1996 (2) TMI 390 - DSC - Companies Law

Summary

Issues Involved:
1. Jurisdiction to release attached assets for legal expenses.
2. Appropriateness of exercising such power for legal expenses.
3. Manner of exercising such power if it exists.

Issue-wise Detailed Analysis:

1. Jurisdiction to Release Attached Assets for Legal Expenses:
The court examined whether it has the power to release attached assets for legal expenses under sections 3(4), 9A(1), and 11(1) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. Section 3(4) allows the court to direct the custodian on how to handle attached property, while section 9A(1) grants the court civil jurisdiction over attached property. Section 11(1) empowers the court to make orders for the disposal of attached property. The court noted that these sections collectively provide the court with the authority to release attached assets for legal expenses. This interpretation aligns with a previous judgment by the Bombay High Court, which held that the Special Court has the power to release attached property if it has no nexus with illegal dealings and if there are no liabilities to be satisfied.

2. Appropriateness of Exercising Such Power for Legal Expenses:
The court considered whether it should exercise this power to release assets for legal expenses. It was argued that legal representation is crucial for preserving, protecting, and augmenting attached assets. The court acknowledged that legal representation helps in these aspects and noted that it has previously released funds for other necessary expenses like auditor fees and purchase of computers. However, the court emphasized that any release of funds must be justified and necessary for the preservation, protection, and augmentation of the attached assets.

3. Manner of Exercising Such Power:
The court discussed the manner in which it should exercise its power to release attached assets for legal expenses. It stated that any expenses incurred without prior court approval would fall under section 11(2)(c) and could only be paid at the time of distribution. The court emphasized that it must first determine whether the expenses are necessary for the preservation, protection, and augmentation of the attached assets. The court also highlighted that it cannot allow notified parties to incur expenses and then seek reimbursement, as this would undermine the court's authority and could lead to depletion of attached assets. The court suggested that in cases where assets are insufficient to meet liabilities, notified parties should seek legal aid or request the court to provide legal assistance at reasonable fees.

Conclusion:
The court concluded that while it has the jurisdiction to release attached assets for legal expenses, such power should be exercised judiciously and only for expenses necessary for the preservation, protection, and augmentation of the attached assets. Expenses incurred without prior approval would be treated as liabilities under section 11(2)(c) and could only be paid at the time of distribution. The court also emphasized the need to balance the right to legal representation with the responsibility to protect public monies and ensure they are used appropriately.