2004 (4) TMI 297 - SC - Companies Law

Whether the amount Respondent No. 2 is holding belongs to him or not? Held that - Appeal allowed. Considering the categorical admission by the Respondent No. 2 that he received money on behalf of Appellant, the Appellant is entitled to get back his money, because the Respondent No. 2 is holding the money in Trust. Even if the Respondent No. 2 blended the property/money with that of his own money under section 66 of the Indian Trusts Act, 1882 (the Trusts Act) the Appellant is entitled to a charge on the whole fund for the amount due. Therefore we cannot agree with the finding of the Special Court that burdened the Appellant to locate the particular account in which the money is credited so as to claim it back. Section 66 of the Trusts Act arms the Court to impose a charge on the whole property of the trustee to the extent of amount due.

Summary

Issues:
- Interpretation of attachment of property under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
- Determining ownership of proceeds from the sale of shares by a broker.
- Application of the Indian Trusts Act, 1882 in cases of trust and entitlement to funds.

Interpretation of Attachment under the Special Court Act:
The case involved a dispute where the Appellant engaged a broker to sell shares, but the proceeds were not paid, leading to attachment by the Custodian under the Special Court Act. The Special Court initially dismissed the Appellant's claim, stating that the money was not credited to a specific account. However, the Supreme Court clarified that the attachment cannot extend to the Appellant's money held in trust by the broker. The Court referred to a previous judgment emphasizing that the Special Court cannot dispose of property that does not belong to the notified person.

Ownership of Sale Proceeds by Broker:
The Appellant argued that the broker merely acted as an agent and held the sale proceeds in trust until paid. The Supreme Court agreed, stating that the broker was holding the money on behalf of the Appellant. Despite the broker's attempt to set off the amount against another claim, the Court found that the money belonged to the Appellant. The Court directed the broker to provide details of the sale proceeds to facilitate the return of the funds to the Appellant.

Application of Indian Trusts Act:
The Respondent broker admitted to receiving the money on behalf of the Appellant, confirming the trust relationship. The Supreme Court held that even if the broker mixed the funds with his own, the Appellant was entitled to a charge on the entire amount due. The Court invoked Section 66 of the Indian Trusts Act, allowing the Appellant to claim the money without specifying the exact account. Consequently, the Court overturned the Special Court's decision and directed the refund of Rs. 2.90 crores to the Appellant from the broker's assets.

In conclusion, the Supreme Court allowed the appeal, setting aside the Special Court's order and instructing the determination of appropriate procedures for refunding the Appellant's entitled amount.