2018 (3) TMI 1293 - HC - Companies Law

Attachment orders - collective investment scheme - SEBI found fault in the scheme - Recovery Officer has attached all accounts, lockers whether held singly or jointly by the petitioner - Held that - The petitioner has been able to make out the case that the order which has been passed is non-est as it takes away a vital right conferred upon the notice/defaulter under Clause 2 of the Second Schedule of the Income Tax Act, 1961. Accordingly, the impugned order is set aside giving liberty to the Recovery Officer to issue a fresh demand notice pursuant to the recovery certificate drawn up by him as required under Clause 2 of the Second Schedule of the Income Tax Act, 1961. The only caveat being is that since moneys have already been transmitted to the Board, it will retain the same in trust till such time the Recovery Officer passes a final order after issuance of notice, giving due opportunity to the petitioner to respond to the same. In case the Recovery Officer agrees with the contention of the petitioner that in terms of the order of the Board, he could not have been characterized as the defaulter, the logical corollary would be that the Board would have to return the moneys held in trust by it. Needless to say if the Recovery Officer reaches a contrary conclusion, then, the Board would continue to hold the moneys and use the same as mandanted by law. With the aforesaid observations, the writ petition is disposed of.

Summary

Issues Involved:
1. Legality of the Recovery Officer's attachment order.
2. Petitioner's liability to wind up the collective investment scheme and refund money.
3. Maintainability of the writ petition and availability of alternative remedies.
4. Compliance with procedural requirements under the Second Schedule of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the Recovery Officer's Attachment Order:
The petition was directed against the order dated 24.03.2017 by the Recovery Officer, SEBI, attaching all accounts and lockers held by the petitioner. The impugned order was based on the powers conferred under Section 20A (1) (b), 11 (2) (i) (a) of the SEBI Act, 1992, read with Section 226 and the Second Schedule of the Income Tax Act, 1961. The basis for the order was a previous SEBI order dated 21.06.2013 against Alchemist Infra Reality Ltd. (Alchemist) and its Directors for launching a collective investment scheme without proper authorization, collecting over `1087 crores from investors.

2. Petitioner's Liability to Wind Up the Collective Investment Scheme and Refund Money:
The petitioner argued that he was not liable to wind up the collective investment scheme or refund the money as he ceased to be a Director of Alchemist on 09.02.2009. The petitioner emphasized that the SEBI order distinguished between Directors who were responsible for winding up the scheme and those who were not, based on their tenure. The Board's order in paragraph 50 (b) named specific Directors responsible for winding up the scheme, excluding the petitioner, while paragraph 50 (c) included the petitioner only in the context of restraining access to the securities market.

3. Maintainability of the Writ Petition and Availability of Alternative Remedies:
SEBI's counsel argued that the writ petition was not maintainable due to the availability of alternative remedies under Section 15T of the SEBI Act and Clause 11 of the Second Schedule of the Income Tax Act, 1961. However, the court noted that the petitioner did not wish to appeal the SEBI order as he believed it was in his favor. The court cannot compel the petitioner to pursue an appeal if he does not desire to do so.

4. Compliance with Procedural Requirements under the Second Schedule of the Income Tax Act, 1961:
The petitioner contended that the Recovery Officer did not issue the requisite notice before attaching the bank accounts, violating Clauses 2 and 3 of the Second Schedule of the Income Tax Act, 1961. Clause 2 mandates a 15-day notice period for payment of dues before any recovery action. Clause 3 prohibits recovery steps until the 15-day period elapses. The court found that the Recovery Officer's order lacked specific reasons to bypass the notice requirement, rendering the order non-est.

Conclusion:
The court set aside the impugned attachment order, allowing the Recovery Officer to issue a fresh demand notice per Clause 2 of the Second Schedule of the Income Tax Act, 1961. The Board will retain the transmitted money in trust until a final order is passed. If the Recovery Officer finds the petitioner not liable, the Board must return the money. The court dismissed SEBI's arguments regarding delegation of powers and prior notice issuance due to lack of evidence. The writ petition was disposed of with the aforementioned terms.