Smt. Rasila S. Mehta Vs. Custodian, Nariman Bhavan, Mumbai
J U D G M E N T
P. Sathasivam, J.
1. Civil Appeal No. 2924 of 2008 has been filed by Smt. Rasila S. Mehta, mother of late Harshad S. Mehta and Civil Appeal No. 2915 of 2008 has been filed by Smt. Rina S. Mehta, 1sister-in-law of late Harshad S. Mehta against the final judgment and order dated 26.02.2008 passed by the Special Court under the provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as "the Act") at Bombay in Misc. Petition Nos. 2 and 1 of 2007 respectively whereby the Special Court dismissed their petitions challenging the notification dated 04.01.2007 issued by the Custodian exercising powers under Section 3(2) of the Act notifying the appellants.
2. Civil Appeal No. 3377 of 2009 has been filed by Smt. Jyothi H. Mehta, widow of late Shri Harshad S. Mehta and six others against the judgment and order dated 13.03.2009 passed by the Special Court in approving Report No. 19 of 2008 filed by the Custodian in respect of outstanding dues towards Flat Nos. 32A, 32B, 33, 34A, and 34B on the Third Floor and 44A, 44B and 45 on the Fourth Floor together with terrace area on the Third Floor and eight car parking space in Madhuli Cooperative Housing Society Limited, Worli belonging to late Harshad S. Mehta as well as other related notified entities of the Harshad Mehta Group.
3. Civil Appeal No. 4764 of 2010 has been filed by Smt. Rasila S. Mehta challenging the order dated 07.05.2010 passed by the Special Court in approving Report No. 23 of 2009 of the Custodian on outstanding dues of Madhuli Cooperative Housing Society Limited, Worli as on 31.03.2009 towards Flat No. 31 on the Third Floor belonging to her being a notified party.
4. Since all the parties in the above appeals are family members of late Harshad S. Mehta and the orders challenged were of the Special Court, the same are being disposed of by the following common judgment.
5. Brief Facts:
a. Sometime in 1992, it was noticed that frauds and irregularities involving colossal amounts of money were committed by certain stock brokers and other persons as also by certain banks and financial institutions. The amounts involved in the said frauds and/or irregularities were estimated to run into several thousand crores. The Central Government, therefore, formed an opinion that it was necessary to take immediate steps to try offences relating to such transactions in securities and for matters connected therewith or incidental thereto. The President of India thereupon promulgated an Ordinance on 6th June 1992 known as the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance 1992 and the said Ordinance came into force on the same day. The said Ordinance with certain modifications became the Act when the assent of the President was given thereto on 18th August 1992 and the said Act was deemed to have come into force on 6th June 1992, namely, the date on which the said Ordinance had been promulgated.
b. On 6th June, 1992 the Central Government had also framed certain rules under the provisions of Section 14 of the said Ordinance known as the Special Court (Trial of Offences Relating to Transactions in Securities) Rules, 1992 (hereinafter referred to as `the Rules'). The said rules came into force on the 6th June 1992 and continue in force after the enactment of the Act under section 15(2) of the Act and/or Section 24 of the General Clauses Act, 1897.
c. The object of the Act, as apparent from the provisions thereof, is to ensure that offences relating to securities were 4expeditiously tried and it, therefore, provides for the establishment of a Special Court. The Act also provides that an appeal lies from the judgment, sentence or order, not being interlocutory order, of the said Special Court to the Supreme Court of India both on facts and on law. An important object of the said Act is to ensure speedy recovery of the huge amounts involved, to punish the guilty in such irregularities or fraud, to restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions.
d. On 13.05.1992, the Central Bureau of Investigation (in short "the CBI") issued freeze orders under Section 102 of the Code of Criminal Procedure (in short `the Code) on all the bank accounts of Smt. Rasila S. Mehta and Smt. Rina S. Mehta on the ground that the appellants are recipients of monies diverted by M/s Harshad S. Mehta from banks and financial institutions. This was a preventive measure taken by the CBI which powers are normally invoked pending investigation to bring within their fold, any property which is the subject-matter of an offence. Since then, all the charge-sheets came to be filed by the CBI after thorough investigation and trial has 5been completed in several cases. Based on the provisions of the Act, on 08.06.1992, the Custodian notified 29 entities except the appellants (Smt. Rasila S. Mehta and Smt. Rina S. Mehta) in the Mehta family comprising four brothers, the wives of three brothers, their three HUFs, a partnership firm, three brokerage firms in the family and 15 corporate entities promoted by them. These persons were notified on the basis of information/complaint received from the Ministry of Finance in which the Janakiraman Committee report was cited and relied upon.
e. On 25.01.1994, an amendment was carried out in the Act, wherein, Section 9-A was inserted to confer civil jurisdiction to the Special Court. Smt. Rasila S. Mehta and Smt. Rina S. Mehta were active investors and had built up a portfolio of investments which has appreciated in value over the years, more particularly, during the last three years. They own one each of the nine flats at Madhuli Cooperative Housing Society Limited which are merged/amalgamated with other flats under the occupation of the joint family. The bank accounts and shareholdings of these appellants are held 6jointly where the appellants are the first holders and their family members are joint/second holders. Due to the fact that joint/second holders are notified entities, the assets of the appellants have been treated as attached on and from 08.06.1992 and the same are being managed by the Custodian for the last 15 years. On 21.07.2006, the Custodian preferred a common Misc. petition No. 20 of 2006 against Smt. Rasila S. Mehta and Smt. Rina S. Mehta seeking relief of a declaration that the said appellants are benamis and fronts of late Harshad S. Mehta and other notified entities and, therefore, their assets should be utilized in discharge of their liabilities. The appellants also filed M.A. No. 291/2006 on 11.09.2007 seeking relief of a declaration that all the assets belonged to them and they were the first holders, namely, bank accounts and fixed deposits and the shareholdings may be declared as free from attachment.
f. On 04.01.2007, the Custodian issued a notification notifying both the appellants under Section 3(2) of the Act for which a public notice was published in the newspapers on 06.01.2007.
g. On 19.01.2007, Smt. Rina S. Mehta filed Misc. Petition No. 1 of 2007 and on 18.06.2007, Smt. Rasila S. Mehta filed Misc. Petition No. 2 of 2007 for the relief of de-notification under Section 4(2) of the Act. It transpired that the appellants were notified on the basis of the alleged complaint by Canbank Financial Services Ltd. (in short "Canfina"). On considering the materials, the Special Court, by impugned order dated 26.02.2008, dismissed the petitions filed by the appellants - Smt. Rasila S. Mehta and Smt. Rina S. Mehta.
h. Inasmuch as the other two appeals relate to the orders passed on the report submitted by the Custodian, there is no need to traverse all the details as stated therein.
6. Heard Mr. I.H. Syed, learned counsel for the appellants, Mr. Subramonium Prasad, learned counsel for the Custodian, Mr. K.K. Venugopal, learned senior counsel for intervenor/Standard Chartered Bank and Mr. Tushad Cooper, learned counsel for intervenor/State Bank of India.
7. Mr. Syed, learned counsel for the appellants after taking us through the relevant provisions of the Act, Rules and the materials available with the Custodian as well as the reasonings of the Special Court raised the following contentions:
i. The impugned notification is non-reasoned and non-speaking. The validity of a statutory order must be judged by a court of law by the reasons mentioned in the order itself and a statutory order cannot be explained and supplemented by fresh reasons in the shape of affidavit or otherwise whereas in the present case the Special Court accepted the same which is contrary to settled law.
ii. Delay of 15 years in passing the order of notification is unreasonable. The explanation offered for delay is also unacceptable.
iii. Material relied upon in passing the order of notification i.e. Canfina's letter dated 28.12.2006 is not supported by an affidavit which could not have been relied upon as it is contrary to proviso to Rule 2 of the Rules.
iv. Reliance on the reports of Joint Parliamentary Committee, Jankiraman Committee, IDG and Chartered Accountants' by the Custodian is unacceptable.
v. Pre-decisional hearing by the Custodian was required to be given and in the case on hand such opportunity was not afforded.
vi. No effective post-decisional hearing as the materials relied upon was not supplied in time.
vii. The Special Court erroneously held the transaction to be benami in general on the basis of Chartered Accountants' reports without examining individual transactions.
viii. The onus to establish the validity, correctness, legality, propriety of the notification order is on the Custodian but wrongly shifted on the appellants.
ix. Satisfaction of Custodian while passing an order of notification should be objective and based on materials as provided in the Rules.
x. (x) The Special Court erroneously held that the meaning of the phrase "involved an offence" has attained finality by this 10Court, though the said question was left open. In any event, the case of the Custodian was that a sum of Rs. 50 crores was diverted by M/s Harshad S. Mehta to the appellants during the period 01.04.1990 to 06.06.1992. In such event, monies transferred/diverted from the banks/financial institutions can only be recovered from the appellants and nothing more.
xi. The jurisdiction of the Special Court is limited to the statutory period only, i.e. 01.04.1991 to 06.06.1992.
xii. No interest can be levied on the notified parties as per the judgment of this Court in Harshad Shantilal Mehta vs. Custodian and Ors. (1998) 5 SCC 1.
8. On the other hand, Mr. Subramonium Prasad, learned counsel for the Custodian heavily relying on the circumstances for passing the Act, the statement of Objects and Reasons and the relevant provisions submitted that:
i. The impugned order of the Special Court is valid and the appellants have not made out any case for interference by this Court.
ii. As per Section 4(2) of the Act, it is for the appellants to show to the Special Court that they are not involved in any offence in securities between 01.04.1991 to 06.06.1992.
iii. A perusal of various reports like the Auditor's report, Janakiraman Committee's report, report of Inter Disciplinary Group (IDG), report of Vinod K. Aggarwal and Company coupled with materials placed and discussed, the impugned decision of the Special Court cannot be faulted with.
iv. From the materials placed, it is clear that the appellants are nothing but front benamidars of Harshad S. Mehta and there is no acceptable material to show that the appellants were having sufficient funds in their hands due to the purchase and sale of shares by placing acceptable materials such as income-tax returns etc. Inasmuch as the Special Court is manned by or presided over by a sitting Judge of High Court, sufficient safeguards are provided in the Act and, in any event, the appellants have no way prejudiced.
v. As per the provisions of the Act and interpreted by this Court on various occasions, it is for the appellants to make out a case before the Special Court that they are not involved in any offence or that they have no nexus.
9. Mr. K.K. Venugopal, learned senior counsel for intervenor/Standard Chartered Bank and Mr. Tushad Cooper, learned counsel for intervenor/State Bank of India assisted the Court by highlighting the object and salient features of the Act as well as huge financial implications on the banks due to the act of Harshad S. Mehta in the sale and purchase of shares. They also highlighted that crores of public monies were lost due to the conduct of Harshad S. Mehta and his family members which resulted in huge financial loss to the banks.
10. Before going into the rival submissions, it is necessary to trace the history of enactment of the Act. The Special Courts Act, 1992 (27 of 1992) was legislated to meet the necessity of establishing Special Courts for trial of offences committed in relation to Transactions in Securities Act, 1992. Reserve Bank of India found that large scale irregularities and malpractices were found in Government and other securities through brokers in collusion with Bank employees. This legislation was 13enacted to meet this situation. It is a short Act containing only 15 sections. It deals with establishment of Courts, defines jurisdiction and powers of Special Court. It also defines civil jurisdiction of such Special Courts. Provision of arbitration was reserved and appeal could also be preferred under the Act. Much protection was given for acts done in good faith and punishment for contempt was also provided so that the provisions of the Act would be more strictly implemented.
11. Objects & Reasons:The Statement of Objects and Reasons is as follows:- "(1) In the course of the investigations by the Reserve Bank of India, large scale irregularities and malpractices were noticed in transactions in both the Government and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions. The said irregularities and malpractices led to the diversion of funds from banks and financial institutions to the individual accounts of certain brokers. (2) To deal with the situation and in particular to ensure speedy recovery of the huge amount involved, to punish the guilty and restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992, was promulgated on the 6th June, 1992. The Ordinance provides for the establishment of a Special Court with a sitting Judge of a High Court for speedy trial of offences relating to transactions in securities and disposal of properties attached. It also provides for appointment of one or more custodians for attaching the property of the offenders with a view to prevent diversion of such properties by the offenders."
12. It is settled law that the objects and reasons of the Act are to be taken into consideration in interpreting the provisions of the statute. It is incumbent on the court to strive and interpret the statute as to protect and advance the object and purpose of the enactment. Any narrow or technical interpretation of the provisions would defeat the legislative policy. The Court must, therefore, keep the legislative policy in mind while applying the provisions of the Act to the facts of the case. It is a cardinal principle of construction of statute or the statutory rule that efforts should be made in construing the different provisions, so that each provision may have effective meaning and implementation and in the event of any conflict a harmonious construction should be given. It is also settled law that literal meaning of the statute must be adhered to when there is no absurdity in ascertaining the legislative intendment and for that purpose the broad features of the Act can be looked into. The main function of the Court is to merely interpret the section and in doing so it cannot re-write or re-design the section. Keeping all these principles in mind, let us consider the relevant provisions.
13. Relevant Provisions: As per Section 2(b), `Custodian' means "the Custodian appointed under sub-section (1) of Section 3." Section 2(c) `securities' includes.-- "(i) shares, scrips, stocks, bonds, debentures, debenture stock, units of the Unit Trust of India or any other mutual fund or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ii) Government securities; and (iii) Rights or interests in securities;" and as per Section 2(d) `Special Court' means "the Special Court established under sub-section (1) of Section 5." Among all the provisions Sections 3 and 4 are relevant which read as follows: "3. Appointment and functions of Custodian.---
(1) The Central Government may appoint one or more Custodian 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 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 16 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.
4. Contracts entered into fraudulently may be cancelled.—
(1) If the Custodian is satisfied, after such inquiry as he may think fit, that any contract or agreement entered into at any time after the 1st day of April, 1991 and on and before the 6th June, 1992 in relation to any property of the person notified under sub-section (2) of section 3 has been entered into fraudulently or to defeat the provisions of this Act, he may cancel such contract or agreement and on such cancellation such property shall stand attached under this Act: Provided that no contract or agreement shall be cancelled except after giving to the parties to the contract or agreement a reasonable opportunity of being heard. (2) Any person aggrieved by a notification issued under sub- section (2) of section 3 or any cancellation made under sub- section (1) of section 4 or any other order made by the
Custodian in exercise of the powers conferred on him under section 3 or 4 may file a petition objecting to the same within thirty days of the assent to the Special Court (Trial of Offences Relating to Transactions in Securities) Bill, 1992 by the President before the Special Court where such notification, cancellation or order has been issued before the date of assent to the Special Court (Trial of Offences Relating to Transactions in Securities) Bill, 1992 by the President and where such notification, cancellation or order has been issued on or after that date, within thirty days of the issuance of such notification, cancellation or order, as the case may be; and the Special Court after hearing the parties, may make such order as it deems fit."Section 9 speaks about procedure and powers of Special Court and by way of an amendment with effect from 25th January, 171994, Section 9-A was inserted to confer jurisdiction, powers, authority and procedure of Special Court in respect of civil matters. As per Section 10, against any judgment, sentence or order, not being interlocutory in nature of the Special Court, an appeal shall lie to the Supreme Court both on facts and on law. Like Sections 3 and 4, another important section is Section 11 which reads as under: "
Discharge of liabilities.- (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 Sec. 3 to the Central Government or any State Government or any local authority. (b) all amounts due from the person so notified by the Custodian to any bank or financial institution or mutual fund ; and (c) any other liability as may be specified by the Special Court from time to time." Section 13 makes it clear that the provisions of the 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 18authority. Section 14 empowers the Central Government to make rules for carrying out the provisions of the Act.
14. Based on the above statutory provisions, let us consider the claim of the appellants, stand taken by the Custodian and the reasonings of the Special Court in passing the impugned orders.
15. Discussion:The objects of the Act are twofold:
a. to punish the guilty, and
b. to ensure speedy recovery of the huge amount involved."Amount involved" means the amount of the banks and financial institutions alleged to have been diverted to the accounts of the offenders during the statutory period from 01.04.1991 to 06.06.1992.
16. The attached properties can be dealt with by the Special Court under sub-Sections (3) and (4) of Section 3, sub-Section (2) of Section 4, Sections 9-A and 11 of the Act. Section 3(3) of the Act provides for an automatic attachment of all properties as a consequence of Notification. The object provides the attachment of all properties of the offender with a view to prevent diversion of such properties. The said provision is a preventive provision.
17. Section 11 provides for disposal and sale of attached properties extinguishing the rights and title of a notified party, which is a punitive provision. Section 3 of the Act provides for appointment and functions of the Custodian. Sub-section (2) of Section 3 postulates that 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 06.06.1992 (the statutory period), notify the name of such person in the Official Gazette. Sub-section (3) of Section 3 contains a non obstante clause providing 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 that sub-section shall stand attached simultaneously with the issue of the notification and sub-section (4) of Section 3 makes it clear that such attached property shall be dealt with by the Custodian in such manner as the Special Court may direct.
18. In the Ordinance which preceded the Act, there was no provision for giving post facto hearing to a notified person for cancellation of notification, but such a provision has been made in the Act, as would appear from Section 4(2) thereof. Sub-section (2) of Section 4, however, provides for a hearing as regards correctness or otherwise of the notification notifying a person in this behalf, in the event an appropriate application therefor is filed within 30 days of the issuance of such notification. Section 5 provides for establishment of the Special Court. Section 7 confers exclusive jurisdiction of Special Court.
A perusal of the Act makes it clear that any prosecution in respect of any offence referred to in sub-section (2) of Section 3 pending in any court is required to be transferred to the Special Court. Section 9 provides for the procedure and powers of the Special Court. Section 9-A, which was inserted by Act 24 of 1994 with effect from 25.01.1994, confers all such jurisdiction, powers and authority as were exercisable, immediately before such commencement by any civil court in relation to the matter specified therein. The Act provides for stringent measures. It was enacted for dealing with an extraordinary situation in the sense that any person who was involved in any offence relating to transaction of any security could be notified, whereupon all his properties stood attached. The provision contained in the Act being stringent in nature, the purport and intent thereof must be ascertained having regard to the purpose and object it seeks to achieve. Provisions with regard to Attachment
19. The vires of Sections 3(2), 3(3) and 3(4) of the Ordinance was challenged before the High Court of Bombay in Writ Petition No. 1547 of 1992 Hitesh S. Mehta vs. Union of India & Anr., 1992 (3) Bomb. C.R. 716. It was argued before the Bombay High Court that there is no provision for hearing at the stage of notification i.e. Section 3(2) and also at the stage of attachment of all properties i.e., Section 3(3). Therefore, the provisions are contrary to the principles of natural justice and be struck down. The Division Bench of the High Court in paragraph 8 of the said judgment observed as follows: "Had the provision been confined to Section 3, sub-sections (2) and (3), the argument which is advanced before us would have had considerable force. It is undoubtedly true that neither in sub-Section (2) nor in (3) is there any provision for any hearing being given to the person who may be notified; nor is there any provision for any reasoned order being passed by the Custodian at the time when he notifies such a person. There is, however, a further sub-Section, namely, sub-Section (4) of Section 3 which provides as follows:Section 3 (4) : The property attached under sub-Section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct.
This sub-section clearly contemplates that the power of the Custodian to deal with the property of a person who has been notified is subject to the orders and directions of the Special Court. Now, in the first place, the Special Court under the Ordinance is a Court presided over by a sitting Judge of a High Court. This itself is a check on any arbitrary exercise of powers by the Custodian. Secondly, the power of the Special Court to give directions to the Custodian in respect of any attached property must necessarily bring within its ambit, the power to order the release of such property or any part of its from attachment.
If the person who is aggrieved by his name being notified under sub-section (2) approaches the Special Court and makes out, for example, a case that the property which is attached or a portion of its has no nexus of any sort with the illegal dealings in securities belonging to banks and financial institutions during the relevant period and/or that there are no claims or liabilities which have to be satisfied by attachment and sale of such property, in our view, the Special Court would have the power to direct the custodian to release such property from attachment. In the same way, if ultimately, the Special Court, after looking at all the relevant circumstances, comes to the conclusion that the entire property should be released from attachment, we do not see any reason why such a direction also cannot be given by the Special Court under Section 3, sub-section (4).
In such a situation, if the entire property is required to be released from attachment, the Special Court, in our view, can also direct the Custodian that the name of the notified person should be de-notified. This would be a necessary 23 consequence of the power of the Special Court to give proper directions in connection with the property which the Custodian seeks to attach. If sub-section (4) is read in this light, the grievance of the petitioner relating to the validity of powers granted to the Custodian under Section 3 would not survive. The above-said paragraph of Hitesh S. Mehta's judgment was relied upon by this Court in Harshad S. Mehta vs. Custodian (supra).
20. This Court in L.S. Synthetics Ltd. vs. Fairgrowth Financial Services Ltd. & Anr. (2004) 11 SCC 456 considered the judgment of Harshad S. Mehta (supra) and in paragraphs 27 to 29 observed as under: "27. This Court in para 14 was merely recording the submissions of one of the notified parties. Even a question as to whether all properties of notified persons would be subject to the statutory attachment under sub-section (3) of Section 3 of the said Act or not did not arise for consideration therein. 28. Therein indisputably this Court was referring to a judgment of the Bombay High Court but did not pronounce finally on the correctness or otherwise thereof. 29. In Hitesh Shantilal Mehta the Bombay High Court appears to have merely held that in appropriate cases the Special Court would have the power to direct the Custodian to release such property from attachment, in the event, it is found that the property which is attached has no nexus with the illegal dealings in securities belonging to banks and financial institutions during the relevant period and/or there are no claims or liabilities which have to be satisfied by attachment and sale of such property.
Once it is held that a debt can be the subject-matter of attachment, the provisions of sub-section (3) of Section 3 of the said Act would squarely be applicable in view of the fact that the same was the 24 property belonging to a notified person. This position in law is not disputed. Such attached property, thus, if necessary, for the purpose of discharging the claims and liabilities of the notified person indisputably would stand attached and can be applied for discharge of his liabilities in terms of Section 11 of the said Act."
21. In paragraphs 45, 46 and 47 of Jyoti Harshad Mehta & Ors. vs. Custodian & Ors. (2009) 10 SCC 564 this Court held as under: "45. It is contended by the learned counsel for the appellants Mr Syed that if any of the properties or assets of the notified parties have no nexus with the illegal securities transactions, the same can be released from attachment or at least need not be sold. 46. It has further been argued that no evidence has been adduced that loans given by M/s Harshad S. Mehta to his family members or monies used by Shri Harshad Mehta for purchase of his flat were acquired from the tainted funds. It is submitted by the appellants that unless it can be shown that the properties in question were acquired from the tainted funds they would be liable to be released from attachment. It is argued that the fact that the properties had been purchased much before the securities scam would go on to show that they had no nexus with the funds diverted therefrom.
In our opinion the arguments advanced on behalf of the appellants need to be rejected at the outset because a plain reading of the sections of the Special Act would clearly point otherwise. In our opinion the attachment of all the properties in terms of sub-section (3) of Section 3 of the Special Act is automatic. The attachment restricts sale of the properties which have 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. ......................."
22. In Ashwin S. Mehta vs. Custodian & Ors. (2006) 2 SCC 385 in paragraph 15, this Court observed as under: "15. The Act provides for stringent measures. It was enacted for dealing with an extraordinary situation in the sense that any person who was involved in any offence relating to transaction of any security may be notified, whereupon all his properties stand attached. The provision contained in the Act being stringent in nature, the purport and intent thereof must be ascertained having regard to the purpose and object it seeks to achieve. The right of a person notified to file an application or to raise a defence that he is not liable in terms of the provisions of the Act or, in any event, the properties attached should not be sold in discharge of the liabilities can be taken at the initial stage by filing an application in terms of sub-section (2) of Section 4 of the Act. But, at the stage when liabilities are required to be discharged, the notified persons may raise a contention inter alia for the purpose of establishing that the properties held and possessed by them are sufficient to meet their liabilities. In terms of the provisions of the Act, the Special Court had been conferred a very wide power."
23. Section 9-A was inserted by an amendment dated 25.01.1994 conferring jurisdiction, powers, authority and procedure of Special Court in civil matters. In view of this amendment, this Court in paragraph 41 of Harshad Mehta's case (supra) observed as under: "41. ......... If, according to any of the banks or financial institutions, any of the properties attached belongs to the bank or financial institution concerned, it is open to that bank or financial institution to file a claim before the Special Court in that connection and establish its right to the property attached or any part thereof in accordance with law. Obviously, until such a claim is determined, the property attached cannot be sold or distributed under Section 11........"
24. This Court in Ashwin S. Mehta's case (supra), in paragraphs 51 and 52 observed as under: "51. ........It was, thus, necessary for the learned Special Court to arrive at a firm conclusion as regards the involvement of the individuals with Harshad Mehta, if any, and the extent of his liability as such. 52. Furthermore, the question as regards liability of the parties should have been determined at the stage of Section 9-A of the Act. ......... It does not appear that claims inter se between the entities within the so-called group had ever been taken into consideration. The Custodian does not appear to have preferred claims before the Special Court on behalf of the largest lender on the so-called group against those he had to recover loans. Such claims may also be preferred."
25. As regards Section 11, the properties which stand attached by the Custodian are used to discharge the liabilities in full as far as may be in the order prescribed under Section 11(2) of the Special Court Act. There is nothing in the Act which suggests that only such properties which belong to the notified party and which have been acquired by the use of tainted funds alone can be attached for the purposes of distribution under Section 11 of the Act. Section 3(3) postulates that on and from the date of notification all properties movable, immovable or both, belonging to the notified party on and from the date of the notification stand attached. Attachment of all the properties in terms of Section 3(3) of the Act is automatic. The said section does not provide any qualification that the properties which are liable to be attached should relate to the illegal transactions in securities in respect of which the Act was brought in force. Had the Parliament intended otherwise it would have specifically provided for the same as was done under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976. A reading of Section 11 of the Act further provides that all the properties which stand attached to the Special Court under Section 3(3) are available for distribution under Section 11 of the Act. There is again nothing which suggests that the distribution must be restricted only to sale of such properties which have been acquired by use of tainted funds. The statutory period is irrelevant for the attachment of properties and sale of the same. All properties which are attached would be liable to be sold for redemption of liabilities till the date of notification under Section 11 of the Act.
26. The Custodian filed Misc. Petition No. 20 of 2006 on 21.07.2006 against the appellants for the recovery of the money alleged to have been advanced by the three brokerage firms i.e., M/s Harshad S. Mehta, M/s Ashwin Mehta and M/s J.H. Mehta to the appellants and prayed that the appellants be declared benami/front of late Harshad S. Mehta and/or his group, and the assets be utilized for discharging the liabilities of late Harsahd S. Mehta and/or his group. On 04.01.2007, the Custodian notified the appellants and subsequently on 23.01.2007 withdrew the said M.P. No. 20 of 2006 after the notification.
27. The appellants filed Misc. Petition Nos. 1 & 2 of 2007 challenging the validity of the Notification dated 04.01.2007 before the Special Court. The Special Court dismissed the said petitions and granted the prayer in Misc. Petition No.20 of 2006 filed by the Custodian.
28. This Court in L.S. Synthetics (supra) in paragraphs 35, 36 and 42 held as under: "35. S.N. Variava, J. in A.K. Menon, Custodian whereupon the learned Special Court has placed reliance, observed: 29"19. It is thus that the said Act lays down a responsibility on the Court to recover the properties. So far as monies are concerned, undoubtedly the particular coin or particular currency note given to a debtor would no longer be available. That however does not mean that the lender does not have any right to monies.
What is payable is the loan i.e. the amount which has been lent. The right which the creditor has is not a `right to recover' the money. The creditor has the title/right in the money itself. An equivalent amount is recoverable by him and the title in any equivalent amount remains with the lender. Thus the property which a notified party would have is not the right to recover but the `title in the money itself'. Thus under Section 3(3) what would stand attached would be the title/right in the money itself. Of course what would be recoverable would be an equivalent of that money. Once the money stands attached then no application is required to be made by any parties for recovery of that money.
It is then the duty of the court to recover the money. No period of limitation can apply to any act to be done by a court. Therefore in all such applications the only question which remains is whether on the date of the notification the right in the property existed. If the right in the property existed then irrespective of the fact that the right to recover may be barred by limitation there would be a statutory attachment of that property. Once there is a statutory attachment of that property the court is duty-bound to recover it for the purposes of distribution. There can be no period of limitation for acts which a court is bound to perform. In this case since the court is compulsorily bound to recover the money there can be no limitation to such recovery proceedings. To be remembered that Section 3(3) as well as Section 13 provide that provisions of the said Act would prevail over any other law. This would include the Limitation Act.36. We respectfully agree with the said view.42. Only in the event, all the claims as provided for under Section 11 of the said Act are fully satisfied, the amount belonging to the notified person can be directed to be released in his favour or in favour of any other person."
29. The same position is reiterated in para 56 of the judgment in Jyoti Harshad Mehta's case (supra) wherein this Court held that, "......It is true that to such an extent all properties would be liable to be sold which are needed for redemption and not beyond the same. What should be kept uppermost in the mind of the Court is to see that the liabilities are discharged and not beyond the same. It is with that end in view that the powers of the Special Court contained in Sections 9A and must be construed."
30. Whether there are sufficient provisions for pre and post decisional hearing thereby ensuring Rules of Natural Justice? Section 3(2) of the Special Courts Act confer power to Custodian to notify a person in the Official Gazette on being satisfied on information received that such person was involved in any offence relating to transactions in securities during the statutory period 01.04.1991 to 06.06.1992. Though Mr. Syed contended that the appellants are entitled to hearing even at the stage of Section 3(2), we are unable to accept his claim. Section 3(2) does not give any right of personal hearing to the person being notified. In the absence of any such right there is no pre-decisional hearing The provisions of the Act do not provide for a pre-decisional hearing before notification but contains an impeccable milieu for a fair and just post decisional hearing. The fact that it does not provide for a pre-decisional hearing is not contrary to the rules of Natural Justice because the decision of the Custodian to notify does not ipso facto takes away any right of the person thus notified or imposes any duty on him.
This also has to be read in the light of the judgment of Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664 which reads as under: "Rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is not possible to make an exhaustive catalogue of such rules. But there are two fundamental maxims of natural justice viz. (i) audi alteram partem and (ii) nemo judex in re sua. The audi alteram partem rule has many facets, two of them being (a) notice of the case to be met; and (b) opportunity to explain. This rule cannot be sacrificed at the altar of administrative convenience or celerity. The general principle--as distinguished from an absolute rule of uniform application-- seems to be that where a statute does not, in terms, exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage.
Conversely if the statute conferring the power is silent with regard to the giving of a pre-decisional hearing to the person affected and the administrative decision taken by the authority involves civil consequences of a grave nature, and no full review or appeal on merits against that decision is provided, courts will be extremely reluctant to construe such a statute as excluding the duty of affording even a minimal hearing, shorn of all its formal trappings and dilatory features at the pre-decisional stage, unless, viewed pragmatically, it would paralyse the administrative process or frustrate the need for utmost promptitude. In short, this rule of fair play must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. The court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, the core of it must, however, remain, namely, that the person affected must have reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise." (Emphasis supplied)
31. Attachment of property is a natural consequence of notification and not sale of the property. The power to order a sale of the property lies only with the Special Court under Section 11 and at this instance where the notified person can be adversely affected, Section 4(2) provides that any person aggrieved by the notification can file a petition objecting the same within 30 days of the date of the issuance of the notification. The Special Court is presided over by a sitting Judge of the High Court. All material before the Custodian is placed before the Special Court which independently analyses all the material while deciding the application filed by the notified party challenging the notification. This amounts to 33post decisional hearing satisfying the principles of natural justice. Also a pre-decisional hearing would frustrate the entire purpose of the Act. If there is time given to Show Cause why a person should not be notified, that time could practically be utilized to further divert the funds, if any, so that it becomes even more difficult to trace it.
32. Notification of the appellants: As stated earlier that some time in 1992, it was noticed that frauds and irregularities involving huge amounts of money running into several thousand crores were commited by certain financial brokers and financial institutions. The Central Government, to combat with the situation, promulgated an ordinance on 6.6.1992 known as the Special Court (Trial of Offences relating to Transactions in Securities) Ordinance, 1992. On 08.06.1992 Mr. Harshad S. Mehta (since deceased) and 28 members of his group including his family members/entities were notified under the Ordinance. It is pertinent to mention here that the complete details of the transactions of Harshad Mehta were not k
