1993 (7) TMI 253 - DSC - Companies Law

Issues Involved:
1. Jurisdiction of the Special Court.
2. Right of appropriation, lien, and set-off by the applicants.
3. Attachment of properties and its implications.
4. Nature of the funds held by the applicants.
5. Directions for the disposition of the Rs. 50 lakhs.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Special Court:
The respondent argued that the Special Court lacked jurisdiction to entertain civil claims, asserting it was established solely for the trial of offences related to securities transactions. However, the court referenced Section 11 of the Special Courts Act, which empowers it to pay off liabilities and manage attached properties. The court emphasized that it must consider rival claims and special interests in property, which are civil disputes. Therefore, the court concluded that it had jurisdiction to decide the claims presented.

2. Right of Appropriation, Lien, and Set-off by the Applicants:
The applicants argued they had the right to appropriate the Rs. 50 lakhs based on their agreements with the first respondent, which included rights of lien and set-off. They contended that their undertaking to pay the amount to the first respondent did not negate these rights. The court, however, found that the letter dated April 10, 1992, was merely an undertaking to pay and did not amount to a novation of the original agreements. Thus, the applicants did not relinquish their rights under the agreements.

3. Attachment of Properties and Its Implications:
The respondents contended that the properties of the first respondent, including the Rs. 50 lakhs, were attached on July 2, 1992, and thus could not be alienated. The court agreed, stating that once the amount became payable on December 17, 1992, it was attached in the hands of the third respondent. Consequently, the applicants could not exercise any lien or set-off on this amount.

4. Nature of the Funds Held by the Applicants:
The applicants claimed the Rs. 50 lakhs were part of their general assets, allowing them to credit it wherever they desired. The court rejected this, citing that the funds were collected as principal bankers for the third respondent's rights issue, thus held in a fiduciary capacity. The court referenced the Reserve Bank of India v. Bank of Credit and Commerce International (Overseas) Ltd. case, which established that such funds do not form part of the bank's general assets but are held in trust.

5. Directions for the Disposition of the Rs. 50 lakhs:
The court directed that the Rs. 50 lakhs and accrued interest be deposited in the first respondent's account with the applicants, effective from December 17, 1992. The applicants were allowed to use this amount as a regular deposit but could not claim any rights of lien, set-off, or account adjustment over it. The court clarified that this arrangement was subject to final orders under Section 11, and if necessary, the applicants would have to return the amount to the court.

Additional Direction:
The court noted that the third respondent might be liable for interest from the loan date to December 17, 1992. The Custodian was authorized to demand this interest from the third respondent and, if received, to deposit it in the first respondent's account with the applicants, subject to the same conditions as the Rs. 50 lakhs.

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