gross malpractices and irregularities in transactions of both Government and
other securities, pursuant whereto and in furtherance whereof the Special Act
was enacted providing inter alia for the constitution of a Special Court for
trial of criminal offences, as also civil disputes, arising there from during
the period between 1st April, 1991 to 6th June, 1992, hereinafter referred to
as the "window period".
this time, the family members of late Harshad Mehta had purchased movable,
immovable properties and shares. Out of these 2 properties, there were nine
residential flats purchased, in a building called "Madhuli", in
Worli, Mumbai. These flats were merged and redesigned for joint living of the
entire family and these properties are the subject matter of this lis.
OF THE PROCEEDINGS In terms of the said Special Act, a Custodian was appointed.
The Custodian notified Harshad Mehta as also the appellants herein; pursuant
where to all their properties stood attached. Some of the appellants had filed
applications for de-notifications. The same were, however, not pressed and were
later withdrawn. It has been claimed by the appellants in an Affidavit dated
28.07.2009 that they had filed their denotification applications registered as
M.A. Nos. 50 to 55 of 2009, however they withdrew the same again with a liberty
to file afresh by an order dated 12.06.2009.
aforementioned premise a question came up before the learned Judge, Special
Court in regard to sale of movable and immovable properties belonging to the
notified persons. The learned Judge, Special Court, on an application filed by
the custodian inter alia directed sale of flats purported to be belonging to
learned Judge, Special Court, by his judgment and order dated 17th October,
2003 directed sale of the said flats. The aforementioned order came to be
challenged before this Court by way of appeals preferred under Section 10 of
the Special Act. They were registered as Civil Appeal Nos. 667-71 of 2004 and
672 to 681 of 2004. This Court by its judgment and order dated 3rd January,
2006 allowed the said appeals and remitted the matter back to the Special Court
with some directions.
decision of this Court has since been reported in Ashwin S. Mehta and another
v. Custodian and others, [ (2005) 2 SCC 385 ].
matter was taken up thereafter by the learned Judge, Special Court which passed
the impugned judgment.
OF CHARTERED ACCOUNTANTS The findings of Chartered Accountants have a major
role to play in this case. We may notice that during pendency of the
proceedings before the Special Court M/s Vyas & Vyas, Chartered Accountant,
was appointed in respect of assets and liabilities of Harshad Metha on 16th
October, 2003. They submitted a report upon auditing the Accounts of 4 Late Harshad
Mehta for the financial year ending 31.03.1992 and for the period ending
08.06.1992 on 17th January, 2006. The notified parties have contested this, in
an affidavit dated 28th July, 2008, by stating that the Custodian had actually
received the same on 30.11.2005.
order of this Court in Ashwin Mehta (supra) another Chartered Accountant, M/s.
Vinod K. Aggarwala & Co. was appointed by the custodian for preparation of
"Realistic Estimates of the Assets and Liabilities". The report of
the said Chartered Accountant was based on the Report of the three firms of
Chartered Accountants appointed by the court. This report was submitted on the
27.02.2006. The Realistic Estimates of Assets and Liabilities of the Harshad
Mehta Group as on 01.01.2007 was prepared by Vinod K. Aggarwala & Co. and
was submitted on 26th April, 2007.
also place on record that M/s Vyas & Vyas, Chartered Accountant had
categorically stated that the said books of accounts were not complete. This
can be seen through excerpts mentioned in their own report, 5 "19.6 Due to
the compelling nature of limitations on our work and unreliable nature of the
books of accounts, we are unable to accept responsibility for the accuracy and
completeness of the information/particulars provided to us nor do we accept
we are unable to comment about the true and fair state of affairs of HSM and
M/s HSM for the year ended 31st March, 1991, 31st March 1992 and for the period
ended as on 8th June, 1992".
JUDGEMENT OF THE SPECIAL COURT The Special Court in the impugned judgment
noticed that it was to decide the issues in accordance with the directions of
this court in Ashwin Mehta (supra), wherefor it quoted in extenso the
conclusions and directions issued. We shall proceed to deal with each of the
eleven directions that had been given by the this Court in Ashwin Mehta (supra)
while remitting the matter back to the learned Judge, Special Court and how
accordingly the Special Court went on to deal with them.
No. 1 of this Court in Ashwin Mehta (supra) was:- "(i) The contention of
the Appellants that they being not involved in offences in transactions in
securities could not have been proceeded in terms 6 of the provisions of the
Act cannot be accepted in view of the fact that they have been notified in
Special Court noted that this Court, as regards the first direction, had itself
recorded a finding against the appellants and therefore nothing further was to
be done by it in that regard.
No. 2 of the court, which is most relevant for our purposes reads as under:-
"(ii) The Appellants being notified persons all their personal properties
stood automatically attached and any other income from such attached properties
would also stand attached. The question as to whether the Appellants could have
been considered to be part of Harshad Mehta Group by the learned Special Court
need not be determined by us as, at present advised, in view of the fact that
appropriate applications in this behalf are pending consideration before the
learned Special Court.
question as regard intermingling of accounts by the Appellants, herein with
that of the Harshad Mehta Group and/ or any other or further contentions raised
by the parties hereto before us shall receive due consideration of the learned
Judge, Special Court afresh in the light of the observations made
learned Judge, Special Court, considered the said direction into three parts.
part of the direction being that the appellants being notified persons, all
their personal properties stood automatically attached and any other income
from such attached properties would also therefore get attached.
regards this part the learned Judge, Special Court noted that this was a
finding recorded against the appellants and accordingly no orders were
necessary to be passed by it in that respect.
second part of the said direction being that the question that the appellants
could have been considered to be part of Harshad Mehta Group by the learned
Special Court need not be determined by the Supreme Court, in view of the fact
that appropriate applications in this behalf were pending consideration before the
learned Special Court.
regard to the said direction the learned Special Judge, Special Court noted
that the applications referred to in the said direction issued by the Supreme
Court were a reference to the applications for de- notification filed by
members of the Harshad Mehta Family. The court thereafter having made reference
to Sudhir S Mehta v. Custodian & Ors, [(2008) 12 SCC 84] noted that there
were no applications for de- notifications pending before the Special Court, as
all applications had been withdrawn and therefore there was no further steps
required to be taken by the learned Judge, Special Court.
in the alternative, again referring to Sudhir Mehta (supra), the learned Judge,
Special Court also noted that the contention whether the appellants should be
treated as a `group' or not would not be relevant unless they were able to show
that some prejudice had been caused to them thereby.
and the final part of the said direction dealt with the question as regards
intermingling of accounts by the Appellants, herein with that of the Harshad
Mehta Group which in the opinion of this Court 9 were required to be dealt with
by the Special Court afresh in the light of the observations made therein.
of the direction in the opinion of the learned Judge Special Court was the main
question, which was required to be considered by him.
on to note the observations of this court in Sudhir Mehta (supra) as regards
the finding that the claim of the notified parties that their assets exceeded
their liabilities was not correct. In Sudhir Mehta (supra) the court had
accepted the submissions of the custodian that even the individual liabilities
of the notified parties far exceeded their assets.
Special Court in the impugned judgment then went on to deal with the contention
that the properties in question had been purchased before the statutory period
or window period prescribed under the said act being 01.04.1991 to 06.06.1992
and they were therefore not liable to be attached.
noted that the properties of the notified parties held by them on the date of
their notification got statutorily attached and became liable to be sold for
discharging the liability of the notified parties, therefore, the previous
contention does not stand.
thereafter, went on to deal with the argument that the properties in question
had no nexus with the illegal securities transactions and the flats had been
purchased by the notified parties at the relevant time by taking interest
bearing loan from M/s Harshad S Mehta. These loans had been repaid either fully
regards this contention the Special Court again referred to Sudhir Mehta
(supra) to note that properties of the notified persons stood attached
irrespective of the fact whether those properties were bought by using tainted
funds or not. Therefore the nexus to the illegal security transactions was
came to the conclusion that all the residential properties had been funded by
Harshad S Mehta and they could therefore be disposed of accordingly. In this
regard the Special Court relied on the report of the auditors, M/s. Vyas and
Vyas who had considered the flow of funds from Harshad Mehta to various other
notified parties. This was the fact that 11 the funds had specifically been
transferred for purchase of the properties just before the purchase. There was
also a huge amount outstanding in the accounts of the notified parties to
Harshad Mehta on the 1st of April, 1990 and 1991.
Special Court also noted that one of the flats in Madhuli, being No. 34-A was
owned by M/s Aatur Holding Pvt. Ltd. In regard to the said company the Special
Court found it necessary to pierce the corporate veil. This was based on the
fact that even though the paid up capital of the said company was only Rs.
10,000/- and the highest salary paid by the company was only a meager Rs.
4,000/- p.m., the company had entered into trading security transactions
running into crores of rupees. It therefore opined that the real owner of the
said company was none other than Shri Harshad Mehta.
conclusion it was opined that the business and dealings of various individuals
who held flats in Madhuli and the company M/s Aatur Holding were nothing but
fronts of Harshad Mehta and the money that was invested for buying the flats
was that of Harshad Mehta. Harshad 12 Mehta, therefore, had merely used the
names of various individuals who were related to him for buying the said flats.
No. 3 of this Court in Ashwin Mehta (supra) reads as under: - "(iii) as
regard the tax liabilities of the Appellants, herein, we would request the
learned Judge, Special Court to consider the matter afresh in the light of the
observations made hereinbefore. The learned Judge, Special Court, in this
behalf, having regard to the fact that several orders of Best Judgment
Assessment have been passed by the Assessing Authority, may take into
consideration the ratio laid down in the decision of this Court in Harshad
Shantilal Mehta v. Custodian & Ors. 1998 (3) SCALE 556."
regards this direction the Special Court noted that the order had already been
made on applications which were filed by the decree holder bank by it and the
said matter was pending before this Court.
No 4 of this Court reads as under:- "(iv) The learned Special Court shall
proceed to pass appropriate orders as regard confirmation of the auction sales
in respect of commercial properties."
regards this direction the Special Court noted that the necessary orders had
already been passed.
direction, being Direction No 5 reads:- "(v) As regard, sale of
residential properties, an appropriate order may be passed by the learned
Judge, Special Court in the light of the observations made hereinbefore."
respect of this direction the Special Court directed the custodian to sell
Flats No. 32 A, 32 B, 33, 33A, 33 B, 44 A, 44 B and 45 in `Madhuli' by
following the procedure laid down by the Special Court itself for sale of the
property belonging to the notified parties. It also directed the custodian to
seek directions, if necessary, from it in this behalf.
Nos. 6, 7 and 8 are as under:- "(vi) We direct the Custodian to permit the
Appellants to have inspection of all the documents in his power or possession
in the premises of the Special Court in the presence of an officer of the
court. Such documents must be placed for inspection for one week continuously
upon giving due notice there for to the Appellants jointly. As the Appellants
have been represented in all the proceedings jointly, only one of them would be
14 nominated by them to have the inspection thereof.
Appellants shall be entitled to take the help of a Chartered or Cost Accountant
and may make notes there from for their use in the pending proceeding.
Appellants shall file their objections to the said report, if any, within ten
Custodian may also take assistance and/ or further assistance from a Chartered
Accountant of his choice. A reply and/ or rejoinder thereto shall be filed within
one week from the date of the receipt of the copy of the objection. The parties
shall file their respective documents within one week thereafter. Such
documents should be supported by affidavits. Both the parties shall be entitled
to inspect such documents and filed their responses thereto within one week
thereafter. The parties shall file the written submissions filed before this
Court together with all charts before the learned Special Judge, Special Court
within eight weeks from date.
The learned Judge, Special Court shall allow the parties to make brief oral
submissions with pointed reference to their written submissions.
hearing in the peculiar facts and circumstances of this case should continue
from day to day. (ix) The learned Judge, Special Court while hearing the matter
in terms of this order shall also consider as to whether the auction sale
should be confirmed or not. It will also be open to the learned Judge, Special
Court to pass an interim order or orders, as it may think fit and proper, in
the event any occasion arises therefore."
regards these three directions the Special Court noted that the Custodian had
already complied with the said directions and allowed for the necessary
inspection. The Special Court further noted that there were no complaints made
before it that the said directions had not been complied with.
No 9 reads:- "(ix) The learned Judge, Special Court while hearing the
matter in terms of this order shall also consider as to whether the auction
sale should be confirmed or not. It will also be open to the learned Judge,
Special Court to pass an interim order or orders, as it may think fit and
proper, in the event any occasion arises therefore."
regards this the Special Court noted that necessary orders had already been
No 10 of the court in Ashwin Mehta (supra) was:- "(x) We would, however,
request the learned Special Judge, Special Court to complete the hearings of
the matter, keeping in view of the fact that auction sale in respect of the
residential premises is being consideration, as expeditiously as possible and
not later than twelve weeks from the date of the receipt of the copy of this
except for sufficient or cogent reasons, the learned Judge shall not grant any
adjournment to either of the parties."
regards the said direction the Special Court noted after the said matter had
been taken up by them for hearing, the notified parties had given their consent
for initiating the process of sale of the flats. This process was set in motion
and at the request of the parties, both were granted time to submit their
pleadings and documents.
Direction of the Court, being No 11:- "(xi) The learned Judge, Special
Court shall take up the matter relating to confirmation of the auction sale in
respect of the commercial properties immediately and pass an appropriate order
thereupon within four weeks from the date of receipt of copy of this order. If
in the meanwhile orders of assessment are passed by the Income Tax Authorities,
the Custodian shall be at liberty to bring the same to the notice of the
learned Special Court which shall also be taken into consideration by the
learned Judge, Special Court."
regards this direction the Special Court noted that necessary orders had
already been passed.
17 Mr. I.H. Syed, learned counsel appearing on behalf of the appellants
contended :- (i) That the learned Judge, Special Court misconstrued and misread
the directions issued by this Court in Ashwin Mehta (supra).
he failed to take into consideration that the properties belonging to the
appellants were not and could not have been treated as the benami properties of
such an event the provisions of the Benami Transactions (Prohibition) Act,
1988, should have been invoked or in any event Sub-section (1) of Section 4 of
the Special Act which deals with transactions to defeat the provisions of the
Act was attracted. These provisions provide for an opportunity of hearing to be
Sub-section (1) of Section 4 of the Special Act postulates that the notified
persons must acquire property in the name of another from the tainted money
during the window period and having regard to the findings of the Auditors that
Harshad Mehta had purported to have 18 advanced amounts by way of loans or
otherwise to the appellants herein much prior thereto, the impugned judgment is
the right to keep property being a Constitutional as well as Human Right and
furthermore the provisions of the Special Act being penal in nature, they
deserve a strict construction.
finding having been arrived at, that the properties in question had any nexus
with the tainted funds received from the illegal security transactions, they
should have been released from attachment by the Custodian.
That the properties having not been acquired within the `window period' i.e.
during 1st April, 1991 to 6th June, 1992, the order of the learned Special
Court for auction sale thereof must be held to be wholly illegal.
The learned Judge, Special Court, committed a serious illegality in so far as
he relied upon the Janakiraman Reports and other reports, which are wholly
inadmissible as evidence.
The appellants being notified persons are responsible for discharging their own
liabilities from their own assets and not those of Harshad Mehta and/or any
other person and therefore it was not proper on the part of the learned Judge,
Special Court to club the appellants herein as part of the Harshad Mehta Group.
learned Judge, Special Court seems to have reproduced large amounts of the
Custodians' report in the Judgment, this raises the question as to whether he
took into account the arguments of the appellants in the case.
Arvind Kumar Tewari, learned counsel for the custodian, on the other hand,
contended :- (i) As the appellants were notified persons, Section 4(1) of the
Special Act has no application as all their properties stood attached in terms
of Section 3 of the Act and as such they could have been appropriated for
discharge of the 20 liabilities of Harshad Mehta and group under the scheme of
the latter provision.
Appellants having not filed any application for their de- notification and the
Custodian and/or the Special Court having all along proceeded with the case
against the appellants and the late Harshad Metha as one group, it is too late
in the day to contend that they are not bound to discharge the liability of
Harshad Mehta and should instead be treated individually.
a case of this nature where Section 3 would apply and not the sub-section (1)
of Section 4; properties can be sold in discharge of the liabilities of all the
notified persons irrespective of the fact whether they had been acquired from
the tainted money or acquired during the window period or not.
learned Judge, Special Court, having proceeded to determine the issues raised
before it by the parties on the basis of the Audit Reports filed by M/s. Vyas
& Vyas, the impugned judgment is unassailable.
Harshad Metha was not acting alone. There were various corporate entities,
firms etc. involved and the appellants were in one way or the other involved actively
in the said companies and/or the firms. It was in that sense the custodian
proceeded on the basis that the appellants should be clubbed together as a part
of the same group.
the appellants are notified persons. Proceedings started against them in 1992.
They were proceeded against as the Harshad Mehta Group and not in their
individual capacity. Indisputably they had acted as a part of this group,
whatever might have been their individual contribution in regard to the acts of
omission and commission towards defrauding the banks and the financial
institutions for the purpose of making investment in the security transactions.
the absence of any proof that they have no connection with the said business
they should be treated as belonging to the said group.
That the flow of fund from one member to the other, as reflected from their own
books of accounts, clearly establish that they are part of the same group
and/or it is the contribution of Harshad Mehta alone which enabled the
appellants to purchase the flats in their individual names.
SECTION 4(1) OF SPECIAL ACT
regards intermingling of accounts of the appellants with that of the Harshad
Mehta Group and/or any other or further contentions raised by the parties, it
was directed by this Court in Ashwin Mehta (supra) that the same shall receive
due consideration of the learned Judge, Special Court afresh in the light of
the observations made therein.
plain reading of sub-section (1) of Section 4 of the Special Act it would
appear that the same applies to the third parties and not any notified party.
It is only when a property has been purchased in the name of a third party by a
notified party from the tainted funds acquired by him during the window period,
that the provisions of sub-section (1) of 23 Section 4 would would apply. But
in a case where the properties have been purchased by the notified parties
themselves as members of a group in the name of one or the other, the rigours
of sub-section (1) of Section 4 shall not apply. Section 3 of the Special Act,
on the other hand, postulates automatic statutory attachment of the properties
of the notified party. The acquisition of the properties whether prior to the
window period, during the window period or thereafter can be attached for the
discharge of liabilities.
a statute which seeks to take away a person's right in property deserves strict
construction. However, it is also well settled that the courts are required to
give purposive construction to a statute to see that the purpose and object
thereof is fully attained. This Act is a Special statute. It 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 acts of criminal misconduct in respect of
defrauding banks and financial institutions. Its object was to see that the
properties of those who were involved shall be appropriated for discharge of
liabilities not only of 24 banks and financial institutions but also other governmental
agencies including the Income-tax Department.
however, not an ex-propriatory legislation as such. The Act provides for
sufficient safeguards in the matter of sale of properties by auction or
otherwise towards discharge of debts of the notified persons.
provides for grant of full opportunity of hearing to the notified persons.
persons have special knowledge of the facts relating to their assets and
liabilities and, therefore, can always show that they have been notified
wrongly or that their properties are not liable for sale either because their
liabilities can otherwise be discharged or the quantum of liabilities projected
by the Custodian is not correct.
construing the statute of this nature the Court should not always adhere to a
literal meaning but would construe the same, keeping in view the larger public
interest. For the said purpose the Court may also take recourse to the basic
rules of interpretation, namely ut res magis val eat quam per eat to see that a
machinery must be so construed as to effectuate the liability imposed by the
charging section and to make the machinery 25 workable. [See Indian
Handircrafts Emporium and others v. Union of India and others, (2003) 7 SCC 589
Kumawat v. Union of India and others, [ (2003) 7 SCC 628 ] this Court preferred
a dictionary meaning of the word "ivory" in preference to the
technical meaning stating :- "20. 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-`-vis the other provisions so as to
make a consistent enactment of the whole statute relating to the
subject-matter. The rule of "ex visceribus actus" should be resorted
to in a situation of this nature."
furthermore held :- "23. Furthermore, even in relation to a penal statute
any narrow and pedantic, literal and lexical construction may not always be
given effect to.
would have to be interpreted having regard to the subject-matter of the offence
and the object of the law it seeks to achieve. The purpose of the law is not to
allow the offender to sneak out of the meshes of law. Criminal jurisprudence
does not say so."
observed :- 26 "26. The courts will therefore reject that construction
which will defeat the plain intention of the legislature even though there may
be some inexactitude in the language used. [See Salmon v.
(AC at p. 634).] 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.
[See BBC Enterprises v. Hi-Tech Xtravision Ltd. (All ER at pp. 122-23).]"
in relation to application of doctrine of strict construction, it was noticed
:- "34. In State of Maharashtra v. Natwarlal Damodardas Soni this Court
was concerned with search and seizure of gold under the Customs Act and the
Defence of India Rules. The Court was dealing with smuggling of gold into India
affecting the public economy and financial stability of the country and in that
context the Court applied the Mischief Rule. While interpreting the words
"acquires possession" or "keeping" in clause (b) of Section
135(1) of the Customs Act, this Court observed that they are not to be
restricted to "possession" or "keeping" acquired as an
owner or 27 a purchaser of the goods, observing: (SCC p. 677, para 22)
"Such a narrow construction -- which has been erroneously adopted by the
High Court -- in our opinion, would defeat the object of these provisions and
undermine their efficacy as instruments for suppression of the mischief which
the legislature had in view. Construed in consonance with the scheme of the
statute, the purpose of these provisions and the context, the expression
`acquired possession' is of very wide amplitude and will certainly include the
acquisition of possession by a person in a capacity other than as owner or
Court while setting aside a judgment of acquittal passed in favour of the
respondents therein on the basis of the interpretation of the Customs Rules
observed: (SCC p. 678, para 25) "... These provisions have, therefore, to
be specially construed in a manner which will suppress the mischief and advance
the object which the legislature had in view. The High Court was in error in
adopting too narrow a construction which tends to stultify the law.
second charge thus had been fully established against the respondent."
P.K. Arjunan v. State of Kerala (2007) 9 SCC 516, para 11] 28 Mr. Syed,
therefore, in our opinion is not correct in contending that the advances made
by Harshad Metha to the appellants herein for the purpose of purchase of
properties would amount to benami transactions whereof sub-section (1) of
Section 4 of the Special Act shall apply.
REGARDING NOMENCLATURE In Ashwin Mehta (supra), this Court had specifically
asked the ld.
the Special Court to decide on the issue of nomenclature of the parties, namely
whether to consider them as a whole group or as individuals. The Special Court
in the impugned judgment preferred to rely on the judgment of this court in
Sudhir Mehta (supra) on this issue;
this Court observed:
takes us to the aforementioned paragraphs heavily relied upon by the learned
counsel in the judgment of Ashwin Mehta case. In para 41, it was stated that it
was open to the appellants to show that even if they continued to be notified,
the Custodian was not right in clubbing all the individual members of the
family as a single entity styled as the Harshad Mehta Group. We do not find
that there was any attempt on the part of the appellants to disassociate
themselves from the Harshad Mehta Group. When 29 we see the judgment dated
17-8-2000 passed by the Special Court, it is obvious that the learned counsel
arguing that matter had argued it on behalf of the Harshad Mehta Group. It is
for this purpose that we have quoted the argument before the learned Special
Judge in extenso. We will only quote a sentence which forms a part of the
was contended that on a proper and legal assessment, the actual tax liability
of the Harshad Mehta Group would be marginal and a large portion of the amounts
would have to be refunded by the Revenue. He contended that in case of the
Harshad Mehta Group, the demands made by the Department are based on the
best-judgment assessments, which are highly exaggerated. He contended that the
assessment orders are ex parte in nature. He contended that the Harshad Mehta
Group is contesting the demands before the appellate authorities."
supplied) It was, therefore, obvious that at that juncture, when the question
was as to whether the shares should be sold or not, the move was objected to by
the appellants formulating themselves as the Harshad Mehta Group. No such
objection to form and treat the relatives as a group was raised before the
Special Court in the year 2000 when the question of sale of shares fell for
consideration for the first time. At any rate, unless it is shown as to what
prejudice would be caused by treating them to be a group, this contention has
no basis. We, therefore, do not think that the argument in this behalf has any
Criticism has also been made with regard to the application of the doctrine of
lifting the corporate veil which was not supposed to be made applicable to the
individual. The said doctrine was applied by the learned Judge of the Special
Court in the instant case in respect of the company M/s. Aatur Holding Pvt.
Ltd. The abovementioned company purchased a flat, although its paid up capital
was only Rs.10,000/- and the highest salary paid to the employee by it was only
Rs.4000/- per month. Despite this the said company allegedly entered into
security trading transactions amounting to crores.
appellants were members of an H.U.F. and were seen to be working in tandem.
Harshad Metha vis-`-vis the appellants was, thus, not a third party.
DENOTIFICATION Appellants contend that they had withdrawn the denotification
applications in 2000 although the same had been filed in 1993. The delay in
disposal of the said applications is sought as a reason assigned in support of
the same. We fail to see any justification in the said stand.
contend that they wanted to file fresh applications. If that be 31 so the
reason why the earlier applications were withdrawn had not been properly and
sufficiently explained. The reason assigned is hardly a ground for withdrawal
of the applications. We have been informed by the appellants that fresh
applications for denotifications have been filed and the same have been
withdrawn in the year 2009. The same issue may have to be dealt with by the
Special Court. We wonder, why it took nine years to file these fresh
notice that applications for denotification were filed by Raseela Mehta and
Rina Mehta which were rejected by the Special Court.
rejecting the same have been challenged before this Court by way of Appeals
which are numbered as Civil Appeal Nos. 2915 of 2008 and 2924 of 2008 and are
THE PROPERTIES WITH THE ILLEGAL
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
security transactions, the same can be released from 32 attachment or at least
need not be sold. 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 there from.
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.
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. The said sub- section does
not provide for any qualification that the properties which 33 are liable to be
attached should relate to the illegal securities transactions in respect of
which the Act was enacted. Had the intention of the Parliament been so, it
would have clearly mentioned it. It is well settled that when the meaning of
the words used in an Act is plain and clear, effect must be given thereto.
supported by the decision of this court in LS Synthetics Ltd.
Fairgrowth Financial Services Ltd. [ (2004) 11 SCC 465 ]. Therein the
appellants had taken a loan from the respondents, Fairgrowth who had admittedly
been notified under the Act. The respondent therein, Fairgrowth thereafter
filed an application before the Special Court seeking attachment of the said
funds due to them by LS Synthetics. It was argued on behalf of the debtors, LS
Synthetics, that the loans due to the respondents had no nexus to the nature of
securities transactions specified under the Special Act and they were therefore
not liable to be attached.
Court while rejecting the said contention noted that having regard to the
provisions of the Act, it was not required that the properties in question must
have a nexus to the illegal securities transaction.
all assets of the notified parties including the loans advanced by them in the
case at hand were found liable to be attached.
Court however in LS Synthetics (supra) was not concerned with the issue of
whether the properties in question had been acquired before the window period
or not. The loans in that case had admittedly been advanced within the window
period and accordingly the only question before the court was whether the loan
would be liable to be attached despite not having a nexus to the illegal
accordingly brings us to the next submissions as regards the statutory window
WINDOW PERIOD It was contended on behalf of the Appellants, that the properties
in question had been purchased much before the statutory window period provided
under the Special Act. It is argued that the jurisdiction of the Special Court
is strictly confined to the period from 01.04.1991 to 06.06.1992 and as such
the Court would not have the power to investigate and give any findings
pertaining to any transaction entered into prior to the statutory period. The
appellants state that, the fact, no claims have been received by the custodian
from any bank pertaining to the pre- 35 statutory period, should be conclusive
evidence that no monies were siphoned off in that period as falsely alleged.
opinion the interpretation advanced by the appellants on the provisions would
be a clear misreading of the Act. We must in this regard refer to the relevant
provisions of the Act.
of Section 3(2) should not be read into Section 3(3).
Section 3 (3) is dependent on Section 3(2) for its operation, but once Section
3(2) comes into operation, Section 3(3) becomes independent of it and
accordingly the qualifications of Section 3(2) cannot be read into Section
3(3). We must place emphasis on a plain reading of the said section. Had it
been the intention of the legislature to attach only those properties acquired
within the statutory period, it would have clearly said so. The statutory
window period is only a relevant criterion for application of Section 3(2) and
therefore has no bearing on the application of Section 3(3).
reading of Section 3(3) would suggest that all properties of the notified
persons on the date of the said notification would 36 automatically stand
attached irrespective of the fact as to whether they had been acquired before,
during or even after the statutory period. A logical corollary of this would be
that all income accruing or arising from the said property even after the date
of attachment would also automatically stand attached.
property acquired by a notified person after the notification under the Special
Act cannot be attached. That property does not come within the purview of the
Section 3(3). [See Tej Kumar Balakrishna Ruja v. A K Menon, (1997) 9 SCC 123
para 6] The cutoff date for the attachment of the property accordingly is the
date of notification. All properties of the persons on the said date
automatically stand attached. The statutory window period is irrelevant for the
attachment of the property. It would have no bearing on the said attachment.
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 37 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.
It is an
accepted fact that the reports of the Jankiraman Committee, the Joint
Parliamentary Committee and the Inter Disciplinary Group (IDG) are admissible
only for the purpose of tracing the legal history of the Act alone. The
contents of the report should not have been used by the ld. Judge of the
Special Court as evidence.
a lot of documents have been filed before us with regard to Audited Reports.
Vyas and Vyas had filed an Audited Report in 2003.
whereof were supplied in 2005. Audited Report of Vyas and Vyas related only to
Harshad Mehta. A Report on the Assets and Liabilities of the Appellants by M/s.
Vinod K. Agarwala and Co. as on November, 2007 has also been placed on record.
It does not appear that the Special Judge had considered this aspect of the
matter in great detail.
learned Judge, Special Court, should consider the aforementioned two audit
reports so as to arrive at a positive finding with regard to the 38 liabilities
and assets possessed by them so as to enable to pass appropriate orders.
learned Judge, Special Court, in his judgment has mainly dealt with the
contentions raised by the custodian in terms of the written submission filed on
its behalf. The contentions of the appellants have not been considered in the
impugned judgment. It is furthermore contended on behalf of the appellants,
that out of the twenty six paragraphs of the impugned judgment, 15 paragraphs
are near verbatim reproductions.
opinion this clearly shows the non-application of mind of the learned Judge,
Special Court. He was required to weigh the submissions and counter-submissions
of both the parties in his proper perspective and then arrive at a well
reasoned opinion, which doesn't seem to be the case before us. It is well
settled that "Justice must not only be done, but also must be seem to be
Audited Reports and the objections have been filed before us.
the parties to file the same before the learned Judge, Special 39 Court, so as
to enable him to consider the matter afresh strictly in the light of the
earlier judgment passed in Ashwin Mehtas (supra) as well as the observations
reasons aforementioned, the impugned judgment is set aside and the matter is
remanded to the learned Judge, Special Court, for consideration thereof afresh
in the light of the observations of this Court as expeditiously as possible and
preferably within a period of six months from the date of this judgment. The
appeal is allowed with the aforementioned observations. In the facts and
circumstances of the case, there shall be no order as to costs.
...............................J. [ S.B. Sinha ]