Premanand R. Shenoy Vs.
Custodian & Ors.  INSC 1113 (26 May 2009)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No. 5524 OF 2004 Premanand
R. Shenoy .....Appellant Versus Custodian & Ors. ....Respondents
filing the present appeal the appellant has challenged the judgment and order
dated 5.3.2004 passed by the Special Court established under sub-section (1) of
Section 5 of the Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992 (hereinafter referred to as `the Act') whereby and
whereunder the Special Court allowed the application filed by the Custodian
(respondent No. 1 herein) thereby directing the appellant to pay to the
Custodian an amount of Rs. 2,83,192/- with interest at the rate of 18% per
annum from 22.7.1991 to 29.2.1992 which amount the Custodian would receive for
and on behalf of respondent No. 2.
B. Ratnakar, the father of the appellant was the Chairman and Managing Director
of M/s. Fair Growth Financial Services Limited (for short the `Company) which
is respondent No. 2 herein. There is no dispute with regard to the fact that
the father of appellant was the Chairman and also In-charge of the aforesaid
Company. He died on 2nd February, 1992. The appellant became the Director of
the aforesaid Company immediately after the demise of his father. An order was
placed for purchase of a Mahindra Jeep by making payment of a cheque dated
22.7.1991 for Rs. 2,83,192/-. The said order was placed with M/s. Tirupati
Balaji Motors, New Delhi. As per the original delivery receipt and letter
addressed to the appellant, the vehicle was delivered to the appellant on
15.4.1992. In this connection, reference may be made to the letter dated
12.4.1992 (Annexure R-5 in the paper book) which is addressed to the appellant
herein. The subject of the said letter was with respect to the delivery of his
vehicle. By the said letter M/s. Tirupati Balaji Motors, New Delhi informed the
appellant that despite repeated reminders for the last five months regarding
delivery of the aforesaid vehicle, the delivery was not taken. As per the order
placed, the said jeep was lying ready for the last five months and was duly
registered temporarily in the name of the appellant. Copy of the temporary registration
and the bill of the receipt were also enclosed with the said letter.
dwelling further, it would be relevant here to mention that the Reserve Bank of
India, in the course of its investigation, found large scale irregularities and
malpractices in the transactions in both the Government and other securities
indulged in by some brokers in collusion with the employees of the various
banks and financial institutions. The said irregularities and malpractices led
to the diversion of funds from banks and financial institutions to the
individual accounts of certain brokers. To deal with the aforesaid situation
and, in particular, to ensure speedy recovery of the huge amount involved, to
punish the guilty and restore confidence in, and maintain the basic integrity
and credibility of the banks and financial institutions, the Special Court was
constituted for trial of offences relating to transactions in securities and in
that regard an Act was enacted called "the Special Court (Trial of
Offences Relating to Transactions in Securities) Act, 1992". Section 3 of
the said Act reads as follows "3. Appointment and functions of Custodian -
(1) The Central Government may appoint one or more Custodian as it may deem fit
for the purposes of this Act.
(2) The Custodian
may, on being satisfied on information received that any person has been
involved in any offence relating to transactions in securities after the 1st
day of April, 1991 and on and before 6th June, 1992, notify the name of such
person in the Official Gazette.
anything contained in the Code and may other law for the time being in force,
on and from the date of notification under sub-section (2), any property, movable
or immovable, or both, belonging to any person notified under that sub-section
shall stand attached simultaneously with the issue of the notification.
(4) The property
attached under sub-section (3) shall be dealt with by the Custodian in such manner
as the Special Court may direct.
(5) The Custodian may
take assistance of any person while exercising his powers or for discharging
his duties under this section and Sec.4."
terms of the aforesaid provision, M/s. Fair Growth Financial Services Limited
was declared as a notified person. Sub-section 3 of Section 3 empowers the
Custodian to attach any property which could be either movable or immovable, or
both, belonging to the notified person. The said property which is attached
under sub-section 3 could be dealt with by the Custodian in such a manner as
the Special Court direct in that regard. In order to comply with the statutory
provisions, the Custodian (respondent No. 1 herein) issued a public notice
dated 10.9.1992 calling upon all the persons who had dealings with M/s. Fair
Growth Financial Services Limited to inform him about the same. The appellant,
however, after a long period, for the first time, by his letter dated 4.8.1998
informed the Custodian that one Mahindra Jeep belonging to respondent No. 2 was
parked at S-25, Panchasheel Park, New Delhi-110001, at the residence of one Mr.
Vijay Sachadev. It was also informed by the appellant in that letter that the
said vehicle was supposedly under a hire purchase/lease agreement. The
appellant also enclosed with the aforesaid letter dated 4.8.1998 five original
letters pertaining to the said vehicle which are of the following nature :
1. Letter dated
11.1.1992 from respondent No. 2 to M/s. Tirupati Balaji Motors, New Delhi.
2. Original invoice
for Rs. 2,90,200/- in the name of the appellant.
3. Original C.M. Form
4. Original letter
dated 12.4.1992 addressed to respondent No. 1.
5. Original delivery
receipt dated 15.4.1992.
the aforesaid letters and documents are addressed to the appellant. After
receipt of the aforesaid documents alongwith the letters annexed therewith and
after making necessary enquiries, the Custodian came to the conclusion that
respondent no. 2 had financed the purchase of the said vehicle for the
appellant. According to the respondent No. 1 (the Custodian), respondent No. 2
had placed an order for the said vehicle on behalf of the appellant to M/s.
Tirupati Balaji Motors, New Delhi by issuing a cheque for Rs. 2,83,192/- dated
22.7.1991. It was also found that respondent No. 2, thereafter by letter dated
10.3.1992, informed the said Ms/. Tirupati Balaji Motors, New Delhi that they
were constrained to cancel the order of the said vehicle due to non-delivery
thereof and demanded back the amount of Rs. 2,83,192/- along with interest at
the rate of 22% per annum for the period from 22.7.1991 to 29.2.1992.
It transpires from
the original delivery receipt that the said vehicle was delivered to respondent
No. 2 on behalf of the appellant on 15.4.1992 and, therefore, it was concluded
that there was an agreement between respondent No. 2 and the appellant to enter
into a hire purchase agreement in respect to the said vehicle. On enquiry made,
the Custodian found the said vehicle to be in a dilapidated and rusty condition
parked at S-25, Panchasheel Park, New Delhi-110001. On further enquiry being
made by the Custodian, it was found that the registration number found on the
body of the vehicle was a fake one and, in fact, the same belonged to a Maruti
thereto and pursuant to the statutory responsibility placed on the Custodian
under the Act, the Custodian filed an application before the Special Judge. The
appellant was served.
The Special Court
thereafter considered the said application. In the light of the submissions
made on behalf of both the parties and on consideration of the records, it was
found that the entire transaction was authorised by the appellant and that he
was all along aware of the aforesaid transaction. Consequently, the application
filed by the Custodian was allowed and the appellant was directed to pay to the
Custodian the amount of Rs. 2,83,192/- with interest at the rate of 18% per
annum from 22.7.1991. The amount of Rs. 10,00,000/- was also deposited by the
appellant during the course of hearing of the aforesaid application and the
amount was directed to adjusted from the said deposit.
aggrieved by the aforesaid order passed by the Special Court, the present appeal
have heard the learned counsel appearing for the appellant as also the learned
counsel appearing for the respondents. We have also perused the documents
placed on the records.
father of the appellant, who was the Chairman of the notified party, expired on
2.2.1992. Order for purchase of the aforesaid vehicle was placed on 22.7.1991.
Office note of the said debt of M/s. Fair Growth Financial Services Limited is
annexed as Annexure R-2 with paper book and relevant portion thereof reads as
has verbally sanctioned H.P. Finance for Mr. Premanand R. Shenoy Ms. Fairgrowth
Agencies Ltd. for a Mahindra Jeep. The cost of the said good is RS.2,83,192, to
be supplied by M/s Tirupati Balaji Motors.
2.0 The payment for
the vehicle is to be made to day (prior to the announcement of the Budget on
hence after taking
approval from Mr. Rajagopalan, Vice President, on phone a cheque for the said
amount is being released today."
aforesaid office note clearly indicates that the hire purchase finance was made
available to the appellant by respondent No. 2 and the said amount for purchase
of the said Mahindra Jeep vehicle was sanctioned by the Chairman verbally as
stated in paragraph 1.0 of the office note mentioned hereinabove. The cost of
the said vehicle is Rs. 2,83,192/-. It is also mentioned in that note that
payment for the said vehicle was to be made on 22.7.1991 and, therefore, after
taking approval of Mr. Rajagopalan, Vice President, a cheque for the said
amount was released. There is another letter available on record annexed as
Annexure R-3 which is dated 11.1.1992. The said letter refers to the subject of
the Mahindra Jeep to be sold to Mr. Premanand R. Shenoy, the appellant herein.
In the said letter, respondent No. 2 has made reference to proforma invoice No.
791 dated 22.7.1991 intimating further that the cheque dated 22.7.1991 for Rs.
2,83,192/- was sent for supply of the jeep which was subject to a hire purchase
agreement between respondent No. 2 and the appellant. Reference is already made
to letter dated 12.4.1992 which again relates to the delivery of the aforesaid
vehicle. The said letter is also addressed to the appellant at the address of
respondent No. 2 intimating that the aforesaid jeep is lying ready for the last
five months and is also duly registered temporarily in the name of the
is an admitted position that subsequent thereto the jeep was delivered along
with Temporary Registration No. HRU 4413 AT which is annexed as Annexure R-4.
The name of the appellant appears against the name of the registered owner. In
fact, the aforesaid documents were sent by the appellant himself to respondent
No. 1 (the Custodian) under his letter dated 4.8.1998 informing the Custodian
that one Mahindra Jeep is parked at S- 25, Panchasheel Park, New Delhi-110001.
The appellant, in that letter, had also stated that the ex-officials of M/s.
Fair Growth Financial Services Limited informed him that the vehicle was
supposed to be under hire purchase/lease agreement.
appreciation of the aforesaid documents, the Custodian has come to a finding
and conclusion that the appellant, being a Director of the M/s. Fair Growth
Financial Services Limited of which his father was Chairman and Managing
Director, was aware that the jeep had been purchased in his name for which
consideration was paid by the M/s. Fair Growth Financial Services Limited. The
premises S-25, Panchasheel Park, New Delhi- 110001 was previously occupied by
the father of the appellant.
Having found all
those facts against the appellant, it was concluded that the vehicle in
question was purchased by the appellant through respondent No. 2 on hire
purchase agreement and, therefore, the amount was paid by respondent No. 2.
vehicle was registered in the name of the appellant. When the temporary
registration of the vehicle was taken on 3.3.1992, the delivery of the vehicle
was taken by the notified party. The appellant was the Director of the notified
party. Consequent thereto, a categorical finding was recorded that the
aforesaid transaction was known and authorised by the appellant who was aware
that the vehicle was ordered by his father on his behalf for which
consideration was paid by the notified party. In that view of the matter, the
direction was issued for payment of the amount in accordance with the
provisions of the aforesaid Act.
Counsel appearing for the appellant, however, submitted that the aforesaid
conclusions arrived at by the Special Court are perverse for when the order was
placed for purchase of the vehicle and when the payment was made, that is, on
22.7.1991, he was nowhere connected with the business of respondent No. 2.
Therefore, the appellant had no knowledge of the aforesaid transaction. This
submission, however, in our considered opinion, is misplaced in view of the
findings and conclusions recorded hereinbefore on the basis of the documents on
those documents which were sent by the appellant himself to the Custodian
clearly indicate that the vehicle was ordered in the name of the appellant.
Order for purchase of the vehicle was placed in the name of the appellant.
Respondent No. 2 has also sanctioned hire purchase finance for the appellant
who is the Chairman of M/s. Fair Growth Financial Services Limited for a
Mahindra Jeep. The name of the appellant was also registered as a registered
owner in the temporary registration. Therefore, despite the dispute raised by
the appellant, it is clear that the appellant was the owner of the vehicle in
question and that it was purchased on hire purchase and that it was financed by
respondent No. 2 after the amount was sanctioned by the father of the appellant
who was the Chairman towards hire purchase finance for the appellant. The
vehicle was delivered on 15.4.1992 when he was the Director and In-charge of
respondent No. 2 which is quite evident from the delivery note referred to
hereinbefore. Therefore, the nexus between the purchase of the vehicle and the
involvement of the appellant in the deal is clearly established.
view of the aforesaid discussion, we find no infirmity in the order passed by
the Special Court. We uphold the said order but in the peculiar facts and
circumstances of the case and taking into consideration the fact that the
appellant himself informed Page 11 of 12 the Custodian about the aforesaid
vehicle we modify the order for payment of interest at the rate of 18% per
annum by directing that interest on the aforesaid amount of Rs. 2,83,192/-
shall be paid at the rate of 9% per annum from 22.7.1991 to 29.2.1992. An
amount of Rs. 10,00,000/- is already lying deposited in terms of order passed which
was deposited by respondent No. 1. The amount payable by the appellant,
therefore, shall now be calculated in terms of this order and the said amount
shall be adjusted out of the amount lying deposited.
So far paragraph No.
21 of the judgment and order of the Special Court is concerned, we find no
infirmity in the same and, therefore, the same is upheld.
terms of the aforesaid order, this appeal is disposed of with modification with
regard to the interest payable.
[Dr. Mukundakam Sharma]