1994 (5) TMI 164 - SC - Companies Law

Discharge of liabilities - Held that - Appeal dismissed. 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 vinculumjuris 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.

Summary

Issues:
Jurisdiction of the Special Court under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992; Interpretation of the term 'notified person' under section 3(2) of the Act; Power of the Special Court under section 11 to direct repayment of liabilities; Privity of contract between parties in financial transactions; Scope of jurisdiction of the Special Court in relation to properties of a 'notified person'; Interpretation of section 11 regarding discharge of liabilities; Legal remedy for enforcing obligations in financial transactions.

Analysis:
The Supreme Court heard an appeal under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992, where the issue was the jurisdiction of the Special Court. The appellant had deposited funds with a financial institution, which in turn had invested in another company. When the deposits matured, the financial institution could not repay due to its own investments. The appellant sought direction from the Special Court to recover the funds from the invested company. However, the Special Court held it lacked jurisdiction over the claim as the invested company was not a 'notified person' under the Act, and the appellant had no privity of contract with them.

The appellant argued that the interconnected nature of financial transactions should broaden the definition of a 'notified person.' The Court, however, found that the Act's jurisdiction was limited to properties of a 'notified person' under section 3(2). As no privity existed between the appellant and the invested company, the Special Court's decision on jurisdiction was deemed appropriate. The Court highlighted that section 11 empowers the Special Court to give directions regarding the property of a 'notified person,' subject to the property being under attachment.

The Court emphasized that the power to order payment from a 'notified person' to a financial institution requires a legal relationship between the parties, which was absent in this case. The Court concluded that the appellant, being a stranger to the transactions between the financial institution and the invested company, should seek remedy in ordinary courts. Therefore, the appeal was dismissed, and costs were not awarded. Additionally, an incidental application was dismissed as it was related to the main appeal.