2006 (1) TMI 257 - SC - Companies Law

Whether the Appellants being not involved in offences in transactions in securities could have been proceeded against in terms of the provisions of the Act? Whether individual liabilities of the Appellants ought to have been separately considered by the Special Court as not a part of Harshad Mehta Group? Whether the tax liabilities could not have been held to be due as the order of assessments did not become final and binding? Whether the commercial properties could have been sold in auction? Whether the residential properties should have been released from attachment? Held that - Appeal allowed. Contention of the Appellants that they being not involved in offences in transactions in securities could not have been proceeded in terms of the provisions of the Act cannot be accepted in view of the fact that they have been notified in terms thereof. The Appellants being notified persons all their personal properties stood automatically attached and any other income from such attached properties would also stand attached. The question as to whether the Appellants could have been considered to be part of Harshad Mehta Group by the learned Special Court need not be determined by us as at present advised in view of the fact that appropriate applications in this behalf are pending consideration before the learned Special Court. The question as regard intermingling of accounts by the Appellants herein with that of the Harshad Mehta Group and/or any other or further contentions raised by the parties hereto before us shall receive due consideration of the learned Judge Special Court afresh in the light of the observations made hereinbefore. As regard the tax liabilities of the Appellants herein we would request the learned Judge Special Court to consider the matter afresh. The learned Special Court shall proceed to pass appropriate orders as regard confirmation of the auction sales in respect of commercial properties. As regard sale of residential properties an appropriate order may be passed by the learned Judge Special Court in the light of the observations made hereinbefore.

Issues Involved:
1. Whether the Appellants being not involved in offences in transactions in securities could have been proceeded against in terms of the provisions of the Act.
2. Whether individual liabilities of the Appellants ought to have been separately considered by the Special Court as not a part of Harshad Mehta Group.
3. Whether the tax liabilities could not have been held to be due as the order of assessments did not become final and binding.
4. Whether the commercial properties could have been sold in auction.
5. Whether the residential properties should have been released from attachment.

Detailed Analysis:

Issue 1: Involvement in Offences
The Appellants, related to Harshad S. Mehta, were notified under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992. Despite not being directly involved in securities transactions, their properties were automatically attached as per the Act. The court held that the stringent measures of the Act apply to all notified persons, and their properties stand attached regardless of direct involvement in offences.

Issue 2: Individual Liabilities
The Appellants argued that their liabilities should not be clubbed with Harshad Mehta's. The court noted that the Special Court should have analyzed individual assets and liabilities separately. The principle of lifting the corporate veil does not automatically apply to individuals. The Custodian must show intimate connections between transactions by Harshad Mehta and properties acquired in others' names. The Special Court failed to consider the individual liabilities and assets adequately, necessitating a fresh determination.

Issue 3: Tax Liabilities
The Appellants contended that tax liabilities should not be considered due as assessments were not final. The court referred to previous judgments, stating that liabilities remain unless stayed by a higher court. However, many Best Judgment assessments were set aside on appeal, requiring reassessment. The court directed the Special Court to reconsider tax liabilities in light of new assessments and appellate orders.

Issue 4: Sale of Commercial Properties
The Appellants did not seriously contest the sale of commercial properties, and many had already been sold, creating third-party rights. The court upheld the sale of commercial properties, noting that the creation of third-party interests was not in dispute.

Issue 5: Release of Residential Properties
The residential flats were sold in auction subject to the appeal's outcome. The court directed the Special Court to reconsider the confirmation of these sales after reassessing individual liabilities and assets. The court emphasized the need for detailed analysis and proper consideration of the Appellants' contentions.

Conclusion:
1. The Appellants' properties were correctly attached under the Act despite their non-involvement in securities offences.
2. The Special Court must reassess individual liabilities and assets, considering whether they should be treated as part of the Harshad Mehta Group.
3. Tax liabilities should be reconsidered in light of appellate orders and reassessments.
4. The sale of commercial properties is upheld, with the Special Court directed to confirm these sales.
5. The Special Court must reconsider the sale of residential properties, taking into account individual liabilities and assets.

The appeals were allowed, the impugned judgments set aside, and the matter remitted to the Special Court for fresh consideration. The court provided detailed procedural directions to ensure a thorough and fair reassessment.

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