TMI Blog2004 (10) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... ission so made. 13. The appeal is allowed. - CIVIL APPEAL NO. 3574 OF 1998 - - - Dated:- 27-10-2004 - R.C. LAHOTI, ASHOK BHAN, JJ. Uday Umesh Lalit, Rattan K. Singh, Nikhilesh Krishnan, R.K. Choudhary, Sagar Saxena, Jayan Mehta, Ms. Vandana Singh and Kanhaiya Priyadarshi for the Appellant. Subramonium Prasad and Prasanjit Keswani for the Respondent. JUDGMENT R.C. Lahoti, C.J. This is an appeal under section 10 of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter the Act, for short), feeling aggrieved by an order dated 28-7-1998 whereby rejecting an objection petition preferred by the appellant, the Special Court has directed the appellant to hand over possession of all the 56 cars to the custodian within one week from the date of the order. 2. The Industrial Finance Corporation of India (hereinafter IFCI, for short) is a Corporation constituted under the Industrial Finance Corporation of India Act, 1948 and carries on the business of financing moneys to various borrowers. Vide agreement dated 4-12-1990, the appellant entered into a Lease Finance Agreement with M/s. Fairgrowth Financial Services Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties belonging to Fairgrowth. The Appellant Company continued to make payment to IFCI in place of Fairgrowth as per lease finance agreement. An amount of Rs. 30,96,948.30 paise was paid by the appellant to Fairgrowth till December, 1992. An amount of Rs. 44,61,273 was paid by the appellant to the custodian IFCI. Thus the total lease rentals actually paid by the appellant company are Rs. 75,31,842 till May, 1997 whereas the rentals which were payable by the appellant company were Rs. 85,34,379 only. 4. According to the appellant company under lease finance agreement, it had made a security deposit with Fairgrowth on which an interest of 5 per cent per annum compounded half yearly was to be paid. The appellant made a communication to the custodian clarifying that the appellant would be entitled under the agreement to the amounts on account of security deposit and interest accrued thereon at the time of buyback or purchase of lease assets by the appellant. On 9-4-1997, the appellant forwarded a cheque of Rs. 17,800 in full and final settlement of dues under lease finance agreement dated 4-12-1990. According to the appellant, the payment of this amount squared up fully and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and payable at all to any of the respondents by the appellant. Even 20 per cent terminal fee, as purchase price of the 56 cars, had been paid and nothing had remained to be done except termination of hypothecation and transferring on paper of the ownership of the cars to the appellant which was only a matter of formality necessarily flowing from the obligation of respondent No. 3 under the agreement and accounts having already squared up. The documents show that the registration of the cars since inception stands in the name of the appellant. 7. During the course of hearing before this Court, it was conceded at the Bar that so far as the transaction between the respondent No. 3 and the appellant as evidenced by the agreement dated 4-12-1990 is concerned, it is a transaction of lease finance and the rights and obligations of the parties have to be worked out accordingly. 8. We have heard at length, the learned counsel for the parties. We also requested Shri Uday U. Lalit, Senior Advocate, to assist the Court by pointing out the correct position of law centering around lease finance transactions. We place on record our appreciation of the assistance rendered by the learned se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sufficient in total to amortise the capital outlay of the lessor and give some profit. An operating lease is any other type of lease-that is to say, where the asset is not wholly amortised during the non-cancellable period, if any, of the lease and where the lessor does not rely for his profit on the rentals in the non-cancellable period. The features of the financial lease, according to the learned author are as under : 1.The asset is use-specific and is selected for the lessee specifically. Usually, the lessee is allowed to select it himself. 2.The risks and rewards incident to ownership are passed on to the lessee. The lessor only remains the legal owner of the asset. 3.Therefore, the lessee bears the risk of obsolescence. 4.The lessor is interested in his rentals and not in the asset. He must get his principal back along with interest. Therefore the lease is non-cancellable by either party. 5.The lease period usually coincides with the economic life of the asset and may be broken into primary and secondary period. 6.The lessor enters into the transaction only as a financier. He does not bear the costs of repairs, maintenance or operation. 7.The lessor is typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (3), notwithstanding anything contained in any other law for the time being in force with effect from the date of notification under sub-section (2), any property, movable or immovable or both belonging to notified party stands attached simultaneously with the issue of the notification and becomes liable to be dealt with by the custodian in such manner as the Special Court may direct. A person is liable to be notified by reference to transaction in securities between 1-4-1991 and 6-6-1992. Any contract or agreement entered into between 1-4-1991 and 6-6-1992, in relation to any property of the notified party is liable to be cancelled, if found to have been entered into fraudulently or to defeat the provisions of the Act. Analysing the provisions of the Act, it was held in B.O.I. Finance Ltd. v. Custodian [1997] 10 SCC 4881, that the custodian under the Act is required to assist in the attachment of the notified persons property and to manage the same thereof. The properties of the notified persons, whether attached or not, do not, at any point of time, vest in him. He is merely a custodian and not a receiver nor is he a final liquidator so as to enjoy control over t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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