9911796707
TMI Blog2009 (8) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a huge amount of public funds belonging to Public Sector Banks and Financial Institutions for short-term investments in the securities market. 4. An Inquiry Committee was thereafter constituted under the Chairmanship of Shri Janakiraman. The said Committee in its report had noticed a large number of gross malpractices and irregularities in transactions of both Government and other securities, pursuant whereto and in furtherance whereof the Special Act was enacted providing inter alia for the constitution of a Special Court for trial of criminal offences, as also civil disputes, arising therefrom during the period between 1-4-1991 to 6-6-1992, hereinafter referred to as the "window period". 5. Around this time, the family members of late Harshad Mehta had purchased movable, immovable properties and shares. Out of these properties, there were nine residential flats purchased, in a building called "Madhuli", in Worli, Mumbai. These flats were merged and redesigned for joint living of the entire family and these properties are the subject-matter of this lis. History of the proceedings 6. In terms of the said Special Act, a Custodian was appointed. The Custodian notified Harshad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hartered Accountant was based on the Report of the three firms of Chartered Accountants appointed by the court. This report was submitted on 27-2-2006. The Realistic Estimates of Assets and Liabilities of the Harshad Mehta Group as on 1-1-2007 was prepared by Vinod K. Aggarwala & Co. and was submitted on 26-4-2007. 12. We may also place on record that M/s. Vyas & Vyas, Chartered Accountant had categorically stated that the said books of account were not complete. This can be seen through excerpts mentioned in their own report, "19.6 Due to the compelling nature of limitations on our work and unreliable nature of the books of account, we are unable to accept responsibility for the accuracy and completeness of the information/particulars provided to us nor do we accept such responsibility." "...Therefore, we are unable to comment about the true and fair state of affairs of HSM and M/s. HSM for the year ended 31-3-1991, 31-3-1992 and for the period ended as on 8-6-1992." Impugned judgment of the Special Court 13. The Special Court in the impugned judgment noticed that it was to decide the issues in accordance with the directions of this court in Ashwin S. Mehta's case (supra), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered to be part of Harshad Mehta Group by the learned Special Court need not be determined by the Supreme Court, in view of the fact that appropriate applications in this behalf were pending consideration before the learned Special Court. 21. In regard to the said direction the learned Special Judge, Special Court noted that the applications referred to in the said direction issued by the Supreme Court were a reference to the applications for denotification filed by members of the Harshad Mehta Family. The court, thereafter, having made reference to Sudhir S. Mehta v. Custodian [2008] 85 SCL 91 (SC) noted that there were no applications for denotifications pending before the Special Court, as all applications had been withdrawn and, therefore, there was no further steps required to be taken by the learned Judge, Special Court. 22. However, in the alternative, again referring to Sudhir S. Mehta (supra), the learned Judge, Special Court also noted that the contention whether the appellants should be treated as a 'group' or not would not be relevant unless they were able to show that some prejudice had been caused to them thereby. 23. The third and the final part of the said direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the funds had specifically been transferred for purchase of the properties just before the purchase. There was also a huge amount outstanding in the accounts of the notified parties to Harshad Mehta on 1-4-1990 and 1991. 31. The Special Court also noted that one of the flats in Madhuli, being No. 34A was owned by M/s. Aatur Holding Pvt. Ltd. In regard to the said company the Special Court found it necessary to pierce the corporate veil. This was based on the fact that even though the paid up capital of the said company was only Rs. 10,000 and the highest salary paid by the company was only a meagre Rs. 4,000 p.m., the company had entered into trading security transactions running into crores of rupees. It, therefore, opined that the real owner of the said company was none other than Shri Harshad Mehta. 32. In conclusion it was opined that the business and dealings of various individuals who held flats in Madhuli and the company M/s. Aatur Holding were nothing but fronts of Harshad Mehta and the money that was invested for buying the flats was that of Harshad Mehta. Harshad Mehta, therefore, had merely used the names of various individuals who were related to him for buying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending proceeding. (vii)The appellants shall file their objections to the said report, if any, within ten days thereafter. The Custodian may also take assistance and/or further assistance from a Chartered Accountant of his choice. A reply and/or rejoinder thereto shall be filed within one week from the date of the receipt of the copy of the objection. The parties shall file their respective documents within one week thereafter. Such documents should be supported by affidavits. Both the parties shall be entitled to inspect such documents and filed their responses thereto within one week thereafter. The parties shall file the written submissions filed before this Court together with all charts before the learned Special Judge, Special Court within eight weeks from date. (viii)The learned Judge, Special Court shall allow the parties to make brief oral submissions with pointed reference to their written submissions. Such hearing in the peculiar facts and circumstances of this case should continue from day to day. (ix)The learned Judge, Special Court while hearing the matter in terms of this order shall also consider as to whether the auction sale should be confirmed or not. It will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." (p. 410) 46. As regards this direction the Special Court noted that necessary orders had already been passed. Submissions 47. Mr. I. H. Syed, learned counsel appearing on behalf of the appellants contended :- (i)That the learned Judge, Special Court misconstrued and misread the directions issued by this Court in Ashwin S. Mehta (supra). (ii)That he failed to take into consideration that the properties belonging to the appellants were not and could not have been treated as the benami properties of Harshad Mehta. (iii)In such an event the provisions of the Benami Transactions (Prohibition) Act, 1988, should have been invoked or in any event sub-section (1) of section 4 of the Special Act which deals with transactions to defeat the provisions of the Act was attracted. These provisions provide for an opportunity of hearing to be given. (iv)That sub-section (1) of section 4 of the Special Act postulates that the notified persons must acquire property in the name of another from the tainted money during the window period and having regard to the findings of the Auditors that Harshad Mehta had purported to have advanced amounts by way of loans or otherwise to the appellants here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective of the fact whether they had been acquired from the tainted money or acquired during the window period or not. (iv)The learned Judge, Special Court, having proceeded to determine the issues raised before it by the parties on the basis of the Audit Reports filed by M/s. Vyas & Vyas, the impugned judgment is unassailable. (v)Harshad Metha was not acting alone. There were various corporate entities, firms etc. involved and the appellants were in one way or the other involved actively in the said companies and/or the firms. It was in that sense the custodian proceeded on the basis that the appellants should be clubbed together as a part of the same group. (vi)All the appellants are notified persons. Proceedings started against them in 1992. They were proceeded against as the Harshad Mehta Group and not in their individual capacity. Indisputably they had acted as a part of this group, whatever might have been their individual contribution in regard to the acts of omission and commission towards defrauding the banks and the financial institutions for the purpose of making investment in the security transactions. (vii)In the absence of any proof that they have no connection wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Department. 52. It is, however, not an expropriatory legislation as such. The Act provides for sufficient safeguards in the matter of sale of properties by auction or otherwise towards discharge of debts of the notified persons. It provides for grant of full opportunity of hearing to the notified persons. Notified persons have special knowledge of the facts relating to their assets and liabilities and, therefore, can always show that they have been notified wrongly or that their properties are not liable for sale either because their liabilities can otherwise be discharged or the quantum of liabilities projected by the Custodian is not correct. 53. In construing the statute of this nature the Court should not always adhere to a literal meaning but would construe the same, keeping in view the larger public interest. For the said purpose the Court may also take recourse to the basic rules of interpretation, namely ut res magis valeat quam pereat to see that a machinery must be so construed as to effectuate the liability imposed by the charging section and to make the machinery workable. Indian Handicrafts Emporium v. Union of India [2003] 7 SCC 589. 54. In Balram Kumawat v. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired as an owner or a purchaser of the goods, observing : (SCC p. 677, para 22) 'Such a narrow construction-which has been erroneously adopted by the High Court - in our opinion, would defeat the object of these provisions and undermine their efficacy as instruments for suppression of the mischief which the Legislature had in view. Construed in consonance with the scheme of the statute, the purpose of these provisions and the context, the expression 'acquired possession' is of very wide amplitude and will certainly include the acquisition of possession by a person in a capacity other than as owner or purchaser. . . .' 35. This Court while setting aside a judgment of acquittal passed in favour of the respondents therein on the basis of the interpretation of the Customs Rules observed : (SCC p. 678, para 25) 25. ... These provisions have, therefore, to be specially construed in a manner which will suppress the mischief and advance the object which the Legislature had in view. The High Court was in error in adopting too narrow a construction which tends to stultify the law. The second charge thus had been fully established against the respondent." (p. 640) [See also P.K. Arjunan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h objection to form and treat the relatives as a group was raised before the Special Court in the year 2000 when the question of sale of shares fell for consideration for the first time. At any rate, unless it is shown as to what prejudice would be caused by treating them to be a group, this contention has no basis. We, therefore, do not think that the argument in this behalf has any basis." 60. Criticism has also been made with regard to the application of the doctrine of lifting the corporate veil which was not supposed to be made applicable to the individual. The said doctrine was applied by the learned Judge of the Special Court in the instant case in respect of the company M/s. Aatur Holding Pvt. Ltd. The abovementioned company purchased a flat, although its paid up capital was only Rs. 10,000 and the highest salary paid to the employee by it was only Rs. 4,000 per month. Despite this the said company allegedly entered into security trading transactions amounting to crores. 61. The appellants were members of an HUF and were seen to be working in tandem. Harshad Mehta vis-a-vis the appellants were, thus, not a third party. Issue of denotification 62. Appellants contend that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been acquired from illegal securities transaction. The sub-section specifically mentions that on and from the date of the notification, 'any property, movable or immovable, or both', belonging to any person notified under the Act shall stand attached. The said sub-section does not provide for any qualification that the properties which are liable to be attached should relate to the illegal securities transactions in respect of which the Act was enacted. Had the intention of the Parliament been so, it would have clearly mentioned it. It is well settled that when the meaning of the words used in an Act is plain and clear, effect must be given thereto. 66. This is supported by the decision of this court in L.S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd. [2004] 54 SCL 660 (SC). Therein the appellants had taken a loan from the respondents, Fairgrowth who had admittedly been notified under the Act. The respondent therein, Fairgrowth thereafter filed an application before the Special Court seeking attachment of the said funds due to them by L.S. Synthetics. It was argued on behalf of the debtors, L.S. Synthetics, that the loans due to the respondents had no nexus to the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory window period is only a relevant criterion for application of section 3(2) and therefore has no bearing on the application of section 3(3). 71. A plain reading of section 3(3) would suggest that all properties of the notified persons on the date of the said notification would automatically stand attached irrespective of the fact as to whether they had been acquired before, during or even after the statutory period. A logical corollary of this would be that all income accruing or arising from the said property even after the date of attachment would also automatically stand attached. 72. However property acquired by a notified person after the notification under the Special Act cannot be attached. That property does not come within the purview of the section 3(3). [See Tej Kumar Balakrishna Ruja v. A.K. Menon [1996] 10 SCL 64 (SC)]. 73. The cut off date for the attachment of the property accordingly is the date of notification. All properties of the persons on the said date automatically stand attached. The statutory window period is irrelevant for the attachment of the property. It would have no bearing on the said attachment. 74. It is true that to such an extent all ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
