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TMI Blog2007 (8) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Act, 1992 (hereinafter referred to as "the Special Court Act") against the order dated February 24, 2005, of the Special Court passed on Intervention Applications Nos. 458 to 465 of 2004 in Execution Applications Nos. 98 to 105 of 2001 in Miscellaneous Petition Nos. 189/95, 92196, 102/95, 188/95, 103/95, 251/95 and 252/95. The Custodian exercising powers under section 3(2) of the Special Court Act published the name of M/s. Dhanraj Mills Pvt. Ltd. in the gazette as a notified person. In view of section 3(3) of the Special Court Act all the assets belonging to the notified party stand attached to the Special Court. Thus, the assets of M/s. Dhanraj Mills Pvt. Ltd. stood attached to the Special Court. It was found that M/s. Killick Nixon Pvt. Ltd. and its 13 group companies owed substantial amounts of money to M/s. Dhanraj Mills Pvt. Ltd. and M/s. Killick Nixon Pvt. Ltd. also stood as guarantor for the repayment of the money. The Custodian on behalf of M/s. Dhanraj Mills Pvt. Ltd. filed suits for recovery of its dues against M/s. Killick Nixon Pvt. Ltd. and its 13 group companies. The Special Court passed decrees against M/s. Killick Nixon Pvt. Ltd. and its group companies on Sept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and functions of Custodian.-(1) The Central Government may appoint one or more Custodians as it may deem fit for the purposes of this Act. (2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after the 1st day of April, 1991 and on and before the 6th June, 1992, notify the name of such person in the Official Gazette. (3) Notwithstanding anything contained in the Code, and any other law for the time being in force on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification. (4) The property attached under sub-section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct. (5) The Custodian may take assistance of any person while exercising his powers or for discharging his duties under this section and section 4." "9A. Jurisdiction, powers, authority and procedure of Special Court in civil matters.-(1) On and from the commencement of the Special Court (Trial of Offences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Custodian to any bank or financial institution or mutual fund; (c) any other liability as may be specified by the Special Court from time to time." "13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any court, tribunal or other authority." Sub-section (2) of section 3 empowers the Custodian, on being satisfied on information received that any person has been involved in any offence relating to transaction in securities after the first day of April, 1991, and on or before June 6, 1992, to notify the name of such person in the official Gazette. Sub-section (3) of section 3 provides that on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under sub-section (2) shall stand attached simultaneously with the issue of the notification. Sub-section (4) of section 3 provides that the property attached under sub-section (3) shall be dealt with by the Custodian in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m should be considered on a priority basis. Learned counsel has submitted that even after the sale of the property of M/s. Killick Nixon Pvt. Ltd., until the money had been distributed to the creditors it was the money of M/s. Killick Nixon Pvt. Ltd. and, therefore, under section 226(4) of the Income-tax Act the Tax Recovery Officer could apply to the Special Court for payment of the money to discharge the income-tax liability of M/s. Killick Nixon Pvt. Ltd. In support of this submission Dr. Padia has placed reliance upon several decisions of this court and notably on Manmohanlal v. ITO [1987] 168 ITR 616, wherein it was held as under: "When an assessee is in default, there are two modes of recovery open to an Income-tax Officer. The first mode is provided under section 222 of the Income-tax Act. Under that section, when an assessee is in default in making a payment of tax, the Income-tax Officer may forward to the Tax Recovery Officer a certificate specifying the amount of arrears due from the assessee, and on such certificate, the Tax Recovery Officer shall proceed to recover from the assessee the said amount by one or more of the modes set out in section 222. The other modes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, exercise its right to priority by making an application to the executing court for payment out. If, however, the State does not choose to apply to the court for payment of its dues from the amount lying in deposit in the court but allows the amount to be taken away by some other attaching decree-holder, the State cannot thereafter make an application for payment of its dues from the sale proceeds, since there is no amount left with the court to be paid to the State." Learned senior counsel has also referred to the decision of this court in Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. [2001] 247 ITR 165, wherein it was held that the State of Karnataka had a preferential claim to recover arrears of sales tax including penalty from a firm over that of the appellant-bank in relation to debts due to the bank from the firm for the payment of which the partners of the firm had mortgaged properties belonging to them, and the High Court was right in directing that, even though the bank had obtained a decree (in 1992) and was authorized to bring the mortgaged properties to sale, the arrears due to the State had to be paid to the State first and only thereafter the bank could adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be discharged first. Learned counsel has also submitted that in view of section 13, the Special Court Act shall have an overriding effect over the provisions of the Income-tax Act. Learned counsel has referred to the decision of this court in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [2001] 3 SCC 71, wherein it was observed as under at page 74 of the reports: "Under section 3 of the 1992 Act, all property of notified persons is to stand attached. Under section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under section 11(1), the Special Court can give directions regarding property of a notified party. Under section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of M/s. Dhanraj Mills Pvt. Ltd. that the property of M/s. Killick Nixon Pvt. Ltd. was put to auction. Thus, the Special Court could not have entertained the applications moved by the Income-tax Department under section 226(4) of the Income-tax Act for realization of its income-tax dues from M/s. Killick Nixon Pvt. Ltd. The applications moved by the Income-tax Department were, therefore, rightly rejected by the Special Court. Learned counsel for the appellant has also submitted that having regard to section 10 of the Special Court Act which provides appeal against the order of the Special Court to this court both on facts and law, the Special Court ought to have examined the matter in detail and has erred in rejecting the intervention applications by passing a short and cryptic order of 4 or 5 lines. In our opinion, the Special Court having noted the relevant legal provision for rejecting the applications, no exception can be taken to the order passed by it. At any rate we have examined the matter on merits and have arrived at a conclusion that the intervention applications were not maintainable before the Special Court. For the reasons discussed above there is no merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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