Rasila S Mehta vs Custodian, Nariman Bhavan, Mumbai

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.

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 3 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.

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-

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 6 jointly 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.

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 -

(viii) The onus to establish the validity, correctness, legality, propriety of the notification order is on the Custodian but wrongly shifted on the appellants.

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.

cooperation of members of M/s Harshad Mehta Group. When their non-cooperation was brought to the notice of the Special Court, the members of the Harshad Mehta Group had given an undertaking to fully cooperate with the Auditors. Rasila S. Mehta, the appellant herein had filed an application being M.A. No. 467/1999 for lifting the attachment over assets which she was owning jointly with the other members of the family. In the said application, the Custodian filed a reply highlighting the complete non-cooperation of the group in completing the accounts.

The accounts of the notified parties where significant diversion of funds had taken place were not completed due to non-

Under this arrangement for transactions undertaken by me at these respective brokerage firms my account is debited and credited for each and every transaction, i.e. for every purchase made by me my account gets debited and for every sale effected by me my account with these brokerage firms gets credited. I state that barring a few exceptions payments for these transactions have not been exchanged on a transaction to transaction basis and the account is in the nature of a running account. I state that for the borrowings effected under both the methods. I have agreed to pay interest to the lender. I state that the same is computed on the basis of deliveries performed for purchase and sale of shares. I state that in cases where I have purchased the shares for delivery and the delivery has not been tendered to me, for the purposes of computation of interest the debit will not be reckoned. I say that thus on the net outstanding balance after giving credit to each party on account of non-

delivery of share the amount payable at the end of month is arrived at which is mentioned for the computation of interest (not on compounded basis). I state that as such interest is payable on the amounts borrowed by me and the same constitutes my expense. I humbly submit that this expense is allowable as a deduction from my taxable income. In support of my above and other related contentions I am also pleased to enclose confirmation letters of the three brokerage firms of M/s Harshad S. Mehta, M/s Ashwin S. Mehta and M/s J.H. Mehta. I further submit that due to course of events and multiple raids and our groups accounting system having gone haywire and the delivery status of all the transactions remaining unascertained we have not been able to precisely compute my interest liability for the earlier as well as the present year.

5) I state that I follow an accrual method of accounting for all my income as well as expenses which system of accounting is being followed by me for a number of years. I state that pending finalization of my payable figure for which effort is being made to arrive at the figure and on the basis of the minimum amount due by me I have made the provision of interest payable by me in my books of accounts and the extract of my account in this regard is being forwarded separately to your kindself. I submit that since my books of accounts are in the process of being drawn I am not in a position to make a provision of the precise figures of interest amount much as I would like to do. I submit that in this regard the respective brokerage firms have to assist and furnish substantial particulars. I further state that the provision made by me is in fact on a conservative basis though the interest payable by me would be higher that the provision. I humbly request your kindself to take note of above and grant me a deduction of the same from the income that your kindself is arriving for the present year. In case your kindself is not inclined to accept my submissions or allow me the deduction of above expenses then kindly give me an opportunity to make further representation in this regard more so as it vitally affects determination of my taxable income".

44) All the above details clearly show their association with brokerage firms being handled by Harshad S. Mehta and also their interest and entitlement in the transactions of their joint family business.

SUMMARY M/s Harshad S. Mehta Opening Balance as on 01.04.1990 ADD: 3227047.30

i) Shares purchased 275393709.50

ii) Funds transferred 110184616.44 Total debits 388805373.24 LESS CREDITS:

50) Whether Canfina is a Financial Institution and whether the complaint filed by Canfina is invalid?

Petition No. 222 of 1996.

52) Thus, at the very inception of this Act are the investigations by the Reserve Bank of India and these investigations were carried on by the Janakiraman Committee.

Provided that the information or complaint sent by any person referred to in clauses (e) and (f) shall not be entertained by the Custodian if it is not accompanied by an affidavit signed by that person and duly verified by a Magistrate or a Notary Public."

section. Thus the satisfaction of the Custodian is of a subjective nature and is not violative of Natural Justice. The power to deal with the property ultimately lies with the Special Court.

55) In view of the same, we are in entire agreement with the conclusion arrived at by the Special Court and unable to accept any of the contentions raised by counsel for the appellants.

56) Claims for maintenance, repair charges, interest and penalty for belated payment (Civil Appeal Nos. 3377 of 2009 and 4764 of 2010) 64 With regard to the above appeals filed against the orders of the Special Court approving their report of the Custodian for realization of certain amounts payable to the Society towards repairs and maintenance charges, interest and penalty for belated payment, learned counsel for the appellants again raised various objections, inasmuch as the claim of the Custodian depends upon the outcome of the other appeals i.e. Civil Appeal Nos. 2924 of 2008 and 2915 of 2008 and in view of our conclusion on these appeals, we are not inclined to go into all those details once again. Since we agree with the claim of the Custodian and various steps taken by him and the ultimate order of the Special Court in the normal circumstance, present appeals are also to be dismissed. We have already noted that Smt. Jyoti H. Mehta and six other family members of late Harshad S. Mehta were notified under the Act. Upon enforcement of the aforesaid Act, all the properties of late Harshad S. Mehta and his family members, including the six appellants in Civil Appeal No. 3377 of 2009 apart from other corporate entities stood attached by the Custodian. As a consequence thereof, all eight residential 65 properties/flats of the appellants, namely, residential flat Nos.

63) In the light of the above discussion, we do not find any merit in Civil Appeal Nos. 2924 of 2008 and 2915 of 2008 and accordingly they are dismissed. Civil Appeal Nos. 3377 of 2009 and 4764 of 2010 are disposed of granting the relief to the extent mentioned in para 62. No order as to costs in all the appeals.

MAY 6, 2011.