TMI Blog2006 (1) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... ttached 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. As regard the tax liabilities of the Appellants, herein, we would request the learned Judge, Special Court to consider the matter afresh. The learned Special Court shall proceed to pass appropriate orders as regard confirmation of the auction sales in respect of commercial properties. 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. - CIVIL APPEAL NOS. 667 TO 681 OF 2004 - - - Dated:- 3-1-2006 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions in various proceedings before it appointing auditors to prepare and audit the books of account of all notified persons for the period 1-4-1990 and 8-6-1992, i.e., the date of the notification. Three firms of Chartered Accountants were appointed to prepare statement of accounts and liabilities of each of the Appellants, herein. 4. A Chartered Accountants firm was appointed by the learned Special Judge by an order dated 17-9-2003 to represent all notified entities in the family of late Harshad Mehta for the purpose of ascertaining their tax liabilities. We may, at this juncture, notice the nature of the applications filed by the parties, hereinbefore the learned Special Court: ( i )On 26-4-1999, the Custodian filed an application being Misc. Application No. 41 of 1999 seeking permission of the Special Court for sale of residential premises commonly known as Madhuli of eight notified entities. ( ii )A Misc. Application being 4 of 2001 was filed by the Custodian praying for the sale of commercial premises. ( iii )The Appellants herein filed several Misc. Applications praying for lifting of attachment on their residential premises on the ground that the same ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Harshad Mehta could not have been clubbed for the purpose of directing attachment and consequent sale of the properties which exclusively belong to them. ( iii )The liabilities of Harshad Mehta, who was a sui generis , could have been recovered from the properties held and possessed by him or from the companies floated by him but not from the individual entities; at least two of whom being medical practitioners have their income from other sources. ( iv )The books of account and other documents on the basis whereof the auditor s report had been made having not been allowed to be inspected by the Appellants herein on the plea that they had the knowledge thereabout, the same could not have been taken into consideration for the purpose of passing of the impugned order or otherwise. ( v )The Appellants having preferred appeals against the income-tax orders of assessment passed by the authority and the same having been set aside, no liability to pay income-tax by the Appellants as of now being existing, the residential properties could not have been sold. ( vi )Drawing our attention to a representative chart showing the discrepancies in the accounts of Mrs. Deepika A. Mehta as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each of the entities having been audited by the Chartered Accountants, it is evident from the reports that in all cases liabilities exceed the assets. ( vi )The decretal amount against the Harshad Mehta Group also would exceed Rs. 4,339 crores and, thus, the assets held by the Appellants are wholly insufficient to meet the liabilities. ( vii )Furthermore, the Appellants are also unable to maintain their residential properties as the Custodian had to pay a sum of Rs. 1.06 crores towards the maintenance of the said residential properties. The assets of the Harshad Mehta Group are valued at Rs. 972 crores apart from the income tax dues whereas the aggregate amount of income tax dues exceed Rs. 13,800 crores. ( viii )Dr. Hitesh Mehta and Dr. Pratima Mehta who are medical practitioners by profession having affirmed affidavits admitting that the share broking and investment businesses which were part of family businesses were undertaken and conducted by late Harshad Mehta and they had no knowledge thereabout nor were they involved therewith, they at this stage cannot be permitted to turn round and contend that they have nothing to do with the liabilities of late Harshad Mehta. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification and such attached properties may be dealt with by the Custodian in such manner as the Special Court may direct. In the Ordinance which preceded the Act, there was no provision for giving post facto hearing to a notified person for cancellation of notification, but such a provision has been made in the Act, as would appear from section 4(2) thereof. Sub-section (1) of section 4 of the Act reads as under : "4. Contracts entered into fraudulently may be cancelled. (1) If the Custodian is satisfied, after such inquiry as he may think fit, that any contract or agreement entered into at any time after the 1st day of April, 1991 and on and before the 6-6-1992, in relation to any property of the person notified under sub-section (2) of section 3 has been entered into fraudulently or to defeat the provisions of this Act, he may cancel such contract or agreement and on such cancellation such property shall stand attached under this Act : Provided that no contract or agreement shall be canceled except after giving to the parties to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any event, the properties attached should not be sold in discharge of the liabilities can be taken at the initial stage by filing an application in terms of sub-section (2) of section 4 of the Act. But, at the stage when liabilities are required to be discharged, the notified person may inter alia raise a contention inter alia for the purpose of establishing that the properties held and possessed by them are sufficient to meet their liabilities. In terms of the provisions of the Act, the Special Court had been conferred a very wide power. Precedents as regard scope of the Act 12. Constitutionality and/or interpretation of the Act came up for consideration before this Court in Harshad Shantilal Mehta v. Custodian [1998] 16 SCL 537 wherein the following questions were framed: (1) What is meant by revenues, taxes, cesses and rates due? Does the word "due" refer merely to the liability to pay such taxes etc., or does it refer to a liability which has crystallised into a legally ascertained sum immediately payable? (2) Do the taxes [in clause ( a ) of section 11(2)] refer only to taxes relating to a specific period or to all taxes due from the notified person? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution arrives when the Special Court completes the examination of claims under section 9A and if on that date, any tax liability for the statutory period is legally assessed, and the assessment is final and binding on a notified person, that liability would be considered for payment under section 11(1)( a ), subject to what follows: 14. So far as Question No. 4 is concerned, this Court despite upholding the contention of the Custodian that no question of any reopening of tax assessments before the Special Court would arise and the liability of the notified person to pay the tax will have to be determined under the machinery provided by the relevant tax law, observed: "But the Special Court can decide how much of that liability will be discharged out of the funds in the hands of the Custodian. This is because the tax liability of a notified person having priority under section 11(2)( a ) is only tax liability pertaining to the statutory period . Secondly payment in full may or may not be made by the Special Court depending upon various circumstances. The Special Court can, for this purpose, examine whether there is any fraud, collusion or miscarriage of justice in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Court has full discretion under section 11(2)( c ) to decide whether such claim for penalty or interest should be paid out of any surplus funds in the hands of the Custodian." 17. We must, however, notice that reliance was sought to be placed on paragraph 14 of the said judgment wherein reference was made to a Bombay High Court judgment in Hitesh Shantilal Mehta v. Union of India [1992] 3 Bom. CR 716 wherein it was held: "If the person. . .approaches the Special Court and makes out, for example, a case that the property which is attached has no nexus of any sort with the illegal dealings in securities belonging to banks and financial institutions during the relevant period and/or that there are no claims or liabilities which have to be satisfied by attachment and sale of such property, in our view, the Special Court would have the power to direct the Custodian to release such property from attachment." 18. But, the said observation was held to be not laying down a law by a 3-Judge Bench of this Court in L.S. Synthetics Ltd. s case ( supra ) holding: "( i )A notified party has the requisite locus to bring the fact to the notice of the Special Court that certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltaneously 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 notified 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 would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prescribed period, before the Special Court praying for their de-notifications. However, by an order dated 14-7-2000, the said applications were permitted to be withdrawn with a permission to re-file the same. 25. 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 regards 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. 26. 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 Mfg. Co. Ltd. v. State of Bombay AIR 1958 SC 328, Savitra Khandu Beradi v. Nagar Agricultural Sale Purchase Co-operative Society Ltd. AIR 1957 Bom. 178, and Hari Raj Singh v. Sanchalak Panch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rently 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(1) 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 of the Appellants - Determination 32. The fact, however, remains that the copies of the documents, books of account and other records on the basis whereof the auditors appointed by the Court filed 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 1-10-2003 was based on material, at least, all of which were not connected to the Appellants as were pointed out before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied and disputed. 36. 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 10-10-2003 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. 37. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 8-6-1992) 25,44,68,654 9,70,18,916 9,70,18,916 M/s. Ashwin S. Mehta (Payable as on 8-6-1992) 2,68,47,613 1,02,35,942 1,02,35,942 M/s. Jyoti H. Mehta (Payable as on 8-6-1992) 1,45,28,332 55,39,083 55,39,083 Interest payable towards three brokerage firms as on 8-6-1992. 6,14,86,640 2,34,42,444 2,34,42,444". 41. 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 account 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. 42. It is true that horrendous figures as regards the liabilities of Harshad Mehta have been projected before us but the same had been shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. 44. Furthermore, the question as regard liability of the parties should have been determined at the stage of section 9A of the Act. The Appellants have contended that the custodian had taken contradictory or inconsistent stand 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 eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification 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 21-11-1957, 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 would 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. . . ." (p. 254) 50. 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 assessing 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f review. 57. In Board of Control for Cricket in India v. Netaji Cricket Club [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." (p. 766) 58. 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 59. Sale of commercial properties has never been seriously contested by the appellants. In fact one of the contentions raised on behalf of the Appellants had been that if commercial properties are sold, there would be no need to sale the residential properties. This Court also in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate vesting the 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. 63. In Padanathil Ruqmini Amma v. P.K. Abdulla [1996] 7 SCC 668, this Court making a distinction between decree-holder auction purchaser himself and a 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 protect 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 prot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted 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 interming-ling of accounts by the Appellants, herein with that of the Harshad Mehta Group and/or any other or further contentions raised by the parties heretobefore 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 fact that several orders of Best Judgment Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terim 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 residential premises is being consideration, as expeditiously as possible and not later than twelve weeks from the date of the receipt of the 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. The impugned judgments a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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