Sudhir S.Mehta & Ors vs Custodian & Anr

The Custodian was further directed to take legal and professional opinion in relation to the liability to pay Capital Gains Tax. The learned Judge further directed that if the notified parties wanted to make any submission on the above questions, the same may be submitted to the Custodian within the period of 4 days and such submissions would be transmitted by the Custodian to the Disposal Committee for its consideration, and after the opinion of the Disposal Committee is given, the Custodian shall take steps in accordance with the said opinion, as also in accordance with the legal and professional advice. The learned Judge further directed that the Custodian would be free to approach the Court and seek appropriate orders. With these directions, the learned Judge disposed of the report of the Custodian, as also the applications made by the parties. All the applicants are the family members of late Sh. Harshad S. Mehta, while respondent no. 1 herein, is the Custodian appointed under Section 3(1) of the Act. The respondent no. 2 is the Disposal Committee in all the appeals, which are filed under Section 10 of 3 the Act. Each of the individual appellant is in close relation late Sh. Harshad S. Mehta and have filed 6 appeals, while Gromore Research Assets Management Ltd. have filed 2 appeals. The questions are common and the learned counsel also apprised us treating all the questions involved, to be common. Hence, the appeals are being disposed of by this common Judgment.

3. At this stage, the objections were raised by way of the Miscellaneous Applications before the Special Court at the instance of the appellants herein. The common grievances made in these objections cum applications were:-

11. After the huge scam broke out in respect of the shares and securities, which was almost of oceanic proportion, the Central Government came out with the aforementioned Act.

25. On 26.4.1999, the Custodian had filed an application being Misc. Application No. 41 of 1999, seeking permission of the Special Court for sale of the residential premises commonly known as Madhuli of eight notified entities. A miscellaneous application being Misc. Application No. 4 of 2001 was filed by the Custodian praying for the sale of commercial premises. Some of the notified persons filed several miscellaneous applications for lifting of attachment on their residential premises on the ground that the same had been purchased much prior to 1.4.1999 and the 24 same had no nexus with any illegal transactions in securities. All these applications were disposed of by the Special Judge by his judgment dated 17.10.2003, who held that if an undertaking is given by the adult members of the family of late Sh. Harshad S. Mehta (by then Sh. S. Harshad Mehta, as already expired), in the Special Court within a period of 4 weeks to vacate the flat occupied by them and hand over peaceful possession thereof to the Custodian within a period of 4 weeks from the date on which the Custodian sends them communication, the Custodian shall permit the members of family of late Sh. Harshad S. Mehta to occupy the flats during the time that the process of the sale of the flats goes on. This was challenged before this Court on the following grounds:

(d) In view of the provisions of the Special Court Act, it is not necessary for this Court to postpone, in any event, the sale of shares till the claims against the notified parties are finally adjudicated upon. Looking to the income-tax demands, the decrees passed in various suits by this Court, it is clear that the liabilities of the notified parties exceed the attached assets and, 21 therefore, one need not wait till all pending claims are finally adjudicated upon.

23. There was an appeal filed against this judgment, which appeal was disposed of by this Court by its judgment dated 23.8.2001. The opening words of this judgment are very telling. They are:

(vi) We direct the Custodian to permit the appellants to have inspection of all the documents in his power or possession in the premises of the Special Court in the presence of an officer of the court. Such documents must be placed for inspection for one week continuosly upon giving due notice therefore to the appellants jointly. As the appellants have been represented in all the proceedings jointly, only one of them would be nominated by them to have the inspection thereof. The appellants shall be entitled to take the help of a chartered or cost accountant any may make notes therefrom for their use in the pending proceeding.

(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 file 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 the fact that auction sale in respect of the residential premises is being considered, as 30 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 the 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."

30. The contentions raised by Sh. Jethmalani based on the aforementioned judgment are:

31. It will be, therefore, our task to test these propositions on the anvil of the judgment in Ashwin Mehta's case, which is treated to be the backbone of the arguments of the appellants herein.

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 46 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. The appeals are dismissed with the above observations under the circumstances. The cost is quantified at Rs.2 lakhs.

May 16, 2008 47