9911796707
TMI Blog1993 (7) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... ards their claims. In all these matters, the Custodian has contended that irrespective of any special rights, the properties only can be distributed in the manner laid down under section 11(2) of the said Act. As this contention affected a number of parties, the court had put up a notice stating that any party interested in making any submission on this question and any petitioner or applicant affected by this question would be heard on July 21, 1993. Pursuant to this notice, all petitions/applications wherein this question vas involved were listed on my board yesterday. All parties have been heard on this question. On behalf of the Custodian, Mr. A. M. Setalvad has argued. On behalf of various parties, Mr. J. I. Mehta, Mr. R. A. Kapadia, Mr. S. Doctor and Mr. Virag V. Tulzapurkar have argued. For the sake of convenience, this order is passed in the first matter. However, the ratio of this order will apply to all applications/petitions wherein such claims are made. Before the submissions of the parties are considered, it might be nore convenient to set out herein the applicable provisions of the Act. the preamble to the Act reads as follows : "An Act to provide for the establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." "8. The Special Court shall have jurisdiction to try any person concerned in the offence referred to in sub-section (2) of section 3 either as a principal, conspirator or abettor and all other offences and accused persons as can be jointly tried therewith at one trial in accordance with the Code." "9. (1) The Special Court shall, in the trial of such cases, follow the procedure prescribed by the Code for the trial of warrant cases before a Magistrate . . . (4) While dealing with any other matter brought before it, the Special Court may adopt such procedure as it may deem fit consistent with the principles of natural justice." 11(1) Notwithstanding anything contained in the Code and any other law for the time being in force, the Special Court may make such order as it may deem fit directing the Custodian for the disposal of the property under attachment. (2) The following liabilities shall be paid or discharged in full, as far as may be, in the order as under : ( a ) all revenues, taxes, cesses and rates due from the persons notified by the Custodian under sub-section (2) of section 3 to the Central Government or any State Government or any local authority ; ( b ) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect to the objects of the said Act and to effectively enforce its provisions, the term "property belonging to" must also be construed in the widest possible sense. He submitted that the object of the said Act was not merely to punish the offenders. He submitted that the object of the said Act was also an orderly, logical and equitable distribution of the assets. He submitted that it is on the basis of the principles of bankruptcy that the court has been empowered to distribute the property. He submitted that the bankruptcy laws, i.e. , the insolvency law and the company law, also make provisions for distribution of properties to all the creditors. He submitted that, in all such laws, the aim is to equitably distribute amongst all the creditors. He submitted that wherever the Legislature has intended that any class of creditor is to stand outside the distribution, then the Legislature specifically so provides. He submitted that in both the Insolvency Acts, i.e. , the Provincial Towns Insolvency Act and the Presidency Towns Insolvency Act, there are specific provisions which permit the secured creditors to stand outside the insolvency. He submitted that even in the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under the Major Port Trusts Act and the Customs Act, it is only the company court who could distribute the property of the company in liquidation. Mr. Setalvad also relied upon the case of Ananta Mills Ltd. v. City Deputy Collector [1972] 42 Comp Cas 476 (Guj.). In this case also the company had been wound up and the official liquidator had been appointed the liquidator of the company. In this case, it was held that under section 456, the liquidator was bound to take into his custody and control all property, effects and actionable claims to which the company was entitled. It was held that even though there may be an attachment by an unsecured creditor, that attachment did not prevent the liquidator from taking charge of all properties of the company and that the liquidator could do so in spite of the attachment. Mr. Setalvad also relied on the case of Mysore Surgical Cottons (P.) Ltd. v. Karnataha State Financial Corporation [1988] 1 Comp LJ 63, wherein the question was whether the Karnataka State Financial Corporation, by virtue of the powers vested in it under the State Financial Corporations Act, could sell off the assets of the company in liquidation. The court c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 148 of the Contract Act a bailment is a delivery of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. He submitted that in cases of bailments and pledges, the pledgee's right is to file a suit for recovery of the amount and to retain the goods. He submitted that at the highest the pledgor may sell the goods after giving a reasonable notice. In support of this, he relied upon the authority in the case of Dwarika v. Bagaivati, AIR 1939 Rang 413, wherein it is laid down that a pledge confers a special interest in the property pledged, i.e., a right to sell the property if the loan be not repaid. It is held that if the pledgee sells, he does so by virtue and to the extent of the pledgor's ownership and not with a new title of his own. It is held that the pledgee holds possession for the purpose of securing to himself the advance which he has made. It is held that the pledgee has no right of foreclosure since he never had the absolute ownership at law. It is held that unlike a case of mortgage the right to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, there can be an assignment of debts. He fairly conceded that if an assignment is of an existing debt and such an assignment is before the date of the notification, then in such cases the ownership would be transferred to the assignee. He conceded that in such cases there could be no attachment. This because the property was no longer the property of the notified party. He submitted that this would not be the position where the assignment is of future debts. He submitted that if before the debt came into existence, an attachment intervenes, then after the attachment, there could be no assignment. He submitted that the attachment would operate to prevent any assignment in future. He submitted that in such cases even though there may be an earlier agreement to assign in future, such an agreement would not come into effect and the attachment would preclude any rights under those agreements being enforced de hors the provisions of the said Act. Mr. Setalvad drew the attention of the court to the authorities of the Supreme Court in the cases of Bharat Nidhi Ltd. v. Takhatmal [1969] 39 Comp Cas 114 ; AIR 1969 SC 313 and Seth Loon Koran Sethiya v. Ivan E. John [1968] 38 Comp Cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest to take away the property belonging to a notified party would render nugatory both sections 11 and 13. He submitted that if the financial institutions/ banks/individuals were to be so allowed, nothing would be available for distribution under section 11(2). He submitted that the said Act was enacted because a very large amount of public money was siphoned off into private pockets. He submitted that all these monies had come from financial institutions and/or banks, He submitted that the Legislature was alive to the possibility that private rights/interests would have been created in these amounts or in properties/assets purchased/acquired from these monies. He submitted that at the time the said Act was enacted the Legislature was, therefore, aware that the majority of claimants would be financial institutions and banks. He submitted that the Legislature was aware that their claims would be by way of special rights/interests. He submitted that in cases of a transfer of ownership prior to the attachment, the Legislature has by section 4 enabled the Custodian to set aside the contract or agreement. He submitted that where the notified party still had a right of disposal over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or other meaning to the term "attached" and, therefore, the term "attached" must be understood as it is commonly understood in the Criminal Procedure Code and the Civil Procedure Code. They have submitted that an attachment creates no special right in favour of any party. They submitted that an attachment does not create even a right of lien or a charge and that an attachment merely prevents further alienation of the property after the date of the attachment. In support of this submission, reliance is placed on the case of Rikhabchand Mohanlal Surana v. Sholapur Spg. and Wvg. Co. Ltd. [1974] 76 Bom. LR 748. It is also submitted that an attachment does not by itself affect rights created prior to the date of the attachment. It is submitted that any right, including special interests or rights created in the property by reason of hypothecation, pledges, or even a right of lien or set off would prevail over the attachment provided they are prior rights. In support of this, reliance is placed on the case of Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan [1990] 1 JT 390. In this case, it was held that an agreement to sell created an obligation attached to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. It is submitted that it is only property which is left over after satisfying all prior contractual rights, claims of secured creditors and other special rights/interest (contractual or legal) which can be distributed under section 11(2). It is submitted that section 11(2) provides for distribution only amongst unsecured creditors. It is submitted that section 13 has no effect and does not come into play at all. It is submitted that it is settled law that the Legislature cannot take away vested rights except by express provisions to that effect. It is submitted that the presumption in law must always be that a legislation does not affect vested rights. In support of this submission, reliance is placed on the case of Budhan Singh v. Babi Bux, AIR 1970 SC 1880. It is submitted that in the said Act there is no section providing that any vested rights have been abrogated or done away with. It is submitted that in the absence of any such express provision, it would have to be presumed that prior vested rights continue to subsist and can be exercised over the property of the notified party irrespective of attachment. Apart from these submissions, Mr. Doctor and Mr. Tulzapurk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notified party. In support of this submission and of the banker's right of set off, Mr. Doctor relied upon the case of National Westminster Bank Ltd. v. Halesowen Presswork and Associates Ltd. [1972] 1 All ER 641. Mr. Doctor particularly relied on the observations of Buckley LJ. as extracted at page 646 of this judgment. They are to the following effect: "When that cheque was cleared, as it was on June 14, 1968, it ceased to be a negotiable instrument and also ceased to be in the possession of the bank. Any lien of the bank on the cheque must thereupon have come to an end . . . The money or credit which the bank obtained as a result of clearing the cheque became the property of the bank, not the property of the (company). No man can have a lien on his own property and consequently no lien can have arisen affecting that money or that credits." Mr. Doctor submitted that this position is accepted by the House of Lords. Mr. Doctor also relied upon the case of Jeff ryes v. Agra and Masaterman s Bank [1866] 2 Equ Cas 674 in support of his submission that banks have a right of set off against monies actually due. Mr. Doctor also argued that the interpretation which must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by legal delays. The possibility also existed of all the assets being secreted and/or transferred. This in order to completely defeat claims and thus make recovery impossible. Apart from that with the apparent involvement of so many financial institutions and banks, most of them nationalised bodies, the possibility also existed of these bodies being embroiled in unnecessary and protracted litigations against each other. This because monies taken out of one bank or financial institution would have been placed first into an account of the notified party with another bank or utilised to pay off debts of other banks or financial institutions. Also properties and assets purchased out of monies taken out of one bank/financial institution may have been pledged or hypothecated with another. The financial institutions or banks were most likely to have documents in their favour or make claims on the basis of banker's rights of lien, set off or adjustment. In my view, by this Act the Legislature, therefore, sought to provide : (1) for a speedy trial of offences ; (2) immediate attachment and thus freezing of all assets of parties suspected to be involved and thus preventing any further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s" between the words "the following liabilities" and "shall be paid or discharged in full, as far as may be, in the order as under : "in section 11(2). To accept this argument would require incorporating into section 11(2) words which the Legislature purposely omitted to incorporate. Further, an interpretation which would render a section or part thereof nugatory must always be avoided. Section 13 of the said Act provides that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith in any other law or in any instrument having effect by virtue of any law or in any decree or order of any court, tribunal or authority. The provision regarding distribution would be the only provision against the absolute claims and rights under prior contracts. This only if the interpretation of the Custodian is accepted. If Mr. Mehta's, Mr. Kapadia's, Mr. Doctor's and Mr. Tulzapurkar's interpretations are to be accepted, then there is no provision in this Act which would be inconsistent with any contract. This interpretation would render ineffective and virtually nugatory the words "inconsistent therewith contained. . . or in any instrument having effect by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a priority because these are recurring liabilities. If these are not paid during the period that it takes to distribute the assets, then penalties may be incurred or the statutory body would get a right of recovery in a summary manner. This would create unnecessary complications. Whilst paying these dues the court could and would keep in mind the claims of parties over specific properties or assets, so that the statutory dues would, as far as possible, be paid out of unencumbered property in the first instance. So far as private persons are concerned, there appears to be a rationale as to why they are put last. As is known, almost all the monies were siphoned off into private pockets from financial institutions and/or banks. It has then been diverted into shares and stocks, various private companies, partnerships and their businesses, or given as loans, etc. Thus, the notified party has in most cases purchased the property or asset out of public money. The money was not his property. It belonged to the financial institution/bank from whose pocket it came. The object is to collect public money and return it to the financial institutions and/ or banks from where it came in the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control. If by way of enforcement of special rights/interests properties are to be excluded or parties are permitted to execute decrees and orders de hors this court, then in effect nothing would be left for this court to distribute. It is for this reason that the Legislature has provided in section 13 that the provisions of this Act prevail even over any decree or order of any court or tribunal. Thus, even a person or body having a decree or order in their favour must approach this court for distribution. The distribution can only be as laid down in section 13. In my view, the classification is reasonable, rational, equitable and logical. They have been incorporated to meet the objective and have a clear nexus with the objective. In my view, the section provides for the distribution of the property in an orderly fashion. In my view, such an interpretation is not subject to any attack either under article 14 or article 19. In this behalf what happened in the court must be mentioned Mr. Tulzapurkar very vehemently submitted that such an interpretation would render the section susceptible to attack under article 14. This because according to him it gave precedence to payment of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of money, bankers can never have a right of lien or set off. To accept Mr. Doctor's arguments would have the effect of negating the well-established principles of banker's lien and set off and/or abrogating the law of banker's lien and set off in respect of "money" in their hands. It would do more harm than good to bankers. To understand the fallacy of Mr. Doctor's argument one would have to examine the very concept of banking. Banking started because people found it difficult to keep large amounts of wealth/property with them. The)', therefore, entrusted it to persons of great eminence, trust and power. Ultimately such persons also had the same difficulty. The obvious solution was to enable such persons to utilise and regenerate what was with them. This was all right so long as the credit of these persons was good. It is thus that the practice of enabling utilisation of other person's properties developed. With the advent of money, it being legal tender, the concept of the relationship of debtor and creditor between the banker and his customer developed in law. However, a banker is not just an ordinary debtor. He is a debtor with an absolute obligation to repay. When monies are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers are concerned, so long as there is a credit in the customer's account, all that they can claim is a right of lien or set off or adjustment of accounts. Of course where there are other security documents in their favour, then the rights given to them under those documents could also be enforced. Therefore, there can he and will be attachments on the amounts standing to a person's credit in the account with a bank or in deposits with the bank. The submission of Mr. Doctor that the banker is entitled to retain money because it is the banker's money is unique and cannot be accepted at all. To accept it would affect the very concept of banking. To accept it would be to eliminate the absolute obligation to repay on demand. To accept it would be to make bankers into ordinary debtors without any absolute obligation to repay. This in present times, when it is seen that actions of bankers have become questionable, would be to set a very bad precedent. Also as stated above, this has not been pleaded in a single matter before the court. In my view, therefore, it will have to be held that even though the contractual and special rights in property have not been abrogated or done away with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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