2011 (5) TMI 929 - SC - Indian Laws

Whether there are sufficient provisions for pre and post decisional hearing thereby ensuring Rules of Natural Justice? Whether the appellants being not involved in offences in transactions in securities could have been proceeded against in terms of the provisions of the Act? Whether Canfina is a Financial Institution and whether the complaint filed by Canfina is invalid?

Summary

Issues Involved:
1. Validity of the impugned notification.
2. Delay in passing the notification order.
3. Reliance on Canfina's letter and other reports.
4. Requirement of pre-decisional and post-decisional hearings.
5. Determination of benami transactions.
6. Onus of proving the validity of the notification.
7. Jurisdiction of the Special Court.
8. Interest levied on notified parties.
9. Canfina's status as a financial institution.
10. Claims for maintenance, repair charges, interest, and penalty.

Detailed Analysis:

1. Validity of the Impugned Notification:
The appellants contended that the notification was non-reasoned and non-speaking, contrary to settled law. The court held that the Custodian's satisfaction for notification is subjective and based on materials provided, which were sufficient to notify the appellants.

2. Delay in Passing the Notification Order:
The appellants argued that the 15-year delay in notification was unreasonable. The court found the delay justified due to the complexity and scale of the investigation, involving several entities and transactions.

3. Reliance on Canfina's Letter and Other Reports:
The appellants challenged the reliance on Canfina's letter and reports from various committees. The court upheld the reliance on these reports, noting that they were prepared by expert committees and were essential for understanding the scam's extent.

4. Requirement of Pre-decisional and Post-decisional Hearings:
The court ruled that the Act does not provide for a pre-decisional hearing but ensures a fair and just post-decisional hearing. The Special Court, presided over by a High Court judge, provides adequate safeguards and opportunities for the appellants to challenge the notification.

5. Determination of Benami Transactions:
The Special Court concluded that the appellants were fronts for late Harshad S. Mehta, based on substantial evidence, including auditor reports and lack of explanation for their income sources. The court upheld this conclusion, rejecting the appellants' objections.

6. Onus of Proving the Validity of the Notification:
The appellants argued that the onus was wrongly shifted to them. The court clarified that it is the Custodian's responsibility to establish the validity of the notification, which was adequately done in this case.

7. Jurisdiction of the Special Court:
The court affirmed that the Special Court has jurisdiction over transactions and properties within the statutory period (01.04.1991 to 06.06.1992) and can deal with properties attached under the Act, regardless of their acquisition date.

8. Interest Levied on Notified Parties:
The court referred to its earlier judgment in Harshad Shantilal Mehta vs. Custodian & Ors. (1998) and held that no interest can be levied on the notified parties for the period beyond the statutory period.

9. Canfina's Status as a Financial Institution:
The court recognized Canfina as a financial institution based on its involvement in the securities scam and investigations by the Janakiraman Committee, despite not being a traditional financial institution under other Acts.

10. Claims for Maintenance, Repair Charges, Interest, and Penalty:
The court upheld the Custodian's claim for maintenance and repair charges but exempted the appellants from paying interest and penalty charges due to ongoing litigation. The Custodian was directed to adjust amounts already deposited by the appellants.

Conclusion:
The Supreme Court dismissed Civil Appeal Nos. 2924 of 2008 and 2915 of 2008, upholding the notification and related findings. Civil Appeal Nos. 3377 of 2009 and 4764 of 2010 were disposed of with modifications, exempting the appellants from interest and penalty charges on maintenance and repair dues. No costs were ordered in all the appeals.