Ashwin S. Mehta And Anr vs Custodian And Ors

BACKGROUND FACTS The Appellants herein who are related to one Harshad S. Mehta (since deceased) purchased nine residential flats in a building called Madhuli Apartments in Worli area of Mumbai. The family of the Appellants consists of four brothers, their wives, children and their widowed mother. The eldest among them, Harshad S. Mehta, has since expired. The said nine flats, it is said, were merged and redesigned for joint living of the entire family.

The Appellants herein and the said late Harshad Mehta were persons notified in terms of the Act which was enacted to provide for the establishment of a Special Court for the trial of offences relating to transactions in securities and for matters connected therewith. In terms of the provisions of the Act, along with late Harshad Mehta, the Custodian had notified 29 entities in terms of Section 3 of the Act, comprising three of his younger brothers, wife of late Harshad Mehta, wives of two of his younger brothers and other corporate entities, a partnership firm and three HUFs. However, out of the said 29 entitles, only Late Harshad Mehta and two of his younger brothers were cited as accused in various criminal cases filed against them.

We may, at this juncture, notice the nature of the applications filed by the parties, herein before the learned Special Court:

(iii) The Appellants herein filed several Misc. Applications praying for lifting of attachment on their residential premises on the ground that the same had been purchased much prior to 1.4.1991 and the same had no nexus with any illegal transactions in securities. Alternatively, it was prayed that since their asset base was greater than genuine liabilities, the said residential premises should be released from attachment.

IMPUGNED JUDGMENT By reason of the impugned order dated 17.10.2003, the learned Special Judge allowed Misc. Applications Nos. 4 of 2001 and 41 of 1999. The Misc. Applications filed by the Appellants herein for release of the residential flats as well as the commercial premises from attachment were dismissed. It was directed:

(vii) Furthermore, the Appellants are also unable to maintain their residential properties as the Custodian had to pay a sum of Rs. 1.06 crores towards the maintenance of the said residential properties. The assets of the Harshad Mehta Group are valued at Rs. 972 crores apart from the income tax dues whereas the aggregate amount of income tax dues exceed Rs. 13,800 crores.

(viii) Dr. Hitesh Mehta and Dr. Pratima Mehta who are medical practitioners by profession having affirmed affidavits admitting that the share broking and investment businesses which were part of family businesses were undertaken and conducted by late Harshad Mehta and they had no knowledge thereabout nor were they involved therewith, they at this stage cannot be permitted to turn round and contend that they have nothing to do with the liabilities of Late Harshad Mehta.

1227 crores released to revenue on interest are given by the Custodian.

(iii) Credits not given for relief obtained from Income Tax. Subsequent to the filing of the present appeal in a large number of cases the revenue demands have been set aside.

This Court, therefore, has laid down a law that mere filing of an appeal is not sufficient, particularly, when there is no order of stay on recovery has been granted and the demand is outstanding.

In view of the aforementioned pronouncement of law, we are of the opinion that it is absolutely necessary to request the learned Special Court to consider the matter afresh.

By an order dated 30th January, 2004, while admitting the appeals, this Court directed:

The question as regard intermingling of accounts by the Appellants, herein with that of the Harshad Mehta Group and/ or any other or further contentions raised by the parties hereto before us shall receive due consideration of the learned Judge, Special Court afresh in the light of the observations made hereinbefore.

(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.

(x) We would, however, request the learned Special Judge, Special Court to complete the hearings of the matter, keeping in view of the fact that auction sale in respect of the residential premises is being consideration, as expeditiously as possible and not later than twelve weeks from the date of the receipt of the copy of this order. Save and except for sufficient or cogent reasons, the learned Judge shall not grant any adjournment to either of the parties.

(xi) The learned Judge, Special Court shall take up the matter relating to confirmation of the auction sale in respect of the commercial properties immediately and pass an appropriate order thereupon within four weeks from the date of receipt of copy of this order. If in the meanwhile orders of assessment are passed by the Income Tax Authorities, the Custodian shall be at liberty to bring the same to the notice of the learned Special Court which shall also be taken into consideration by the learned Judge, Special Court.

With the aforementioned observations and directions, these appeals are allowed. The impugned judgments are set aside and the matter is remitted to the learned Judge, Special Court for consideration of the matter afresh. However, the parties shall bear their own costs.