Case: Jyoti Harshad Mehta Vs. Custodian

the Special Court seeking attachment of the said funds due to them by LS Synthetics. It was argued on behalf of the debtors, LS Synthetics, that the loans due to the respondents had no nexus to the nature of securities transactions specified under the Special Act and they were therefore not liable to be attached. This Court while rejecting the said contention noted that having regard to the provisions of the Act, it was not required that the properties in question must have a nexus to the illegal securities transaction. Accordingly all assets of the notified parties including the loans advanced by them in the case at hand were found liable to be attached. The Court however in LS Synthetics (supra) was not concerned with the issue of whether the properties in question had been acquired before the window period or not. The loans in that case had admittedly been advanced within the window period and accordingly the only question before the court was whether the loan would be liable to be attached despite not having a nexus to the illegal security transactions. This accordingly brings us to the next submissions as regards the statutory window period.STATUTORY WINDOW PERIODIt was contended on behalf of the Appellants, that the properties in question had been purchased much before the statutory window period provided under the Special Act. It is argued that the jurisdiction of the Special Court is strictly confined to the period from 01.04.1991 to 06.06.1992 and as such the Court would not have the power to investigate and give any findings pertaining to any transaction entered into prior to the statutory period. The appellants state that, the fact, no claims have been received by the custodian from any bank pertaining to the pre-statutory period, should be conclusive evidence that no monies were siphoned off in that period as falsely alleged.In our opinion the interpretation advanced by the appellants on the provisions would be a clear misreading of the Act. We must in this regard refer to the relevant provisions of the Act.Provisions of Section 3(2) should not be read into Section 3(3). Though Section 3 (3) is dependent on Section 3(2) for its operation, but once Section 3(2) comes into operation, Section 3(3) becomes independent of it and accordingly the qualifications of Section 3(2) cannot be read into Section 3(3). We must place emphasis on a plain reading of the said section. Had it been the intention of the legislature to attach only those properties acquired within the statutory period, it would have clearly said so. The 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).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.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, (1997) 9 SCC 123 para 6]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.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 11 must be construed.It is an accepted fact that the reports of the Jankiraman Committee, the Joint Parliamentary Committee and the Inter Disciplinary Group (IDG) are admissible only for the purpose of tracing the legal history of the Act alone. The contents of the report should not have been used by the ld. Judge of the Special Court as evidence.However, a lot of documents have been filed before us with regard to Audited Reports. Vyas and Vyas had filed an Audited Report in 2003. Copies whereof were supplied in 2005. Audited Report of Vyas and Vyas related only to Harshad Mehta. A Report on the Assets and Liabilities of the Appellants by M/s. Vinod K. Agarwala and Co. as on November, 2007 has also been placed on record. It does not appear that the Special Judge had considered this aspect of the matter in great detail. The learned Judge, Special Court, should consider the aforementioned two audit reports so as to arrive at a positive finding with regard to the liabilities and assets possessed by them so as to enable to pass appropriate orders.The learned Judge, Special Court, in his judgment has mainly dealt with the contentions raised by the custodian in terms of the written submission filed on its behalf. The contentions of the appellants have not been considered in the impugned judgment. It is furthermore contended on behalf of the appellants, that out of the twenty six paragraphs of the impugned judgment, 15 paragraphs are near verbatim reproductions.In our opinion this clearly shows the non-application of mind of the learned Judge, Special Court. He was required to weigh the submissions and counter-submissions of both the parties in his proper perspective and then arrive at a well reasoned opinion, which doesnt seem to be the case before us. It is well settled that "Justice must not only be done, but also must be seem to be done".

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Mr. Syed, therefore, in our opinion is not correct in contending that the advances made by Harshad Metha to the appellants herein for the purpose of purchase of properties would amount to benami transactions whereof(1) of Section 4 of the Special Act shallhas 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.4000/per month. Despite this the said company allegedly entered into security trading transactions amounting to crores.The appellants were members of an H.U.F. and were seen to be working in tandem. Harshad Methathe appellants was, thus, not a third party.ISSUE OF DENOTIFICATIONAppellants contend that they had withdrawn the denotification applications in 2000 although the same had been filed in 1993. The delay in disposal of the said applications is sought as a reason assigned in support of the same. We fail to see any justification in the said stand. Appellants contend that they wanted to file fresh applications. If that be so the reason why the earlier applications were withdrawn had not been properly and sufficiently explained. The reason assigned is hardly a ground for withdrawal of the applications. We have been informed by the appellants that fresh applications for denotifications have been filed and the same have been withdrawn in the year 2009. The same issue may have to be dealt with by the Special Court. We wonder, why it took nine years to file these fresh applications.We may notice that applications for denotification were filed by Raseela Mehta and Rina Mehta which were rejected by the Special Court. The order rejecting the same have been challenged before this Court by way of Appeals which are numbered as Civil Appeal Nos. 2915 of 2008 and 2924 of 2008 and are pending.NEXUS OF THE PROPERTIES WITH THE ILLEGALSECURITIES TRANSACTIONItis 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 security transactions, the same can be released from attachment or at least need not be sold. 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 subsection (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. Thespecifically 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 saiddoes 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.This is supported by the decision of this court in LS Synthetics Ltd. v. Fairgrowth Financial Services Ltd. [ (2004) 11 SCC 465 ]. 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 LS Synthetics. It was argued on behalf of the debtors, LS Synthetics, that the loans due to the respondents had no nexus to the nature of securities transactions specified under the Special Act and they were therefore not liable to be attached. This Court while rejecting the said contention noted that having regard to the provisions of the Act, it was not required that the properties in question must have a nexus to the illegal securities transaction. Accordingly all assets of the notified parties including the loans advanced by them in the case at hand were found liable to be attached. The Court however in LS Synthetics (supra) was not concerned with the issue of whether the properties in question had been acquired before the window period or not. The loans in that case had admittedly been advanced within the window period and accordingly the only question before the court was whether the loan would be liable to be attached despite not having a nexus to the illegal security transactions. This accordingly brings us to the next submissions as regards the statutory window period.STATUTORY WINDOW PERIODIt was contended on behalf of the Appellants, that the properties in question had been purchased much before the statutory window period provided under the Special Act. It is argued that the jurisdiction of the Special Court is strictly confined to the period from 01.04.1991 to 06.06.1992 and as such the Court would not have the power to investigate and give any findings pertaining to any transaction entered into prior to the statutory period. The appellants state that, the fact, no claims have been received by the custodian from any bank pertaining to theperiod, should be conclusive evidence that no monies were siphoned off in that period as falsely alleged.In our opinion the interpretation advanced by the appellants on the provisions would be a clear misreading of the Act. We must in this regard refer to the relevant provisions of the Act.Provisions of Section 3(2) should not be read into Section 3(3). Though Section 3 (3) is dependent on Section 3(2) for its operation, but once Section 3(2) comes into operation, Section 3(3) becomes independent of it and accordingly the qualifications of Section 3(2) cannot be read into Section 3(3). We must place emphasis on a plain reading of the said section. Had it been the intention of the legislature to attach only those properties acquired within the statutory period, it would have clearly said so. The 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).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.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, (1997) 9 SCC 123 para 6]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.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 11 must be construed.It is an accepted fact that the reports of the Jankiraman Committee, the Joint Parliamentary Committee and the Inter Disciplinary Group (IDG) are admissible only for the purpose of tracing the legal history of the Act alone. The contents of the report should not have been used by the ld. Judge of the Special Court as evidence.However, a lot of documents have been filed before us with regard to Audited Reports. Vyas and Vyas had filed an Audited Report in 2003. Copies whereof were supplied in 2005. Audited Report of Vyas and Vyas related only to Harshad Mehta. A Report on the Assets and Liabilities of the Appellants by M/s. Vinod K. Agarwala and Co. as on November, 2007 has also been placed on record. It does not appear that the Special Judge had considered this aspect of the matter in great detail. The learned Judge, Special Court, should consider the aforementioned two audit reports so as to arrive at a positive finding with regard to the liabilities and assets possessed by them so as to enable to pass appropriate orders.The learned Judge, Special Court, in his judgment has mainly dealt with the contentions raised by the custodian in terms of the written submission filed on its behalf. The contentions of the appellants have not been considered in the impugned judgment. It is furthermore contended on behalf of the appellants, that out of the twenty six paragraphs of the impugned judgment, 15 paragraphs are near verbatim reproductions.In our opinion this clearly shows theof mind of the learned Judge, Special Court. He was required to weigh the submissions andof both the parties in his proper perspective and then arrive at a well reasoned opinion, which doesnt seem to be the case before us. It is well settled that "Justice must not only be done, but also must be seem to be done".