Case: Sudhir S.Mehta  Vs. Custodian

the part of the Custodian must be accepted. It has already been shown in the earlier part of the judgment that all these contentions were only raised before the Special Court, particularly, when the objections were raised. We do find some traces of these objections in the petition, but it is obvious that these questions were never pressed into service before the Special Court, perhaps because the appellants knew the futility thereof. We, therefore, leave the matters at that, in view of the final order that we propose to pass.46. This is apart from the fact that before us also, not even a distant reference was made to these affidavits dated 1.3.2006 and 22.3.2006. A bald statement was made that there was no compliance of this Courts order in Ashwin Mehtas Case. We are certain that if these arguments had been addressed before the Special Court, the Special Court would have taken note thereof. The Special Court chose to go-by the judgment of this Court confirming the earlier judgment regarding the sale of shares passed by the Special Court [Hon. Kapadia, J. (as he then was)] and in our opinion, that was a right approach since the controversy involved, related to the sale of shares and securities. At this juncture, we cannot ignore the fact that in 2005 itself, in pursuance of the judgment dated 17.8.2000 and the confirming judgment of this Court, the majority of the shares have already been sold. It is only in respect of the Reliance Shares that the present sale was contemplated. It is really surprising that when the major shares were sold way back in 2005, the appellants did not think it proper either to challenge the same or to raise this argument of the individual liabilities viz. a viz., the group liabilities or the second argument that unless the denotification applications were decided upon, there should be no sale of shares. We have already pointed out the hollowness of the argument regarding the denotification applications, which were claimed to be pending before the Special Court, which claim is also baseless. Therefore, on both these counts, there would be no question of finding fault with the impugned order of the Special Court. 47. This takes us to another contention raised more particularly, in point number 2, 4 and 5. Apart from the fact that the contentions were never raised before the Special Court, it is pointed out that as in the earlier case of the sale of shares in 2005, the Disposal Committee which was formulated under the orders of the Special Court as also this Court, had found that it was opportune time for the sale of Reliance Shares. The Custodian argues that the instant sale of Reliance Shares was being carried out strictly in compliance with the procedure laid down by the Special Court and this Court in the earlier referred judgments. It is pointed out by the Custodian that between 12.12.2000 to 1.11.2007, 12.12 crores shares valued at Rs.1792.77 crores were sold. Out of these, the shares worth Rs.1463.96 crores belonged to the various entities of Harshad Mehta Group including the appellants. The learned counsel very surprisingly did not refer to these facts during his arguments, instead, it was suggested that there was a loss of 6500 crores of rupees because of the sale. Such figure apart from being imaginary, has no basis. We cannot ignore that the Special Court is dealing with the scam which shook the whole financial world of India. We again cannot ignore the fact that the decision to sell the shares in 2005 was taken by the Disposal Committee, which consisted of the experts of the financial world who were well-experienced in the sale of shares and securities and who had a thorough study of the share markets. No mala fides were ever alleged against the Disposal Committee. Under the circumstances, we find no reason to accept the argument that the earlier sale caused huge loss and, therefore, the shares should not be sold. In our opinion, the Special Court was right in confirming the advice and accepting the report filed before him on behalf of the Custodian justifying the sale of shares. However, all that exercise, we are afraid, would have to be repeated again, particularly, because more than six months have elapsed after that decision and the sale has yet not taken place. The Special Court has referred back the matter and has passed the directions for obtaining the legal and expert advice to deal with the taxes. We are told at the Bar that such exercise had already been completed. It would, therefore, be proper for the Disposal Committee to again decide as to whether the shares should be sold at all and when. That would depend upon the market conditions and so many other factors which are certain to be considered by the Disposal Committee. The Custodian has referred all the happenings during the pendency of this appeal and has relied on the report dated 27.11.2007. We need not go into the question, since, it would be for the Disposal Committee to decide upon the proper time and the manner in which the sale is to be executed, and it would be for the Special Court to further decide on the matter.48. In view of what we have stated above, we are convinced that the appeals have no merits. However, one thing is certain that the sale, as well as the decision to make the sale at a particular time, stand frustrated because of the lapse of time. The whole procedure for sale of shares will have to be repeated now, meaning thereby, that the Disposal Committee would have to take a fresh decision in the light of the directions given by the Special Court, which are the correct directions. That shall be done at the opportune time. If the appellants so feel, they would be at liberty to put their objections subject to what has already been said in this judgment.

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

Explanation:
0[ds]We have extensively quoted the directions given by the learned Judge, on the basis of the four formulated objections. In order to comply with the directions given by the learned Judge, it was necessary to put the auction proceedings on hold. However, the LIC of India was not prepared to keep its offer open and, therefore, the learned Judge had relieved the LIC of India of its obligations on the basis of itsregards the opportune time, the learned Judge, however, held that the shares were being sold at the proper time. Lastly, as regards the tax liability also, the learned Judge had directed the Custodian to seek legal and professional advice, and for that purpose, practically wiped out the effect of the auction by directing the compliance of his directions. Thus, for all the practical purposes, one thing was certain that the shares were not to be sold unless all the directions were complied with. However, the appellants did not wait and rush to this Court even before the Disposal Committee had given its opinion on the various issues and even before the Custodian was able to get the legal and professional opinions regarding the tax liability.34. It is obvious that the Disposal Committee would now have to again take a decision whether at this point of time, the shares should be sold or not. The Disposal Committee consists of the experts who would know best, whether the shares should at all be sold at this point of time. However, the appellants have come before this Court insisting that the shares should not be sold at all, which stand was conspicuously absent when the matters were argued firstly before the Special Court or even before the this Court, as we do not find any trace of the said contentions in the arguments before the Special Court. The old theory of not selling the shares at all unless individual liabilities were fixed one way or the other was wreaked up in this appeal and very surprisingly, though the order of the learned Special Judge was completely confirmed by this Court which also meant that the shares were bound to be sold. Completely giving ato the judgment of this Court dated 23.8.2001, by which the judgment of the Special Court was confirmed, the appellants are now saying that the shares cannot be sold. This would be impermissibleit is that permission was given to withdraw their applications with a liberty to file fresh petitions after the criminal trials, if any, are over but no application has been filed. Thus, the main stay of the arguments on the part of the appellants is knocked out on the basis of this fact, and it is not open to the appellants to say that since there are chances of their denotification, the shares belonging to them should not beis obvious that on the day when Ashwin Mehtas Judgment was delivered, there were no applications pending consideration before the Special Court nor are any such applications pending today also. Hence, an objection to the sale, on that ground, must be rejected. This answers contention no.our opinion, there would be no necessity to consider the individual liability of any such appellant being a notified person. Unless any appellant is denotified, there would be no question of raising of these defences regarding individual liability. It is obvious, that the notification covers all the properties including the shares and securities of the notified persons and, therefore, comes into the hands of the Custodian. There would, therefore, be no question of raising the issues that the individual liability of such a notified person should be arrived at first. We say this, particularly, because the claim of the notified persons that their assets exceeds the liability, is also not correct. That is a clear cut finding given by Hon. Kapadia, J. in his judgment dated 17.8.2000, which is later on confirmed by this Court. The Custodian argues before us and not without any reasons that the tables prepared by the Custodian shows that the liability of the notified persons does exceed assets, we shall not go into that aspect at this juncture. However, the fact remains that there would be no question of any individual liability being arrived at before the shares are sold. The judgment of the learned Special Judge for selling the shares having been confirmed by this Court, whereby, the decision to sell the shares has been confirmed by the three Judge Bench of this Court concluding the issue. The same is binding. Therefore, it cannot be said at this juncture at least, that on that account, the sale of the shares should be postponed, till such time, as the question of individual liability viz. a viz. Harshad Mehta is decided upon.It was, therefore, obvious that at that juncture, when the question was as to whether the shares should be sold or not, the move was objected to by the appellants formulating themselves as Harshad Mehta Group. No such 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.46. This is apart from the fact that before us also, not even a distant reference was made to these affidavits dated 1.3.2006 and 22.3.2006. A bald statement was made that there was no compliance of this Courts order in Ashwin Mehtas Case. We are certain that if these arguments had been addressed before the Special Court, the Special Court would have taken note thereof. The Special Court chose tothe judgment of this Court confirming the earlier judgment regarding the sale of shares passed by the Special Court [Hon. Kapadia, J. (as he then was)] and in our opinion, that was a right approach since the controversy involved, related to the sale of shares and securities. At this juncture, we cannot ignore the fact that in 2005 itself, in pursuance of the judgment dated 17.8.2000 and the confirming judgment of this Court, the majority of the shares have already been sold. It is only in respect of the Reliance Shares that the present sale was contemplated. It is really surprising that when the major shares were sold way back in 2005, the appellants did not think it proper either to challenge the same or to raise this argument of the individual liabilities viz. a viz., the group liabilities or the second argument that unless the denotification applications were decided upon, there should be no sale of shares. We have already pointed out the hollowness of the argument regarding the denotification applications, which were claimed to be pending before the Special Court, which claim is also baseless. Therefore, on both these counts, there would be no question of finding fault with the impugned order of the Specialmala fides were ever alleged against the Disposal Committee. Under the circumstances, we find no reason to accept the argument that the earlier sale caused huge loss and, therefore, the shares should not be sold. In our opinion, the Special Court was right in confirming the advice and accepting the report filed before him on behalf of the Custodian justifying the sale of shares. However, all that exercise, we are afraid, would have to be repeated again, particularly, because more than six months have elapsed after that decision and the sale has yet not taken place. The Special Court has referred back the matter and has passed the directions for obtaining the legal and expert advice to deal with the taxes. We are told at the Bar that such exercise had already been completed. It would, therefore, be proper for the Disposal Committee to again decide as to whether the shares should be sold at all and when. That would depend upon the market conditions and so many other factors which are certain to be considered by the Disposal Committee. The Custodian has referred all the happenings during the pendency of this appeal and has relied on the report dated 27.11.2007. We need not go into the question, since, it would be for the Disposal Committee to decide upon the proper time and the manner in which the sale is to be executed, and it would be for the Special Court to further decide on the matter.48. In view of what we have stated above, we are convinced that the appeals have no merits. However, one thing is certain that the sale, as well as the decision to make the sale at a particular time, stand frustrated because of the lapse of time. The whole procedure for sale of shares will have to be repeated now, meaning thereby, that the Disposal Committee would have to take a fresh decision in the light of the directions given by the Special Court, which are the correct directions. That shall be done at the opportune time. If the appellants so feel, they would be at liberty to put their objections subject to what has already been said in this judgment.