Balakrishna Ruia Vs. A.K. Menon & Anr  INSC 1096 (9 September 1996)
S.P. (J) Bharucha S.P. (J) Venkataswami K. (J) Bharucha.J.
JT 1996 (8) 99
are appeals against the judgment and orders of the Special Court constituted under the provisions of
The Special Court (Trial Of Offences Relating To Transactions In Securities)
Act, 1992, ("the Act"), and they relate to the sweep of Section 3(3)
thereof. The principal Judgment and order gave the appellant liberty to file an
application for a subsistence allowance. When the appellant declined to avail
of the liberty the final order was passed.
appellant became a notified person under the provisions of Section 3(2) of the
Act on 2nd July, 1992. On 9th October, 1994, he was appointed an advisor by Killick Nixon Ltd. with
effect from 8th
October, 1994. By
reason of such appointment he is entitled to be paid consultancy fees in the
sum of Rs.5,000/- per month by the said company. By a letter dated 7th August, 1995, to the Manager, Dena Bank, the
appellant applied to open a new Current Account in his name to be operated by
him. On 6th September,
1995, the appellant's
advocates were informed that the matter had been referred to the Head Office of
the bank and by a letter dated 27th October, 1995, that the matter had been referred to the Custodian appointed under the
Act. The petitioner filed a petition on 23rd November, 1995, in the Special Court and sought a declaration that the
income "earned by way of the aforesaid emoloyment is not liable for
attachment" and permission "to open a new bank account and operate
the same in the normal course".
petition was dismissed by the order under appeal.
The Special Court proceeded upon the basis that the
appellant was "genuinely seeking release of an income which he is earning
from his services". However, the Special Court said that if the interpretation which the appellant wanted
it to give was accepted, it could result in a very clever method of siphoning
off assets which could and must stand attached. The Special Court noted that Even after 3 years
monies which had been siphoned off had not been traced. It was thus evident
that the notified parties or some of them had monies or assets which were lying
in some undisclosed place. One of the simplest methods to bring such moneys
into the open and start using them was to ostensibly render services to
somebody else who then paid the notified party the purported income or for
somebody to give to the notified party a gift or for a notified party to
suddenly inherit some assets. This would become a method to defeat the object
of the Act and could not be permitted. The Special Court then dealt with the provisions of Section 3(3) and held
that the words therein "on and from the date of the Notification"
meant that all assets which were available on the date of the Notification and
all assets which became available from and after that date stood attached. The
term "property" had a wide connotation and included present and
if some notified party inherited or was gifted some property or earned some
income subsequent to being notified, such property or income would stand
attached and be available for distribution under the Act.
Act was preceded by an Ordinance which established the Special Court for trial of offences relating to
transactions in securities that had been entered into between 1st April, 1991 and 6th June, 1992. Section 3, sub section (1) empowered the Central
Government to appoint one or more Custodians under the Act. By reason of
sub-section (2), the Custodian could, on being satisfied on information
received that any person had been involved in any offence relating to
transactions in securities between the Started dates, notify the name of such
person in the Official Gazette. Sub-section (3) reads thus :
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 peoperty,
movable or immovable, or both, belonging to any person notified under that
sub-section shall stand attached simultaneously with the issue of the
notification." The Custodian could, by reason of sub-section (4). deal
with property attached under sub-section (3) in such manner as the Special Court directed. Section 4(1) empowered
the Custodian, if he was satisfied, after such inquiry as he thought fit, that
any contract or agreement entered into at any time between the stated dates in
relation to any property of the notified person had been entered into
fraudulently or to defeat the provisions of the Act, to cancel such contract or
agreement, whereupon such property stood attached under the Act. Sections 7, 8
& 9 deal with the jurisdiction of the Special Court in criminal proceedings. Section 9A deals with the
jurisdiction of the Special Court in civil proceedings relating to property
that stands attached and arising out of transactions in securities between the
stated dates in which a notified person was involved as a party, broker, intermediary
or in any other manner. Section 11 deals with the discharge of liabilities and
sub-section (1) states that the Special Court may make such order as it may
deem fit directing the Custodian in the matter of disposal of attached
(2) sets out the order in which liabilities are to be paid or discharged.
Section 13 states that the Act has 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 or in any decree or order of any
court, tribunal or other authority.
vies, the terms of sub-section (3) of Section 3 are clear. By reason thereof,
the property that belongs to a notified person stands attached simultaneously
with the issue of the notification that makes him a notified party.
words "on and from the date of notification" indicate the point of
time at which the attachment takes effect; this is reiterated by the words
shall stand attached simultaneously with the issue of the notification".
This also indicates that no separate notification or order in regard to the
attachment is necessary.
the words "on and from the date of notification" nor the word
"property" lead to the conclusion that what is attached is not only
that property which the notified person owned or was possessed of on the date
of the notification but also All such property as he might acquire at any time
thereafter. The intention to attach property which did not belong to the
notified person on the date of the notification but which he might acquire
later would, had it been there, have been clearly expressed and subsection (3)
would have stated that such property would stand attached the moment it was
acquired by the notified person.
Act would also have made provision for a subsistence allowance or the like for
the notified person.
seems to us that to give to Section 3(3) the wide meaning that has been
ascribed to it in the judgment and order under appeal would render it
perilously close to being held unconstitutional, for it would deprive the
notified person, so long as he remained a notified person, from earning a
livelihood. Even to say that such interpretation would reduce a notified person
to beggary would not be ccurate because the alms that he received, being his
property, would stand attached.
apprehension expressed by the Special Court
does not appear to be well founded: if what a notified person obtains by way of
purported income or gift or inheritance is really his own money. such money
would, upon establishment of the fact, stand attached automatically under the provesions
of Section 3(3). In any event, it is for Parliament to enact a law that meets
courts must interpret the law as it reads. While a purposive interpretation is
permissible where two interpretations are possible, the purposive
interpretation must be such as preserves the constitutionality of the
perhaps necessary to make clear that the income or usufruct of attached property
is also attached property.
if the property be shares, dividends and bonus and rights shares thereon would
also be attached property. It is only income generated by a notified person by
dint of his own labour which falls outside the net of Section 3(3). In respect
of such income, the attachment under Section 3(3) does not operate.
must, therefore, hold, particularly since the Special Court has proceeded upon
the basis that the appellant is "genuinely seeking release of an income
which he is earning from his services", that the same is not subject to
attachment under Section 3(3) and that he is entitled to open a bank account
for the purpose of depositing such income (and such income alone). The
Custodian shall be entitled to inspect this bank account and take action in
such manner as he deems fit against the appellant if it be found that other
monies have been deposited in the bank account.
appellant may now draw the arrears of his remuneration from the company.
sought to be argued on behalf of the appellant that the provisions of section
3(3) attached only such property as had a nexus to transactions in securities
between the stated dates. For the purposes of this appeal, we have found it
unnecessary to entertain the argument.
appeals are allowed. The judgment and orders under appeal are set aside. The
petition filed by the appellant in the special Court is allowed to the extent aforestated.
shall be no order as to costs.
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