Nixon Ltd. Vs. Custodian & Ors  INSC 294 (6 April 2010)
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.
2724 OF 2006 KILLICK NIXON LTD. ... APPELLANT VERSUS WITH
CIVIL APPEAL NOS. 4802-4803 OF 2008 LODESTAR SLOTTED ANGLES LTD. ... APPELLANTS
AND CIVIL APPEAL NOS. 4806-4818 OF 2008 KILLICK NIXON LTD. & ORS. ETC. ...
SUDERSHAN REDDY, J.
appeals are directed against the orders of interlocutory nature passed by the
Special Court constituted 2 under the provisions of the Special Courts (Trial
of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter
referred to as `the Act'). They are being disposed of by this common order
since the question that arises for our consideration is one and the same.
Dhanraj Mills Private Limited in its ordinary course of business had advanced
interest free loans to the appellant M/s. Killick Nixon Limited and its group
year 1992, the Special Court found that M/s. Dhanraj Mills Private Limited, its
Directors and their close associates indulged in fraudulent securities
transactions resulting in siphoning of huge funds of various banks. The banks
had gone into liquidation as a result of those fraudulent securities
transactions. The Special Court also held that the end beneficiaries of the
siphoned funds were the Directors of M/s.
Mills Private Limited and Director of Bank of Karad which bank was used as a
conduit for the fraudulent transactions.
Dhanraj Mills Private Limited was accordingly notified under the provisions of
the said Act. On and from the date of notification, the properties, movable or
immovable, or both belonging to any person notified under sub-section (2) of
Section 3 of the said Act shall stand attached, simultaneously with the issue
of the notification. Be it noted that M/s. Dhanraj Mills Private Limited itself
owned 33% of M/s. Killick 3 Nixon Limited and the person in ultimate control,
ownership and management of M/s. Killick Nixon Limited is one T.B. Ruia (who at
all relevant points of time was Managing Director of M/s. Dhanraj Mills Private
Limited) who was also notified under the Act.
Custodian, on behalf of M/s Dhanraj Mills Private Limited, proceeded against
the appellant M/s. Killick Nixon Ltd. and its group Companies for recovery of
loans totaling Rs.20,81,67,031/-. The amounts due to M/s. Dhanraj Mills Private
Limited also stood attached with the issue of notification.
5. In the
year 1995, the appellant M/s. Killick Nixon Limited and its group Companies
filed separate applications before Special Court for ascertaining their
individual liabilities with a request to grant time for recompense.
the Custodian also filed applications for fixation of liability and demanding
interest @ 24% per annum. In the year 1997, the Special Court passed decrees
against the appellant and its group Companies which are consent decrees qua
invitum the Custodian, whereby individually ascertained amounts were to be paid
in installments with the interest @ 15% per annum. Similar consent decree was
passed against 13th group Company also.
Dhanraj Mills Private Limited, in the meanwhile, made an application before the
Special Judge 4 contending that the amounts recovered from the group Companies
cannot be attached towards the debt payable by M/s Dhanraj Mills Private
Limited to the Custodian, since there was no nexus between loans advanced to
original judgment-debtors and the transactions with the banks. The prayer in
the said application was that the amount so recovered was to be freed from
attachment until to be paid back to M/s Dhanraj Mills Private Limited, by the
Custodian. The Special Court dismissed the claim so made on the ground that the
Directors of M/s Dhanraj Mills Private Limited and its close associates were
involved in fraudulent deals and have siphoned off funds belonging to banks.
The Special Court found overwhelming evidence that M/s Dhanraj Mills Private
Limited is liable to make payment and all its assets fall within the purview of
the Act. It is in this order the Special Court specifically held that this is a
fit case "for the corporate veil to be torn off" as M/s Dhanraj Mills
Private Limited had no explanation whatsoever for how such large amounts of
"loans" could have been advanced to the appellant and its group
Companies when M/s Dhanraj Mills Private Limited itself had been defunct for
many years without any commercial activity of its own.
7. In the
year 1999, The Special Court having considered the request of the original
judgment debtors, granted extension of time and directed the Custodian not to
proceed with execution of the decrees, subject to payment of defaulted 5
installments. As usually, the appellant and its group Companies defaulted in
payment of the said amounts once again. Left with no alternative, the Custodian
filed execution applications against the judgment debtors for recovery of dues
from M/s Dhanraj Mills Private Limited. It is not necessary to refer the facts,
the subsequent events in detail and various objections raised from time to time
as to the sale of properties in the process of realizing the decretal amounts.
However, one important fact that may be required to state is that the Special
Court by its earlier order dated 30th November, 2001 required the judgment
debtors to pay Rs.16 crores payable towards all decrees for considering the
prayer for extension of time to which all of them agreed to do so. This
singular fact establishes that even judgment debtors were treating the separate
decrees passed against each one of them as a consolidated common decree. The
Custodian, at all points of time treated them as a group to which no objections
were raised at any point of time. The sale proceeds were accordingly
appropriated against dues of the entire group of M/s Killick Nixon Ltd.
dispute now raised by the appellants is that the sale proceeds or the
properties of M/s. Killick Nixon group companies ought to be apportioned
individually decree wise. This is contrary to its earlier stand. The material
available on record also reveals that these group companies have always 6
referred to the aggregate principal amount of alleged loan given by M/s.
Dhanraj Mills Private Limited.
appellants submitted before the Special Court that the liabilities of the
judgment debtors under separate decrees were not joint liabilities inasmuch as
each judgment debtor is a separate entity in law having their separate
properties and assets. It was the case of the appellants that merely because
the judgment debtors are group companies the amount of decree passed against
them cannot be consolidated. It was their case that the Custodian cannot be
permitted to appropriate the amounts paid by the judgment debtors as also the
sale proceeds realized from the sale of properties towards a consolidated
decree. It is not necessary to refer in detail the stand taken by the Custodian
opposing the plea of the appellants. Various instances were pointed out by the
Custodian as to how the appellants themselves were treating the decrees as a
was specifically demonstrated by the Custodian that the appellants not only
treated them as one group but have themselves proceeded and agreed to have
appropriation of the sale proceeds of the properties sold on group basis. The
averment in the petition filed in the Special Court contained figures relating
to the aggregate dues of the group, the aggregate amounts received from the
sale of properties and the aggregate balance amount.
Special Court after a detailed consideration came to the conclusion that M/s.
Killick Nixon Limited and others are group companies and they are all
controlled by M/s. Dhanraj Mills Private Limited - notified party and the
amounts that are being recovered in execution of the decrees are really public
funds which were siphoned off by the Directors of M/s Dhanraj Mills Private
Limited, and parked in the companies controlled by them. The Special Court
accordingly held that the appropriation of sale proceeds made by the Custodian
is proper and accordingly the Custodian should proceed further to recover the
amount that remained in balance.
these appeals, the singular submission made by Shri Dhruv Mehta, learned senior
counsel for the appellants, is that the appropriation of sale proceeds ought to
have been carried out individually against each of the decree and not as done
by the Custodian treating all the decrees as a consolidated decree.
Having heard learned counsel for the appellants and respondent, we are
satisfied that an interference with the impugned order passed by the Special
Court, which is purely interlocutory and does not decide any rights of any
party, is unwarranted. The Special Court did not decide any rights of the
parties but merely passed orders from time to time including the one under the
appeals for the realization of the amounts under the decrees passed which
attained their finality. The procedure adopted for realization of the amounts
under the decrees and the 8 manner of appropriation, in our considered opinion,
by itself does not amount to deciding any lis as such between the parties.
Section 10 of the Act that an appeal shall lie to this Court from any judgment,
sentence or order of the Special Court but not against the interlocutory
orders. Appeals against interlocutory orders are specially excluded under the
cannot be any iota of doubt that M/s Killick Nixon and other companies were
always treated as one group and there is a clear finding in this regard by the
Special Court that the said group of companies are nothing but front companies
of M/s. Dhanraj Mills Private Limited.
orders impugned in these appeals are purely interlocutory in nature against
which no appeal lies to this court under Section 10 of the Act. We are
fortified in that view of ours by a decision of this court in CIFCO Properties
(P) Ltd. and Others vs. Custodian and Others1. Even on merits, we find that the
Special Court having meticulously analyzed the facts, arrived at a proper
conclusion and rightly treated the decrees as a consolidated one.
find no merit in these appeals and they are accordingly dismissed without any
order as to costs.
--------------------------J. 1 [ (2005) 3 SCC 708 ] [B.SUDERSHAN
--------------------------J. [SURINDER SINGH NIJJAR]
April 27, 2010.