Iron Ore Co. Vs. Fairgrowth Financial Services  INSC 295 (6 May 1994)
M.N.(Cj) Venkatachalliah, M.N.(Cj) Mohan, S. (J)
1994 SCC (4) 246 JT 1994 (3) 570 1994 SCALE (2)854
Judgment of the Court was delivered by VENKATACHALIAH, C.J.- M/s Kudremukh Iron
Ore Company Limited, a Government Company, prefers this appeal under Section 10
of the Special Court (Trial of Offences Relating to Transactions in Securities)
Act, 1992 (for short 'the Act') against the order dated 26-8-1993 made by the
Special Court at Bombay in Miscellaneous Petition No. 58 of 1993.
said order the Special
Court held that in
relation to the transactions referred to and relied on by the appellant, it had
no jurisdiction to exercise powers under the 'Act'.
appellant on various dates in July 1992 deposited with the Andhra Bank
Financial Services Ltd. under what are called inter-corporate deposits
aggregating to about Rs 55 crores. The deposits were to carry interest ranging
from 21 % to 22%. It would appear that the Andhra Bank Financial Services Ltd.
had, in turn, invested large sums of money said to be in the order of Rs 240 crores,
with a company called the Fairgrowth Financial Services Ltd. When the
appellant's deposits with M/s Andhra Bank Financial Services Ltd. fell due for
repayment, the latter pleaded its inability to make immediate repayment on the
ground that its own funds were locked up with the Fairgrowth Financial Services
said Fairgrowth Financial Services Ltd. was a 'notified person' under Section
3(2) of the Act and accordingly the Special Court under Section 11 of the Act had jurisdiction to direct
repayment of its liabilities.
appellant, it is not disputed, had no privity of contract with the said Fairgrowth
Financial Services Ltd.
on the stand of the Andhra Bank Financial Services Ltd. that its funds were, in
turn, locked up with and retained by the said Fairgrowth Financial Services
Ltd., the appellant moved the Special Court for a direction that the securities
of the Fairgrowth Financial Services Ltd. in the hands of the custodian be
directed to be sold and the proceeds disposed of in favour of the Andhra Bank
Financial Services Ltd. and that out of the sums so found payable, the sum of Rs
54 crores which was then due to the appellant together with accrued interest,
be appropriated and applied for the discharge of the appellant's claims.
Special Court by its order dated 26-8-1993, now under appeal., declined to entertain the appellant's prayer.
my view, this Court can only adjudicate on claim in respect of properties
belonging to notified parties. The petitioner's claim against the 2nd
respondent does not fall within the purview of the jurisdiction of this Court.
This Court has no jurisdiction over such claims or dispute. It is for the
petitioners to adopt such proceedings as they may be advised in the normal
civil or criminal courts.
disposed of on ground that this Court has no jurisdiction."
Ramaswamy lyengar, learned counsel for the appellant, urges that when financial
transactions are so inextricably interwoven it is unrealistic to limit the
identity of the 'notified person' so narrowly. What determines the jurisdiction
of the Special Court, says counsel, is not a mere
technical, distinctive legal entities but the composite character which the
degree of the sub-sumption of the funds impart to them. Learned counsel submits
that, in this case, having regard to the nature of the large-scale involvement
of Andhra Bank Financial Services Ltd. and its funds with the Fairgrowth
Financial Services Ltd., the purpose of the 'Act' would not be fulfilled by
ignoring the character of these financial interrelations.
are afraid, it may not be necessary to go into this proposition as to what
extent and nature of interdependence may render the two apparently distinct
legal entities to be reckoned as one for purposes of the Act. For one thing,
the Special Court itself was not treated to any such argument.
no factual foundations necessary to compel an inference necessary to enable a
piercing of the veil were laid before the Court. We do not, therefore, propose
to examine this proposition purely as a matter of law. The fact remains that
the 'notified person' under Section 3(2) of the Act was the Fairgrowth
Financial Services Ltd. and no privity between that 'notified person' and the
appellant having been established, the view taken by the Special Court as to
jurisdiction seems to us to be unexceptionable on the facts and the
circumstances of this case.
Indeed, Section 11 of the Act exclusively empowers the Special Court to give
directions in the matter of the property of a notified person. The foundation
for the jurisdiction under Section 11 to deal with any such property is that it
should have been a property under attachment.
3(3) of the Act provides that attachment of property, whether moveable or
immovable, or both, belonging to the notified person becomes effective
simultaneously with the issue of the notification under Section 3(2) of the
with respect to this attached property that powers under Section 11 of the
'Act' could be exercised. We might, here, take a look at Section 11 of the Act
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.
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;
amounts due from the person so notified by the Custodian to any bank or
financial institution or mutual fund;
any other liability as may be specified by the Special Court from time to
time," The reasoning implicit in the order under appeal is that the power
to order payment of amounts due from a 'notified person' 'to any bank or
financial institution or mutual fund' presupposes and proceeds on the existence
of obligations inter se between the parties based on contractual, statutory or
other legally recognised rights and that such vinculum juris is absent as
between the appellant on the one hand and the Fairgrowth Financial Services
Ltd. on the other. What is further implicit is that the appellant which is a
stranger to the consideration respecting transactions between the Andhra Bank
Financial Services Ltd. and the Fairgrowth Financial Services Ltd., cannot seek
to enforce the obligations thereunder. The remedy of the appellant against its
debtor which itself is not a notified person, lies in the ordinary courts of
the land. This reasoning is not shown to be unsound.
appeal is, accordingly, dismissed without any order as to costs. IA No. 1 of
1993 In view of the dismissal of the main appeal, IA No. 1 of 1993 does not
survive and is, accordingly, dismissed.