Case: Rasila S Mehta Vs. Custodian, Nariman Bhavan, Mumbai

1) Civil Appeal No. 2924 of 2008 has been filed by Smt. Rasila S. Mehta, mother of late Harshad S. Mehta and Civil Appeal No. 2915 of 2008 has been filed by Smt. Rina S. Mehta, sister-in-law of late Harshad S. Mehta against the final judgment and order dated 26.02.2008 passed by the Special Court under the provisions ofthe Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as "the Act") at Bombay in Misc. 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.3) Civil Appeal No. 4764 of 2010 has been filed by Smt. Rasila S. Mehta challenging the order dated 07.05.2010 passed by the Special Court in approving Report No. 23 of 2009 of the Custodian on outstanding dues of Madhuli Cooperative Housing Society Limited, Worli as on 31.03.2009 towards Flat No. 31 on the Third Floor belonging to her being a notified party.4) Since all the parties in the above appeals are family members of late Harshad S. Mehta and the orders challenged were of the Special Court, the same are being disposed of by the following common judgment.5) Brief Facts:a) Sometime in 1992, it was noticed that frauds and 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 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.b) On 6th June, 1992 the Central Government had also framed certain rules under the provisions of Section 14 of the said Ordinance known as the Special Court (Trial of Offences Relating to Transactions in Securities) Rules, 1992 (hereinafter referred to as `the Rules). The said rules came into force on the 6th June 1992 and continue in force after the enactment of the Act under section 15(2) of the Act and/or Section 24 ofthe General Clauses Act, 1897.c) The object of the Act, as apparent from the provisions thereof, is to ensure that offences relating to securities were expeditiously tried and it, therefore, provides for the establishment of a Special Court. The Act also provides that an appeal lies from the judgment, sentence or order, not being interlocutory order, of the said Special Court to the Supreme Court of India both on facts and on law. An important object of the said Act is to ensure speedy recovery of the huge amounts involved, to punish the guilty in such irregularities or fraud, to restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions.d) On 13.05.1992, the Central Bureau of Investigation (in short "the CBI") issued freeze orders under Section 102 of theCode 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- matter of an offence. Since then, all the charge-sheets came to be filed by the CBI after thorough investigation and trial has been completed in several cases. Based on the provisions of the Act, on 08.06.1992, the Custodian notified 29 entities except the appellants (Smt. Rasila S. Mehta and Smt. Rina S. Mehta) in the Mehta family comprising four brothers, the wives of three brothers, their three HUFs, a partnership firm, three brokerage firms in the family and 15 corporate entities promoted by them. These persons were notified on the basis of information/complaint received from the Ministry of Finance in which the Janakiraman Committee report was cited and relied upon.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 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. The appellants also filed M.A. No. 291/2006 on 11.09.2007 seeking relief of a declaration that all the assets belonged to them and they were the first holders, namely, bank accounts and fixed deposits and the shareholdings may be declared as free from attachment.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 - Smt. Rasila S. Mehta and Smt. Rina S. Mehta.h) Inasmuch as the other two appeals relate to the orders passed on the report submitted by the Custodian, there is no need to traverse all the details as stated therein.

Court's reasoning:
12) It is settled law that the objects and reasons of the Act are to be taken into consideration in interpreting the provisions of the statute. It is incumbent on the court to strive and interpret the statute as to protect and advance the object and purpose of the enactment. Any narrow or technical interpretation of the provisions would defeat the legislative policy. The Court must, therefore, keep the legislative policy in mind while applying the provisions of the Act to the facts of the case. It is a cardinal principle of construction of statute or the statutory rule that efforts should be made in construing the different provisions, so that each provision may have effective meaning and implementation and in the event of any conflict a harmonious construction should be given. It is also settled law that literal meaning of the statute must be adhered to when there is no absurdity in ascertaining the legislative intendment and for that purpose the broad features of the Act can be looked into. The main function of the Court is to merely interpret the section and in doing so it cannot re-write or re-design the3(2) of theSpecial Courts Actconfer power to Custodian to notify a person in the Official Gazette on being satisfied on information received that such person was involved in any offence relating to transactions in securities during the statutory period 01.04.1991 to 06.06.1992. Though Mr. Syed contended that the appellants are entitled to hearing even at the stage of Section 3(2), we are unable to accept his claim. Section 3(2) does not give any right of personal hearing to the person being notified. In the absence of any such right there is no pre-decisional hearing The provisions of the Act do not provide for a pre-decisional hearing before notification but contains an impeccable milieu for a fair and just post decisional hearing. The fact that it does not provide for a pre-decisional hearing is not contrary to the rules of Natural Justice because the decision of the Custodian to notify does not ipso facto takes away any right of the person thus notified or imposes any duty onAttachment of property is a natural consequence of notification and not sale of the property. The power to order a sale of the property lies only withthe Special Courtunder Section 11 and at this instance where the notified person can be adversely affected, Section 4(2) provides that any person aggrieved by the notification can file a petition objecting the same within 30 days of the date of the issuance of the notification. The Special Court is presided over by a sitting Judge of the High Court. All material before the Custodian is placed beforethe Special Courtwhich independently analyses all the material while deciding the application filed by the notified party challenging the notification. This amounts to post decisional hearing satisfying the principles of natural justice. Also a pre-decisional hearing wouldre purpose of the Act. If there is time given to Show Cause why a person should not be notified, that time could practically be utilized to further divert the funds, if any, so that it becomes even more difficult to traceA perusal of the above letter shows that there was no proper maintenance of accounts and there was no cooperation at all. Even, late Harshad Mehta in his letter and declarations to the Income Tax Authorities in which the appellant Rasila Mehta is a signatory had admitted that the family is a joint Hindu family where all are living together and that the business is such that it requires very close control at the operationalperusing the Report of M/s Vyas & Vyas,the Special Courtcame to a conclusion that the appellants are only fronts of late Harshad S. Mehta. It further concluded that the appellants are only housewives and were given loan by the brokerage firms for purchase of shares. The Special Court, therefore, rightly held that the money and assets were diverted to the appellants by the brokerage firms who were notified parties. Mr. Syed objected to the order ofthe Special Courtfor fully relying on the Auditors report. We reject his objection for the following reasons. First of all, the issue relates to accounting of several persons. Several volumes of accounts relating to various members of late Harshad Mehtas family have to be scrutinized. The Court and members of the bar are not conversant with the accounting procedures and in such event assistance from an established Chartered Accountant Firm is needed. In fact, even during the course of arguments in respect of questions by the Court, Mr. Syed himself sought the assistance of persons who are conversant with accountancy. In view of complicity in the matter, there is nothing wrong on the part ofthe Special Courtgetting report from M/s Vyas and Vyas who are recognized Chartered Accountants. The order ofthe Special Courtdoes not suffer from any infirmity and there was sufficient material before the Custodian to arrive at a satisfaction that monies had been diverted by late Harshad S. Mehta to thecontention of the appellants that since they have not been charged for any offence, they cannot be notified under the Act. According to the appellants, the phrase "involved in the offence" could only mean "accused of the offence" and since they are not charged with any offence they can not be notified. In construing the above mentioned words which are used in association with each other, the rule of construction noscitur a sociis may be applied. It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them. The actual order of these three words in juxtaposition indicates that meaning of one takes colour from the other. The rule is explained differently: that meaning of doubtful words may be ascertained by reference to the meaning of words associated with it. (vide Ahmedabad Teachers Association vs. Administrative Officer, AIR 2004 SC 1426 ).48) Therefore, in the present case the nature of "offence", in which the appellants are allegedly involved, is to be taken into consideration. The Act does not create an offence for which a particular person has to be charged or held guilty. Thus the phrase "involved in the offence" would not mean "accused of the offence". Also, the appellants could have been reasonably suspected to have been involved in the offence after consideration of the various reports of the Janakiraman Committee, Joint Parliamentary Committee and the Inter Disciplinary Group (IDG); and also the fact that 28 members of the M/s Harshad S. Mehta group including his family members/entities were notified under the Special Act Ordinance itself. The above factual matrix was sufficient for the satisfaction of the Custodian to notify the Appellants. The object of the Act is not merely to bring the offender to book but also to recover what are ultimately public funds. Even if there is a nexus between a third party, an offender and/or property the third party can also becomplaint has been received from Canfina which is a 100% subsidiary of Canara Bank, a nationalized bank. The term financial institution has not been defined under the Act. It became necessary to enactthe Special CourtAct because of the large scale irregularities which came to light as a result of the investigations by the Reserve Bank of India into the affairs of various banks and financial institutions whose monies were siphoned out. Thus the Statement of Objects and Reasons makes it clear that the purpose and the object of the Act was to recover and return monies to those banks and financial institutions from whom the monies were siphoned out. It is thus clear that the bodies which were sought to be covered were the banks and financial institutions whose affairs were investigated into by the Reserve Bank of India. The investigation was conducted by the Reserve Bank of India through Janakiraman Committee; the Joint Parliamentary Committee, and the Inter Disciplinary Group. The affairs of Canfina were also investigated by the various committees as a financial institution. It has come to light that there were large scale siphoning out of monies from Canfina also as held bythe Special Courtin its order dated 25.06.1997 in the matter of Fairgrowth Financial Services Vs. Andhra Bank in Misc. Petition No. 222 ofThus, 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. The Act was intended to be applied to the workings of the banks and financial institutions (though not covered by the strict definition of the term but involved in the securities scam of 1992) into whose affairs the Janakiraman Committee had investigated. Canfina, was one such non-banking financial institution that Janakiraman Committee had investigated and thus it was meant to be covered under theFurther, Rule 3 illustrates situations whereby the Custodian may reject a certain complaint which is not accompanied by copies of documents referred to in the information or complaint, or is vague or does not contain the name and address of the sender. This rule also does not make it mandatory on the Custodian to reject a complaint if it does not accompany the above details. If the material information or the documents received by the Custodian are sufficient in his opinion, to reveal that a person is involved in an offence referred to in sub-section (2) of section 3 of the Act, he may proceed to notify the name of the person under that sub- 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 with5) In view of the same, we are in entire agreement with the conclusion arrived at bythe Special Courtand unable to accept any of the contentions raised by counsel for theAs discussed earlier, unless the attached properties are properly maintained and as per the scheme, the repair and upkeep of the attached properties are to be followed by the Custodian and on the orders of2) It is also brought to our notice that during the course of hearing, either beforethe Special Courtor in this Court, certain amounts have beenConsidering the fact that the appellants are agitating the matter at the hands of the Custodian,the Special Courtand before this Court, we feel that the appellants need not be burdened with interest and penal charges fornon-payment of maintenance and repair charges to thesociety. Accordingly, while sustaining the claim of the Custodian as approved bythe Special Courtin view of the reasons mentioned above, we clarify that the Custodian is not permitted to collect interest and penalty charges from the arrears of maintenance and repair charges. This position is also clear from the decision of this Court in Harshad Shantilal Mehta vs. Custodian & Ors, (1998) 5 SCC 1. The Custodian is free to adjust the amountss on the orders of this Court orith the above direction, the impugned order in both the appeals is modified to the limited extent.