ASHWIN S. MEHTA AND ANR. v. CUSTODIAN AND ORS

Citation: [2006] 1 S.C.R. 56

Court: Supreme Court of India

Bench: S.B. SINHA, P.P. NAOLEKAR

Case summary

ASHWIN S. MEHTA AND ANR. v. CUSTODIAN AND ORS.pdf

Judgment text

ASHWIN S. MEHTA AND ANR. v. CUSTODIAN AND ORS. JANUARY 3, 2006 [S. B. SINHA AND P. P. NAOLEKAR, JJ. ] Special Courts (Trial ofOffences Relating to Transactions in Securities) Act, 1992: Sections 3 and 9-A.

Notifiedpersons-liabilities-Notifiedpersons consisted offour brothers, their wives and their widowed mother-These notified persons were related to late Harshad Mehta-Properties oflate Harshad Mehta and the notifiedpersons stood attached in terms ofthe provisions ofthe Act-Notifiedpersons purchased nine residential flats in a building-Special Court allowed the applications filed by the Custodian seeking permission for the sale ofresidential premises and commercial premises of eight notified persons-However, the Special Court dismissed the applications filed by the notified persons for releasing of the residential flats as well as the commercial premises from attachment- Correctness of-Held: The properties ofthe notified persons stood automatically attached-Any other income from such attached properties would also stand attached-For that purpose it is not necessary that they should be accused of commission ofan offence as such-Special Court is directed to consider afresh the matters regarding tax liabilities ofthe notified persons, the auction sales in respect of commercial and residential properties Qnd whether individual liabilities ofthe notified persons ought to have been separately considered by the Special Court as not a part ofHarshad Mehta Group-Notified persons are entitled to inspection of all the documents in the Custodian's power or possession-Assistance from a Chartered or Cost Accountant may be taken by both parties-Matter remitted to Special Court.

The appellants who were related to one Harshad S. Mehta (since deceased) purchased nine residential flats in a building. The family of the appellant consisted of four brothers, their wives, children and their widowed mother. The appellants and the said late Harshad S. Mehta were persons notified in terms of the Special Courts (Trial of Offences Relating to ··---1. ! ASHWIN S. MEllTA "· CUSTODIAN 57 Transactions in Securities) Act, 1992. The properties of late Harshad S. Mehta and the appellants stood attached in terms of the provisions of the Act. The Special Court allowed the applications filed by the respondent- Custodian seeking permission for the sale of residential premises and commercial premises of eight notified entities. However, the Special Court dismissed the applications filed by the appellants for releasing of the \' residential nats as well as the commercial premises from attachment. Hence the appeal.

The following questions arose before the Court:- (i) Whether the appellants being not involved in offences in transactions in securities could have been proceeded against in terms of the provisions of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992? (ii)Whether individual liabilities of the appellants ought to have been separately considered by the Special Court as not a part of Harshad Mehta Group? (iii) Whether the tax liabilities could not have been held to be due as the order of assessments did not become final and binding? (iv) Whether the commercial properties could have been sold in auction? (v) Whether the residential properties should have been released from attachment? Disposing of the appeal, the Court HELD: I. Both the parties have raised several contentions before this Court which have not precisely been raised before the Special Court. Several subsequent events have also been brought to the notice of this Court.

The parties have also filed several charts before this Court showing individual assets and liabilities. It has further been contended that various ~ .... J, best judgment assessmen~s passed by the Assessing Authority against some of the appellants have been set aside in appeal and the matters are pending reassessment before the Assessing Authority. (77-H; 78-Af r l. S. Synthetics ltd. v. Fairgrowth Financial Services Ltd. , 120041 11 SCC 456, Fairgrowth, B. C. Dalal v. Custodian (CA No. 2795 of 2004), The Kedarnath Jute Mfg. Co. ltd. v. The Commissioner of Income Tax, (19721 3 SCC 252, Harshad Shanti/al Mehta v. Custodian, 1199815 SCC I, Fairgrowth Investments Ltd. v. Custodian, 120041 II SCC 472 and Tejkumar Balakrishna Ruia v. A. K. Menon. 119971 9 SCC 123, referred to. Hitesh Shanii/al Mehta v. Union of India, (1992) 3 Born CR 716, approved. • 2. It is no doubt true that the law of limitation bars a remedy but not a right. 178-EI Bombay Dyeing & Manufacturing Co. Ltd. v.

The State ofBombay, AIR (I 958) SC 338, relied on. Savitra Khandu Beradi v. Nagar Agricultural Sale and Purchase Cooperative Society ltd.. AIR (1957) Born 178 and Hari Raj Singh v. Sanchalak Panchayat Raj, AIR 119681 All 246, approved. 3. There cannot be any doubt whatsoever that the appellants being notified persons, all their properties would be deemed to be automatically attached as a consequence thereto. For the said purpose, it is not necessary that the appellants should be accused of commission of an offence as such. 179-B-CI 4. The contention of the appellants to the effect that their properties should have been attached only towards the liabilities incurred by the parties in respect of the transaction made during the Statutory Period cannot be accepted as, all the appellants being notified, the attachment of the assets would be automatic. 179-C-DI L. S. Synthetics Ltd \'. Fairgrowth Financial Services Ltd, 120041 II sec 456, relied on. 5.

The principle of lifting the corporate veil, however, ipso facto would not apply to the individuals. The Custodian in a case of this nature may, however, show that the transactions entered into apparently by Harshad Mehta were intimately connected with the acquisition of properties in the name of others. A transaction of Benami indisputably can be a subject matter of a /is in terms of Section 4(1) of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, I992. ·--t , ASHWIN S. MEHTA v. CUSTODIAN 59 As and when such a question is raised, the same may have to be dealt with by the Special Court appropriately. However, nexus between sev~~al persons in dealing with the matter may be established by the Custodian. 179-F-GI 6. It is open to the appellants to show that even if they continued to be notified, the Custodian was not right in clubbing all the i11dividual members of the family as a single entity styled as Harshad Mehta Group.

It is interesting to note that the properties belonging to the mother of Harshad Mehta have since been released from attachment. (80-Hf 7. The Special Court should have analyzed the respective contentions of the parties in greater details and in particular in regard to assets and liabilities of the separate entities and having regard to the contentions raised by them that they are not part of the Harshad Mehta Group and their individual liabilities can be met from the assets held and possessed by them separately. f82-A-Bf 8. A clear picture as to the correctness or otherwise of the affidavit I filed by the Custodian vis a vis the Books of Accounts which have been maintained by the appellants themselves as well as the Auditor's Report has not been given. The Special Court merely accepted tbe figures mentioned in the affidavit of the Custodian and relied thereupon without discussing the contentions and arguments raised on behalf of the appellants.

Therefore, in the interest of justice, it is necessary to give another opportunity of hearing to the appellahts. f83-C-Df 9. It is true that horrendous figures as regards the liabilities ·of Harshad Mehta have been projected before this Court, but the same had been shown to be of the entire Group. If the liabilities of the individual entities are not treated as those of the Group, for one reason or the other, indisputably, liability of those who have nothing to do with the dealings of Harshad Mehta either in their individual capacities or as Directors of some company or oth. erwise must be dealt with separately. f83-Ef ·10. A finding of fact arrived at upon discussing and analyzing the respective contentions could have gone a long way in assisting this Court J. in arriving at a correct conclusion.

The Special Court proceeded on the basis that the assets and liabilities, joint and collective, of all those who are related with Harshad Mehta as also the corporate entities in which he was a Director or had some other interest must be considered as a r ' 60 SlJPREME COURT REPORTS j1006] I S. C'. R. Group. Even in this behalf, it was necessary for the Special Court to assign sufficient and cogent reasons. 184-A-Bl 11. A question may further arise as to whether the Special Court was correct in considering the individual liabilities of the notified parties as the liabilities of the Group. If those individuals, who had no connection with Harshad Mehta, could not have been proceeded against for meeting the liabilities of Harshad Mehta, jointly or severally, a clear finding was required to be arrived at.

Only because there had been large intermingling and flow of funds from Harshad Mehta and inter se within the Group, the same by itself may not justify the conclusion that all of their assets were required to be sold irrespective of their individual involvement. It was, thus, necessary for the Special Court to arrive at a firm conclusion as regards the involvement of the individuals with Harshad Mehta, if any, and the extent of his liability as such. 184-C-DI 12. The Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 confers wide power upon the Custodian and the Special Court and, in that view of the matter, having regard to the principles of natural justice, the judgment and order of the Special Court should have furthermore been supported by sufficient and cogent reasons. 184-H; 85-AI 13. It is not in dispute that the tax liabilities of the appellants individually were assessed on the basis of best judgment assessment.

It is, furthermore, not in dispute that in a large number of cases the appellate authorities have set aside the best judgment assessment. The contention of the appellant to the effect that the income tax dues should have been considered at the point of time when they become recoverable cannot be accepted. 185-BI 8. C'. Dalal v. Custodian, (CA No. 2795 of 2004, relied on. 14. The Special Court having not dealt with the question as regard the mode and manner of disbursements of the amount so far as the tax liabilities of the appellants are concerned elaborately, the same require fresh determination. 187-81 The J\. edarnath . lute Mfg Co. Ltd. v. The Commissioner ofIncome Tax. 119721 3 SCC 252 and Harshad Shanti/al Mehta v. Custodian 119981 5 SCC I, relied on. \ ASH WINS. MEHTA v. CUSTODIAN 61 15. Furthermore, the orders of the appellate authority have been passed during pendency of this appeal. This Court, it is trite, can take into consideration the subsequent events.

Such subsequent events could also be taken into consideration for the purpose of review. 187-CI Board ofControl for Cricket in India v. Netaii Cricket Club, (2005) 4 sec 741, relied on. i 16. Evidently creation of any third party interest is no longer in dispute nor is the same subject to any order of this Court. In any event, ordinarily, a bona fide purchaser for value in an auction-sale is treated differently than a decree-holder purchasing such properties. In the former event, even if such a decree is set aside, the interest of the bona fide purchaser in an auction-sale is saved. 188-E-FI Zain-ul-Abdin Khan v. Muhammad Asghar Ali Khan, 15 IA 12 and Gwjoginder Singh v. Jaswant Kaur. 119941 2 SCC 368, referred to. 17. That part of the order whereby and wherewith the auction-sale, as regards the commercial properties, had been directed by the Special Court need not be interfered with.

The Special Court may, therefore, proceed to pass an appropriate order as regards the confirmation of the sale of such properties. 189-EI Janak Raj v. Gurdial Singh, 119671 2 SCR 77 and Padanthil Ruqmini Amma v. P. K. Abdulla, 119961 7 SCC 668, relied on. 18. Admittedly, the flats have been sold subject to the result of these appeals. The flats have been sold on the basis of the joint liabilities of the appellants together with Harshad Mehta and other companies as a Group. The liabilities of the appellants are required to be considered afresh by the Special Court. The purchasers have also filed applications for their impleadment in these appeals. However, the purchasers have not been heard as the question as to whther the auction-sale of the said flats will be confirmed or not will depend upon the ultimate finding of the Special Court upon consideration of the matter afresh. 189-H; 90-AI --\ 19. (i).

The contention of the appellants that they, being not involved in offences in transactions in securities, could not have been proceeded with in terms of the provisions of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 cannot be accepted in 62 SUPREME COL:R'r REPORTS (2006J I S. C. R. view of the fact that they have been notified in terms thereof. (90-DI (ii) The appellants being notified persons all their personal properties stood automatically attached and any other income from such attached properties would also stand attached. The question as to whether the appellants could have been considered to be part of Harshad Mehta Group by the Special Court need not be determined by this Court in view of the fact that appropriate applications in this behalfare pending consideration before the Special Court. 190-E-FI (iii) As regards the tax liabilities of the appellants, the Special Court is requested to consider the matter afresh.

The Special Court, in this behalf, having regard to the fact that several orders of the best judgment assessment have been passed by the Assessing Authority, may take into consideration the ratio laid down in the decision of this Court in Harshad Shanti/al Mehta. (90-H; 91-A( HarshaJ Shanti/al Mehta v. Custodian, 119981 5 sec I, relied on. (iv) The Special Court shall proceed to pass appropriate orders as regards confirmation of the au~l. ion sales in respect of commercial properties. (91-BI (v) As regards sale of residential properties, an appropriate order may be passed by the Special Court. (91-Ci (vi) The Custodian is directed 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 continuously upon giving due notice therefor to the appellants jointly.

As the appellants have been represented in all proceedings jointly, only one of thein 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 and may make notes therefrom for their use in the pending proceedings. (91-D( (vii) The appellants shall file their objections to the said report, if any, within ten days thereafter. The Custodian may also take the assistance and/or further assistance from a Chartered Accountant of his choice. A reply and/or rejoinder theret{) shall be filed within one week from the date of the receipt of the copy of the objection. The parties shall file their ASHWIN S. MEHTA 1·. CUSTODIAN 63 respective documents within one week thereafter. Such documents should be supported by affidavits. Both the parties shaII 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 Special Court within eight weeks from the date of this judgment. 191-E-GI (viii) The 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. 191-G-HI (ix) The Special Court while headng the matter in terms of this order shall also consider as to whether the auction-sale should be confirmed or not. It will also be open to the Special Court to pass an interim order or orders, as it may think fit and proper, in the event any occasion arises therefor.

192-AI (x) The Special Court is requested 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 expeditiously as possible and not later than twelve weeks from the date of the receipt of the copy of this judgment. Save and except for sufficient or cogent reasons, the Special Court shall not grant any adjournment to either of the parties. 192-B-CI (xi) The 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 this judgment. 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 Special Court whic. h shall also be taken into consideration by, the Special Court. 192-DI CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 667-671 of 2004.

From the Judgment and Order dated 17. I0. 2003 of the Special Court (Trial of offences relatiRg to Transactions in Securities at Bombay) in the Misc. Application No. 41 of 1999 and Misc. Application No. 4/2001 and Misc. Applications 265 and 266/2003. [20061 I S. C. R. .. WITH 1 C. A. Nos. 672 675, 676-680 and 681 of 2004. Mahesh Jethmalani, Arvind K. Nigam, Ms. Kamini Jaiswal, Mrs. Shomila Bakshi and Ms. Rani for the Appellants. Ashok V. Desai, Gaurav Joshi, Jay Kishor Singh, Abhay Kumar, Gopal Krishnan, Subramonium Prasad, A. Subba Rao, Mahesh Agrawal. E. C. Agrawala, Ms. lndu Malhotra, Ms. Savita Sinha, Ms. B. Vijayalakshmi Menon, Ms. Sunita and Shiv Kumar Suri for the Respondents. The Judgment of the Court was delivered by S. B. SINHA, J. These appeals are directed against a judgment and order dated 17. 10. 2003 passed by the Special Court constituted under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1991 (for short "the Act") in Mis~.

Application Nos. 41 of 1999. 4 of 2001, 265, 266 and 275 of 2003. 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. The properties of Late Harshad Mehta and the Appellants. herein being ASllWIN S. MEHTA v. CUSTODIAN ! SINHA. . I. I 65 '"'· notified persons stood attached in terms of the provisions of the Act. PROCEEDINGS BEFORE THE SPECIAL COURT Before the learned Special Court, the parties herein filed several applications which can be sub-divided in three categories, as would be noticed shortly hereinafter. It is not in dispute that the k1rn 1E COURT REPORTS 120061 I S. CR.

under Section 4(2) of the Special Court (Trial of Offences Relating 10 Transactions in Securities) Act, 1992. Since the appellant's petition of objection had been filed much beyond the period prescribed under that section, the Special Court was right in rejecting the petition in limine. The appeal is accordingly dismissed but without any order as to costs. " ATTACHMENT OF PROPERTIES The Appellants herein are notified persons in terms of the provisions of the Act. Therefore, all the properties belonging to them stand attached. Such attachment being automatic, no finding was required to be arrived at that the same had been acquired either during the notified period or the Appellants were involved in offences in transactions in securities. In Tejkumar Bulukrishnu Ruia v. A. K. Menon and Anr.. [1997] 9 SCC 123, this Court held: "In our view, the terms of sub-section (3) of Section 3 are clear.

By reason thereof, the property that belongs to a notified person stands attached simultaneously with the issue of the notification that makes him a notified party. The words .. on and from the date of notification" indicate the point of time at which the attachment takes effect: this is reiterated by the words "shall stand attached simultaneously with the issue of the notification". This also indicates that no separate notification or order in regard to the attachment is necessary. Neither the words "on and from the date of notification·· nor the word ·property' lead to the conclusion that what is attached is not only that property which the notified person owned or was possessed of on the date of the notification but also all such property as he might acquire at any time thereafter. The intention to attach property which did not belong to the notified person on the date of the notification but which he might acquire later would, had it been there.

have been clearly expressed and sub-section (3) would have stated that such property would stand attached the moment it was acquired by the notified person. The Act would also have made provision for a subsistence allowance or the like for the notifi~d person. It seems to us that to give to Section 3(3) the wide meaning that has been ascribed to it in the judgment and order under appeal wou Id ASllWIN S. MEllTA 1·. CUSTODIAN ! SINHA. . I. I 77 render it perilously close to being held unconstitutional. for it would deprive the notified person. so long as he remained a notified person. from earning a livelihood. Even to say that such interpretation would reduce a notified person to beggary would not be accurate (sic in accurate) because the alms that he received, being his property, would stand attached.

The apprehension expressed by the Special Court does not appear to be well founded: if what a notified person obtains by way of purported income or gift or inheritance is really his own money, such money would, upon establishment of the fact, stand attached automatically under the provisions of Section 3(3). In any event, it is for Parliament to enact a law that meets all contingencies. The courts must interpret the law as it reads. While a purposive interpretation is permissible where two interpretations are possible, the purposive interpretation must be such as preserves the constitutionality of the provision. " It has further been held that the property, be shares, dividends and bonus and rights shares. would also be attached property. ISSUES (i) Whether the Appellants being not involved in offences in transactions in securities cou Id have been proceeded against in terms of the provisions of the Act.

(ii) Whether individual liabilities of the Appellants ought t· have been separately considered by the Special Court as not a part of Harshad Mehta Group. (iii) Whether the tax liabilities could not have been held to be due as the order of assessments did not become final and binding. (iv) Wheth. er the commercial properties could have been sold in auction. (v) Whether the residential properties should have been released from attachment. Before adverting to the questions raised herei~. we may notice that both the parties have raised several contentions before us which have not precisely been raised before the learned Special Judge. Several subsequent events have also been brought to our notice. The parties have also filed 78 SllPRE\1E COURT REPORTS 12006) I S. C. R. r several charts before us showing individual assets and liabilities.

It has, as noticed hereinbefore, further been contended that various best judgment assessment passed by the Assessing Authority against some of the Appellants have been set aside in appeal and the matters are pending reassessment before the Assessing Authority. APPl! CAT! ON FOR DE-NOTIFICATION The Appellants' case is that the individual and corporate Appellants other than Harshad Mehta, Ashwin Mehta and Sudhir Mehta filed applications, within the prescribed period, before the Special Court praying for their denotifications. However, by an order dated 14. 07. 2000, the said applications were permitted to be withdrawn with a permission to re-file tht: same. It is not in dispute that the said applications are pending for consideration before the Special Court. They have not been heard. What would be the effect of the jurisdictional question as regard maintainability of the said application, being barred by limitation, would indisputably fall for consideration before the Special Court.

We. therefore. as at present advised, refrain ourselves from adverting to the said question. The question, however, before us is as to whether any contention which may not have a direct bearing with the question as to whether the Special Court could entertain their applications for de-notifications could be raised by way of defence. It is no doubt true that the law of limitation bars a remedy but not a right. [See Bombay Dyeing & Ma1111fac1111·ing Co. Ltd. v. The State of Bombay and Ors.. AIR (1958) SC 338. S£11'ilro Khandu Beradi v. Nagar Agricuflllral Sale and Purchuse Co-operatil'e Society ltd. Ahmednagar and Ors. , AIR (1957) Born 178, para 6 and Hari Roj Singh v. Sundwluk Panchayat Raj U. P. Govt. Lucknow and Ors. , AIR [1968) All 246. paras 14 and 15, but as observed hereinbefore, it would not be proper for us to consider as to whether such a remedy being not available. in terms of Section 4(2) of the Act can still be determined if raised by way of defence. In l. S.

Synthetics ltd. (supra), this Court observed: "A statute of limitation bars a remedy and not a right. Although a remedy is barred, a defence can be raised. In construing a special statute providing for limitation, consideration of plea of hardship is irrelevant. A special statute providing for special or no period of limitation must receive a liberal and broader construction and not a ASHWIN S. MEHTA v. CUSTODIAN ! SINHA. J. j 79 rigid or a narrow one. The intent and purport of Parliament enacting the said Act furthermore must be given its full effect. We are, therefore, of the opinion that the provisions of the Limitation Act have no application, so far as directions required to be issued by the Special Court relating to the disposal of attached property, are concerned.

" Although, we do not intend to enter into the correctness or otherwise of the said contention of the Appellants at this stage, however, there cannot be any doubt whatsoever that they being notified persons, all their properties wouid be deemed to be automatically attached as a consequent thereto. For the said purpose, it is not necessary that they should be accused of commission of an offence as such. The contention of the Appellants to the effect that their properties should have been attached only towards the liabilities incurred by the parties in respect of the transactions made during the Statutory Period, cannot be accepted as all the Appellants being notified, the attach'ment of the assets would be automatic. [l. S. . ~vnthetics Ltd.

(supra)] However, the contention of the Appellants that the properties held by them otherwise are sufficient to meet their liabilities was required to be gone into, as, in our considered opinion, there cannot be a any dispute that the Appellants have such a right. A corporate veil indisputably can be lifted on several grounds. l! FTING THE CORPORATE VEIL J. The principle of lifting the corporate veil, however, ipso facto would not apply to the individuals. The Custodian in a case of this nature JTiay. however. show that the transactions entered into apparently by Harshad Mehta were intimately connected with acquisition of properties in the name of others. A transaction of Benami indisputably can be a subject matter of a lis in terms of Section 4( I) of the Act as and when such a question is raised. the same may have to be dealt with by the Special Court appropriately. However. nexus between several persons in dealing with the matter may be established by the Custodian.

LIABILITIES UF THE APPELLANTS - DETERMINATION The fact. however. remains that the copies of the documents. books of >- \ 80 St:PRF\IF COliRT RFPORTS [2006] I S. C. R. accounts and other records on the basis whereof the Auditors appointed by the Court tiled their reports had not been shown to the Appellants herein, on the premise that they were in know of the things. As the said question has not been gone into by the learned Judge. Special Court, it is necessary that the same be considered and appropriately dealt with. The Appellants, however, raised the following contentions: (i) That the statement prepared by the Custodian and Exhibited as 'C' to his affidavit in rejoinder dated I. I0. 2003 was based on material. at least. all of which were not connected to the Appellants as were pointed out before the Court. The learned Special Judge has accepted the figures stated by the Custodian at face value without probing the basis on which the statement was prepared.

even though the Appellants in their sur-rejoinder asserted that the figures in the statement were contrary to both the books of accounts drawn by them as also the Auditor's report. (ii) In Para 14 of the sur-rejoinder. the Appellants denied the asset and liability position as arrived al by the Custodian. According to the Appellants. the Custodian has under-estimated the assets and exaggerated and overstated their liabilities. A triable issue had been raised and the Custodian ·s petition should have been converted into a suit. This was not done. In fact, according to the Appellants. there are gross errors in the material relied upon by the Custodian. The said contention must be properly adjudged. Several charts have been filed before us by the Appellants to show: (i) liabilities have been exaggerated by the Custodian. No credit for Rs. 1227 crores released to revenue on interest are given by the Custodian. (ii) liabilities have been shown in relation to unperformed contracts.

(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. It is open to the Appellants. herein to show that even if they continued to be notified. the Custodian was not right in clubbing all the individual members of the family as a single entity styled as Harshad Mehta Group. It is interesting to note that the properties belonging to the mother of Harshad Mehta has since been released from attachment. ASHWIN S. MEllTA v. CUSTODIAN ! SINHA. J. J 81 The learned Special Court, despite, such a contention having been raised by the Appellants in their affidavit in reply did not advert thereto. It is furthermore not in dispute that pursuant to or in furtherance of the directions issued by the learned Special Court, the accounts of all entities, be it corporate or individual.

were drawn up separately which approach had not been disapproved by the Auditor appointed by the Special Court. Even in the rejoinder filed by the Custodian, e. g. , paragraphs 14, 20, 21 a11d 2:'. , before the Special Court, such contentions have been raised. A sur-rejoinder thereto was filed on 15. 10. 2003 and in paragraphs I to 6 thereof, the said statements were denied and disputed. Our attention has also been drawn to a letter dated 7. 10. 2003 addressed by all the Appellants to the Office of the Custodian wherein the attention of the Custodian was drawn to the fact that all the documents relied upon by him had not been permitted to be inspected and he was requested to forward a report prepared by the Chartered Accountants in respect of the individual addressors of the letters. The said letter was replied by the Custodian by his letter dated I0. 10. 2003 wherein none of the queries contained in paragraphs 3 to 8 of the said letter was even attempted to be answered.

The Appellants. herein contended that the Custodian did not furnish the requisite particulars thereof and inspection was refused on the grounds stated therein. The learned Special Court, in paragraph 9 of the impugned order. stated: (i) the grand total of the admitted liability, thus, comes to Rs. 7,279, 127,317. 15. (ii) the amount of priority demand of Income Tax liabilities comes to Rs. 18,297,576,248. (iii) the estimated value of the immovable properties of this group is Rs. 184,030,038. ,-'\ (iv) Thus, the total value of the assets as per the affidavit filed on behalf of the Custodian of Harshad Mehta Group is Rs. 9,727,332,166. 94. (v) Thus, taking into consideration the total of the decretal amount and the income-tax liability, it is clear that the total assets of Harshad Mehta group would be far below the liabilities. In arriving at the said finding, no contention of the parties raised in 82 SUPREME un:1n REPORTS [2006[ I S. C. R.

their respective affidavits had been adverted to nor any material filed before it was analysed. In our opinion, the learned Judge, Special Court should have analysed the respective contentions of the ! ilarties in greater details and in particular in regard to assets and liabilities of the separate entities and having regard to the contentions raised by them that they are not part of the Harshad Mehta Group and their individual liabilities can be met from the assets held and possessed by them separately. The statement annexed to the affidavit of the Custodian showed individual break-up and in that view of the matter the net asset picture of each individual of the Appellants herein on individual basis and the effect thereof, in our opinion, should have received serious consideration at the hands of the learned Special Court.

The Custodian in terms of the directions issued by the learned Special Court had affirmed an affidavit putting on record the assets and liabilities of each of the members of the so-called Harshad Mehta Group on an individual basis. Allegedly, therein it was shown that the individuals had received large loans, advances, credits from the Harshad Mehta Group and there had been intermingling of the assets to the tune of crores of rupees. Before us, Mr. Desai had filed a chart for showing the same. The said chart, however, shows that at least Mrs. Deepika Mehta held assets more than her liabilities. Mr. Desai contended that if interest is calculated, liabilities would be more than assets. But, the said chart has been drawn up on the basis of the audited accounts, the correctness whereof is itself in dispute. Before us a chart has been produced by the Appellants herein as regards Mrs.

Deepika Mehta to show her liabilities payable as on 8th June, 1992 which are as under: "Chart showing comparison of payables as on 8th June, 1992 As per As per As per Custodian's Books of Auditor's Affidavit Accounts Report Mis. Harshad S. 25,44,68,654 9,70, 18,916 9,70,18,916 Mehta (Payable • as on 8. 6. 92) Mis. Ashwin S. 2,68. 47,613 1,02,35,942 1,02,35,942 Mehta (Payable as on 8. 6. 92) --~ ASllWIN S. MEHTA 1•. CUSTODIAN ISINllA. . I. ] 83 Mis. Jyoti H. 1,45,28,332 55. 39,083 55. 39. 083 Mehta (Payable as on 8. 6. 92) Interest payable 6,14,86. 640 2. 34. 42. 444 2,34. 42. 444" towards three brokerage firms as on 8. 6. 1992 J We, therefore, have not been given a clear picture as to the correctness or otherwise of the affidavit filed by the Custodian vis-a-vis the Books of Accounts which have been maintained by the Appellants themselves as well as the Auditor's Report.

The learned Judge merely accepted the figures mentioned in the affidavit of the Custodian and relied thereupon in paragraphs 9 to 11 of the judgment without discussing the contentions and arguments raised on behalf of the Appellants, herein. We, therefore, are of the opinion, in the interest of justice, that it is necessary to give another opportunity of hearing to the Appellants. It is true that horrendous figures as regard the liabilities of Harshad Mehta have been projected before us but the same. had been shown to be of the entire Group. If the liabilities of the individual entities are not treated as that of the group, for one reason or the other, indisputably, liability of those who have nothing to do with the dealings of Harshad Mehta either in the_ir individual capacities or as Directors of some company or otherwise must be dealt with separately. The contention raised on behalf of the Appellants is that the Harshad Mehta should be considered to be .

rni generis and the Custodian may realize his dues from his personal assets as also of those with which he was concerned together with the assets of his front companies but such liability should not be fastened upon others who had nothing to do therewith. As regards liabilities of Harshad Mehta, the Appellants contended that since his expiry in the year 200 I his legal interests are not being defended both in the court as well as before the revenue, as a result, liabilities have been foisted upon him a large part which is on account of interest and penalties. His death has also forced upon him bankruptcy. On the other hand, the contention of the Custodian is that the Appellants had not only taken huge loans or advances from Harshad Mehta in one capacity or the other but also even transactions and shares were made by Harshad Mehta on their behalf. Further contention of the Custodian is that even Dr. Hitesh Mehta and Dr.

Pratima Mehta have admitted that they had no knowledge about the transactions. This may be so, but then the effect of the rival contentions was required to be gone into by the learned Special Court. A finding of fact arrived at upon discussing and analyzing the respective contentions could have gone a long way in assisting this Court in arriving at a correct conclusion. The learned Judge proceeded on the basis that the assets and liabilities, joint and collective. of all those who are related with Harshad Mehta as also the corporate entities in which he was a Director or had some other interest must be considered as a group. Even in this behalf, it was necessary for the Special Judge to assign sufficient and cogent reasons. A question may further arise as to whether the learned Judge was correct in considering the individual liabilities of the notified parties as the liabilities of the group.

If those individuals, who had no connection with Harshad Mehta could not have been proceeded against for meeting the liabilities of Harshad Mehta jointly or severally, a clear finding was required to be arrived at. Only because there had been large intermingling and flow of funds from Harshad Mehta and inter se within the group, the same by itself may not justify the conclusion that all of their assets were required to be sold irrespective of their individual involvement. It was. thus. necessary for the learned Special Court to arrive at a firm conclusion as regard the involvement of the individuals with Harshad Mehta, if any, and the extent of his liability as such. Furthermore. the question as regard liability of the parties should have been determined at the stage of Section 9-A of the Act.

The Appellants have contended that the Custodian had taken contradictory or inconsistent ~tand inasmuch as the liabilities of all the entities were treated to be joint liabilities of Harshad Mehta group. He furthermore wanted to treat the liabilities of the notified entities also as their separate liabilities. He has proceeded on the basis that even if the assets and liabilities of all individuals is taken on an individual basis. the liabilities would exceed assets in the case of each individual and corporate entity. It had, however, never been the case of the Custodian that the examination ofclaims of all the notified parties is complete. It does not appear that claims inter se between the entities within the socalled group had ever been taken into consideration. The Custodian does not appear to have preferred claims before the Special Court on behalf of the largest lender on the so-called group against those he had to recover loans. Such claims may also be preferred.

The Act confers wide power upon the Custodian and the learned Special Court and in that view of the matter. having regard to the the principles of ·-< I ASHWIN S. MEHTA v. CUSTODIAN ISINllA. J. ) 85 natural justice, the judgment and order of the learned Judge, Special Court should have furthermore been supported by sufficient and cogent reasons. TAX LIABILITY It is not in dispute that the tax liabilities of the Appellants individually were assessed on the basis of Best Judgment assessment. It is, furthermore not in dispute that in a large number of cases the appellate authorities have . ,f set aside Best Judgment assessments. The contention of the Appellant to the effect that the income tax dues should have been considered at the point of time when they become recoverable cannot be accepted having regard to the 3-Judge Bench decision of this Court in B. C.

Dalal (supra) wherein this Court categorically held that in absence of any order of stay granted by the higher court, the liabilities would remain. We may further notice that the learned Special Court relied upon decision in Custodian v. Union of India and Ors. , [Misc. Petition No. 64 of 1998, disposed of on 17th August, 2000] wherein allegedly a dichotomy between sale and distribution was sought to be resolved in terms of the decision of this Court in Harshad Shanti/al Mehta (supra), the appeal whereagainst being Civil Appeal No. 5812 of 2000 was dismissed by this Court by an order dated 4. 12. 2000 stating that it was in agreement with the • decision of the Special Court which called for no interference. 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 Kedarnath Jute Mfg. Co. ltd.

(supra), this Court has held: "Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment. It is significant that in the present case, the liability had even been quantified and a demand had been created in the sum of Rs 1,49,776 by means of the notice, dated November 21, 1957, during the pendency of the assessment ,_\ proceedings before the Income Tax Officer and before the finalisation of the assessment. It is not possible to comprehend how the liability wouId cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability etc. '' But, in this case, the orders of assessment have been set aside.

If the orders of assessment have been set aside the liabilities of the Appellants have to be worked out on the basis of the new orders of assessment. So long, such orders of assessment are not passed by the competent asse5sing authorities, it cannot be said that the Appellants are liable to pay a huge amount by way of income tax dues on the basis of such orders of assessment which have since been set aside. A chart has been annexed to the additional written submissions filed by Mr. Desai, which originated from a letter dated 9th December, 2005 issued by the Office of the Commissioner of Income Tax showing the current status of the liabilities of the individual members of the Harshad Mehta group in the following tenns: "(I) Ashwin Mehta · Rs. 1396 crores, (II) Deepika Mehta· Rs. 120 crores (even after deducting the amount set aside by ITAT, it exceeds Rs. 63 crores). (III) Late Harshad Mehta · Rs. 11829 crores (IV) Jyoti Mehta • Rs. 1457 crores (V) Hitesh Mehta · Rs.

73 crores (VI) Pratima Mehta· Rs. 115 crores (even after deducting the amount set aside by ITAT it exceeds Rs. 35 crores) (VII) Sudhir Mehta · Rs. 339 crores (VIII) Aatur Holdings · Rs. 15. 95 crores (even after deducting the amount set aside by ITAT, it exceeds Rs. 2. 7 crores)" The Custodian has further brought on records that if the transactions by or on behalfof corporate entity, viz. , Aatur Holdings Pvt. Ltd. and Dr. Pratima Mehta by way of illustration are taken into consideration, the same would reveal their modus operandi to the effect that the moneys were diverted from banh and financial institutions by late Harshad Mehta which were in tum diverted to his family concerns and family members. These moneys were used for spcculative transactions and securities and the profits generated was used for acquiring assets. The learned Special Court. having not arrived at such a finding. this ASH WINS. MEHTA 1·. CUSTODIAN [SINHA. J.

] 87 Court is not in a position to go into the correctness or otherwise thereabout. In any view of the matter, the learned Judge, Special Court having not dealt with the question as regard the mode and manner of disbursements of the amount so far as the tax liabilities of the Appellants are concerned elaborately, the same requires fresh determination in the light of the decision of this Court in Harshad Shanlilal Mehta (supra). . ; In fact, the Appellants have brought on records various orders passed by Income Tax Appellate Authorities to show that the demands ofthe revenue have been set aside. Furthermore, the orders of the appellate authority have been passed during pendency of this appeal. This Court, it is trite, can take into consideration the subsequent events. Such subsequent events . could also be taken into consideration for the purpose of review. ~ In Board ofControlforCricket in India and Anr v. Netaji Cricket Club I and Ors.

, (2005] 4 SCC 741, this Court held: "It is also not correct to contend that the Court while exercising its review jurisdiction in any situation whatsoever cannot take into consideration a subsequent event. In a case of this nature when the Court accepts its own mistake in understanding the nature and purport of the undertaking given by the learned Senior Counsel appearing on behalf of the Board and its correlation with as to what transpired in the AGM of the Board held on 29-9-2004, the subsequent event may be taken into consideration by the Court for the purpose of rectifying its own mistake. " 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. SALE OF COMMERCIAL PROPERTIES Sale of commercial properties has never been seriously contested by the Appellants.

In fact one of the contentions raised on behalfofthe Appellants had been that if commercial properties are sold, there would be no need to sale the residential properties. This Court also in its order dated 5th May, 2004 clarified that the interim order dated 30th January, 2004 shall not be 88 SUPREME CO! 'RT REPORTS j2006I I S. C. R. applicable as regard sale of commercial properties as even before this Court the same had not been questioned. It is. furthermore. not in dispute that third party rights have since been created by reason of sale of a large number of commercial properties. By an order dated 30th January. 2004, while admitting the appeals, this Court directed: "The learned counsel for the Custodian brings on record the result of the bids and the order of the Special Court dated 17. 12. 2003 and 20. 1. 2004. The learned counsel for the Appellants proposes to offer his comments on the bids and the two orders of the Special Court. Let it be done within two weeks.

The process of finalizing the bids according to law may be proceeded ahead by the Special Court. However, the finalization shall be subject to the result of these appeals. " t The said order, however, was modified and clarified by an order dated 5th May, 2004 that the same shall not apply to the sale of commercial properties in view of the order of the learned Judge, Special Court dated 17th October, 2003 wherein it was pointed out that the notified parties did not dispute the commercial properties being put to sale by the Custodian. In that view of the matter, evidently, creation of any third party interest is no longer in dispute nor the same is subject to any order of this Court. In any event, ordinarily, a bona fide purchaser for value in an action sale is treated differently than a decree holder purchasing such properties. In the forn1er event, even if such a decree is set aside, the interest of the bona fide purchaser in an auction sale is saved. [See Zain-u/-Abdin Khan v.

Aluha111111ad Asglwr Ali Khan. 15 IA 12). The said decision has been affirmed by this Court in Gurjoginder Singh v. Jaswant Kaur (S111t. J and Anr.. [1994] 2 SCC 368. In Janak Raj v. Gurdial Singh and Anr.. [1967) (2) SCR 77, this Court confirmed a sale in favour of the Appellant therein who was a stranger to the suit being the auction purchaser of the judgment-debtor's immovable property in execution of an ex parte money decree in terms of Order XXXI Rule 92, Civil Procedure Code. Despite the fact that ordinarily a sale can be set aside only under Rules 89, 90 and 91 of Order XXXI, it was opined that the court is bound to confirm the sale and direct the grant of a certificate vesting the i ASHWIN S. MEHTA v. CUSTODIAN [SINHA. . I. ) 89 title in the purchaser as from the date of sale when no application in term of Rule 92 was made or when such application was made and disallowed and in support thereof Zain-ul-Abdin Khan (supra) and various other decisions were referred to.

In Padanathil Ruqmini Amma v. P. K. Abdulla, [1996) 7 SCC 668, this Court making a distinction between decree-holder auction purchaser himself and 11 third party bona fide purchaser in an auction sale, observed : "... The ratio behind this distinction between a sale to a decree-holder and a sale to a stranger is that the court, as a matter of policy, will pFotect honest outsider purchasers at sales held in the execution of its decrees, although the sales may be subsequently set aside, when such purchasers are not parties to the suit. But for such protection, the properties which are sold in court auctions would not fetch a proper price and the decree-holder himself would suffer. The same consideration does not apply when the decree-holder is himself the ) purchaser and the decree in his favour is set aside. He is a party to' the litigation and is very much aware of the vicissitudes of litigation and needs no protection.

We, therefore, do not interfere with that part of the order whereby and wherewith the auction sale. as regard commercial properties, had been directed by the learned Judge, Special Court. The learned Judge, Special Court, may, therefore, proceed to pass an appropriate order as regard confirmation of the sale of such properties. RESIDENT/AL PROPERTY In these appeals, we are concerned with sale of eight residential flats in a building known as Madhuli. The flat belonging to the mother of Late Harshad Mehta has been released. The flats, however, during pendency of these appeals have been sold in auction. One of the flats being flat No. 202, Arunachal Bhawan, Barakhamba Road, is subject matter of a separate proceeding pending before this Court, viz. , Civil Appeal No. 681 of 2004. In these appeals, we are not concerned with the said flat. Admittedly, the flats have been sold subject to the result ofthese appeals..

The flats have been sold on the basis of the joint liabilities of the Appellants together with Harshad Mehta and other companies as a group. The liabilities of the Appellants. in view of our findings aforementioned, are required to be 90 SUPREME COL! Rl REPORTS [2006] I S. C. R. considered afresh by the learned Judge, Special Court. The purchasers have also filed applications for their impleadment in these appeals. We, however, have not heard the purchasers as the question as to whether the auction sale of the said flats will be confirmed or not will depend upon the ultimate finding of the learned Judge, Special Court upon consideration of the matter afresh in the light of the observations made hereinbefore. We, therefore, would direct that the confirmation of sale of those flats be considered and appropriate order thereupon may be passed by the learned Special Court while considering the matter afresh.

In the light of the directions issued herein, it would be for the purchasers of the said flats to wait till a final decision is made or take back the amount deposited by them, subject to any other or further order (s) that may be passed by the learned Special Judge. CONCLUSION In view of our foregoing discussions, we are of the opinion that: (i) The contention of the Appellants that they being not involved in offences in transactions in securities could not have been proceeded in terms of the provisions of the Act cannot be accepted in view of the fact that they have been notified in terms thereof. (ii) The Appellants being notified persons all their personal properties stood automatically attached and any other income from such attached properties would also stand attached.

The question as to whether the Appellants could have been considered to be part of Harshad Mehta Group by the learned Special Court need not be determined by us as, at present advised, in view of the fact that appropriate applications in this behalf are pending consideration before the learned Special Court. 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. • (iii) As regard the tax liabilities of the Appellants. herein, we would request the learned Judge, Special Court to consider the matter afresh· in the light of the observations made hereinbefore. The learned Judge. Special Court. in this behalf. having regard to the •. ASHWIN S. MEHTA v. CUSTODIAN [SINHA. . I.

] 91 fact that several orders of Best Judgment Assessment have been passed by the Assessing Authority, may take into consideration the ratio laid down in the decision of this Court in Harshad Shanti/al Mehta (supra). (iv) The lea~ed Special Court shall proceed to pass appropriate orders as regard confirmation of the auction sales in respect of commercial properties. (v) As regard. sale of residential properties, an appropriate order may be passed by the learned Judge, Special Court in the light of the observations made hereinbefore. (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 continuously upon giving due notice therefor 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 and 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 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. (ix) The learned Judge, Special Court while hearing the matter in tenns of this order shall also consider as to whether the auction sale should be confirmed or not. It will also be open to the learned Judge, Special Court to pass an interim order or orders, as it may think fit and proper, in the event any occasion arises therefor. (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 res.

idential premises is being consideration, as expeditiously as possible and not later than twelve weeks from the date of the receipt ofthe 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.

Th~ 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. R. P. Appe,al disposed of.