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Vinod Hinigorani Versus Securities & Exchange Board of India, Mumbai

2015 (4) TMI 413 - BOMBAY HIGH COURT

Recovery proceedings against the erstwhile non executive director of a company - Attachment of bank accounts / Demat accounts - Notice under Rule III and Part I of second Schedule to the Income Tax Act 1961 r/w Section 28A of the Securities and Exchange Board of India, 1992 - Alternate remedy - writ jurisdiction - power to arrested - Held that:- It is well settled that the alternative remedy does not serve as an absolute bar for exercising writ jurisdiction. The writ Court can, depending on the .....

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sion has not been adopted or there is an allegation of infringement of fundamental rights, or where the orders or proceedings are wholly without jurisdiction or the virus of an Act is challenged or when it is shown that it would be a case of palpable injustice to the petitioner to force him to adopt remedies provided by the statute. Refered case 2005 (7) TMI 353 - SUPREME COURT OF INDIA

In the present case, the petitioner has claimed that he has been detained in a summary and arbitrar .....

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, as regards the existence of two situations, which are specified in Clause (a) of Rule 73(1). The Tax Recovery Officer has not detained and arrested the petitioner on the ground that he had transferred, concealed or removed any pat of his property. The respondent had stated in the affidavit that upon issuance of the attachment orders, none of the banks have reported any accounts in the name of the petitioner, except Punjab National Bank at Mira Road (E) branch and only an amount of ₹ 5160 .....

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oad if released, can be alleviated by imposing appropriate conditions and or securing an undertaking that he will not leave the country during the pendency of the proceedings. Learned Counsel representing the petitioner has also stated that the passport of the petitioner is already attached by the E.O.W. Crime Branch, Mumbai and there is no possibility of the petitioner leaving the country. - Writ petition allowed. - WRIT PETITION NO. 639 OF 2015 - Dated:- 10-3-2015 - RANJIT MORE AND SMT. ANUJA .....

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The petitioner claims that he was a non existing Chairman of the company known as Adan Camsof Ltd. and Kolar Biotech Ltd and that he had no role in the day to day affairs and the management of the said companies. 3. The petitioner claims that the respondent had initiated recovery proceeding against him and drawn up certificate nos. 211 and 231 both dated 11.7.2014 and certificate dated 288 of 2014 dated 16.7.2014. The respondent had also issued notice of demand dated 11.7.2014 and 16.7.2014 unde .....

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₹ 15,000/-. The petitioner has claimed that he had not received any benefits from ACL/KBL. He had submitted that he used to sign the documents as per the instructions of Shri. Rajkumar Basantani who was the main promoter of both the companies. The petitioner had claimed that he was only a front for the promoters of the said companies and that he had not benefited from any of the alleged transactions. 5. The petitioner claims that pursuant to the said notices, the respondent has attached hi .....

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e petitioner had sought leave to be represented by a lawyer. The petitioner has claimed that the said request was arbitrarily rejected. It is alleged that the respondent did not grant him an hearing and had demanded that he should submit a proposal for payment of the alleged dues at the hearing itself. His request for grant of time on the ground that he wanted to challenge the order of penalty was also not considered and he was illegally detained at the SEBI Bhavan and directed to submit the pro .....

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and requested to release him on such terms and conditions as deemed fit. The said request was also not considered and instead he was once again instructed to give a proposal for repayment of the alleged dues. The petitioner claims that the impugned order dated 18.12.2014 and 29.12.2014 are arbitrary, illegal and bad in law and deserves to be quashed. 8. The Assistant General Manager of the respondent has filed an affidavit in reply. The respondents have raised the preliminary objection about the .....

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b), 3(c), 4(1), 4(2)(r) of SEBI Regulations and imposed penalty of ₹ 25 lakhs, and by order dated 10.6.2010 the Adjudicating Officer had imposed penalty of ₹ 55 lakhs for violationg Regulations 3(a), 3(c), 4(1), 4(2)(a) and 4(2)(e) of SEBI Regulations 2003. 9. The respondent has stated that the petitioner neither challenged the said order nor paid the penalty aggregating to ₹ 1,10,00,000/- despite various reminders, hence the respondent Board initiated prosecution proceeding un .....

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d to the said notices nor made the payment. The Recovery Officer therefore attached all the Bank and DEMAT Accounts. However, except the amount of ₹ 5,160.82 no further bank account details of the petitioner were traceable. The petitioner was therefore directed to appear before the Recovery Officer. However, the petitioner forwarded a reply dated 11.11.2014 stating that he was not liable. The respondent therefore issued notice under Rule 73(1) of second Schedule r/w. Section 222(1)(c) of t .....

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substantial cause and had failed to furnish the proposal for payment of dues as advised by the Recovery Officer, the petitioner was ordered to be detained in Civil Prison for a period of six months. 12. The respondent has stated that the application dated 23.12.2014 filed by the petitioner was rejected vide order dated 29.12.2014 since the petitioner had failed to satisfy the condition as stated under Rule 78 & 79 of Schedule II of Income Tax Act and also failed to pay the dues or furnish s .....

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neglected to pay the arrears despite having means to pay the same. Learned Counsel for the petitioner therefore claims that notices issued under Rule 73 and consequent detention is illegal for want of compliance of pre-requisite stipulated under Rule 73. She has relied upon the decision of the Apex Court in the case of Jolly George Verghese v. Bank of Cochin AIR 1980 SC 470 and the decision of the Gujarat High Court in Mohmad Akhtar Hussain v. State of Gujarat (1991) 1 GLR 305. 14. Learned Couns .....

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ernative remedy of appeal before the Securities Appellate Tribunal. Learned Senior Counsel Shri Khambatta has contended that the petitioner had not challenged the order of penalty, hence the same had attained finality. The petitioner had not paid the dues despite giving sufficient opportunity. Referring to the averments in the affidavit-in-reply, learned Counsel for the respondent has urged that though the Bank and DEMAT Account of the petitioner were attached, only an amount of ₹ 5160.82 .....

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pay the dues and has also failed to show the sufficient cause. Learned Senior Counsel Shri Khambatta therefore claims that the order of detention is neither arbitrary, nor illegal. 16. We have perused the records and considered the submissions advanced by the respective counsel. We shall first consider the preliminary objection raised by learned Counsel Shri Khambatta regarding the maintainability of the petition under Article 226 of the Constitution of India in view of the availability of alter .....

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discretion as follows :- "19. Except for a period when Article 226 was amended by the Constitution (42nd Amendment) Act, 1976, the power relating to alternative remedy has been considered to be a rule of self imposed limitation. It is essentially a rule of policy, convenience and discretion and never a rule of law. Despite the existence of an alternative remedy it is within the jurisdiction of discretion of the High Court to grant relief under Article 226 of the Constitution. At the same ti .....

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Court in K.S. Rashid and Sons v. Income Tax Investigation Commission and Ors., AIR (1954) SC 207; Sangram Singh v. Election Tribunal, Kotah and Ors., AIR (1955) SC 425; Union of India v. T.R. Varma, AIR (1957) SC 882; State of U.P. and Ors. v. Mohammad Nooh, AIR (1958) SC 86 and M/s K.S. Venkataraman and Co. (P) Ltd. v. State of Madras, AIR (1966) SC 1089, held that Article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the reme .....

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esh and Anr. v. Bhailal Bhai etc., AIR (1964) SC 1006, held that the remedy provided in a writ jurisdiction is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defence legitimately open in such actions. The power to give relief under Article 226 of the Constitution is a discretionary power. Similar view has been reiterated in N.T. Veluswami Thevar v. G. Raja Nainar and Ors., AIR (1959) SC 422; Municipal Council, Khurai and Anr. v. Kamal .....

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guru Janardan Swami (Moingiri Maharaj) Sahakari Dugdha Utpadak Sanstha and Anr. v. State of Maharashtra and Ors., [2001] 8 SCC 509; Pratap Singh and Anr. v. State of Haryana, [2002] 7 SCC 484 and G.K.N. Driveshafts (India) Ltd. v. Income Tax Officer and Ors., [2003] 1 SCC 72. 22. In Harbans Lal Sahnia v. Indian Oil Corporation Ltd., [2003] 2 SCC 107, this Court held that the rule of exclusion of writ jurisdiction by availability of alternative remedy is a rule of discretion and not one of compul .....

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mendra Kishore Biswas v. State of Tripura, AIR (1999) SC 294; Shivgonda Anna Patil and Ors. v. State of Maharashtra and Ors., AIR (1999) SC 2281; C.A. Abraham v. I.T.O. Kottayam and Ors., AIR (1961) SC 609; Titaghur Paper Mills Co. Ltd. v. State of Orissa and Anr., AIR (1983) SC 603; H.B. Gandhi v. M/s Gopinath and Sons, [1992] Suppl. 2 SCC 312; Whirlpool Corporation v. Registrar of Trade Marks and Ors., AIR (1999) SC 22; Tin Plate Co. of India Ltd. v. State of Bihar and Ors., AIR (1999) SC 74; .....

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opted or there is an allegation of infringement of fundamental rights, or where the orders or proceedings are wholly without jurisdiction or the virus of an Act is challenged or when it is shown that it would be a case of palpable injustice to the petitioner to force him to adopt remedies provided by the statute. 19. In the present case, the petitioner has claimed that he has been detained in a summary and arbitrary manner. The petitioner has claimed that his arrest is illegal and is in contrave .....

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dated 28.4.2010 and 10.6.2010 had called upon the petitioner to pay penalty aggregating to ₹ 1,10,00,000/- for committing fraudulent activities. The petitioner had not challenged the said order and had not paid the dues. The respondent had therefore resorted to the recovery proceedings in accordance with the provisions of 28A of SEBI Act, 1992 which reads as follows:- 28-A. Recovery of amounts - (1) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply .....

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ing modes, namely:- (a) attachment and sale of the person's movable property; (b) attachment of the person's bank account; (c) attachment and sale of the person's immovable property; (d) arrest of the person and his detention in prison; (e) appointing a receiver for the management of the person's movable and immovable properties." 21. Rule 28-A further provides that in the exercise of power of effecting recovery of amount, the provisions of Section 222, 227, 228A, 229, 232 a .....

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pon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Tax Recovery Officer, for reasons recorded in writing, is satisfied. (a) that the defaulter, with the object or effect of obstructing the execution of the certificate, has, after [drawing up of the certificate by the Tax Recovery Officer] dishonestly transferred, concealed, or removed any part of his property. (b) that th .....

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fect of delaying the execution of the certificate, the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Tax Recovery Officer. Whereas Sub-Rule(3) of Rule 73 deals with other contingencies and provides where appearance is not made in obedience to a notice issued and served under sub rule (1), the Tax Recovery Officer may issue a warrant for the arrest of the defaulter. Sub-Rule (4) mandates that every person arrested in pursuance of a warrant of arrest under [th .....

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showing cause why he should not be committed to the civil prison." Rule 75 which provides for interim custody stipulates that Pending the conclusion of the inquiry, the Tax Recovery Officer may, in this discretion, order the defaulter to be detained in the custody of such officer as the Tax Recovery Officer may thing fit or release him on his furnishing security to the satisfaction of the Tax Recovery Officer for his appearance when required. Rule 76 which authorizes the Tax Recovery Office .....

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m or of any other officer for a specified period not exceeding 15 days, or release him on his furnishing security to the satisfaction of the Tax Recovery Officer for his appearance at the expiration of the specified period if the arrears are not so satisfied. Rule 77 stipulates the period of detention in the civil prison. Clause (a) of Rule 77 stipulates a period of 6 months detention where the certificate is for a demand of an amount exceeding ₹ 250/-." 23. A perusal of aforesaid rel .....

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case, the petitioner was served with three notices of demand, two dated 11.07.2014 and the third dated 16.07.2014, directing to pay dues with interest aggregating to ₹ 1,64,81,411/-. The petitioner having failed to pay the dues was served with a notice dated 21.11.2014 and subsequent notice dated 10.12.2014, whereby the petitioner was informed that recovery proceedings were initiated against him. The petitioner was directed to appear in person before the Recovery Officer on 18.12.2014 and .....

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2.2014 and that in the course of the proceedings the petitioner was advised to make payment towards the dues and or submit a proposal for payment of dues. The impugned order further states that the defaulter i.e. the petitioner herein had failed to furnish any substantial proposal for payment of the dues, except stating that he was not responsible for any activities for which penalty has been levied. 26. The Recovery Officer has recorded that since the petitioner has not shown and substantial ca .....

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riod of six months or until the payment of dues with interest. 27. The petitioner had filed an application dated 23.12.2014 through his advocate to stay the order of arrest and to release the defaulter on the ground that he intended challenging the order imposing the penalty before the Security Appellate Tribunal. The said application was rejected vide order dated 29.12.2014 on the ground that the petitioner had failed to take steps to pay the amount despite issuance of notices of demand and tha .....

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of any obstructing the execution of the certificate, has dishonestly transferred, property or (ii) despite having means the defaulter, refuses or neglects to pay the dues. Rule 73(1) further mandates the Tax Recovery Officer to record in writing the reasons of his satisfaction. 29. In the instant case, the Tax Recovery Officer had not recorded his satisfaction with reasons in writing, as regards the existence of two situations, which are specified in Clause (a) of Rule 73(1). The Tax Recovery Of .....

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edless to state that having failed to record the reasons as regards existence of the situation in clause (a), the respondent cannot rectify the lacuna by stating the reasons in the reply. 30. It is also not the case of the Respondent Authority that the petitioner had failed to pay to dues despite having means to pay the arrears or some substantial part thereof. On the contrary, a bare perusal of the impugned order reveals that the petitioner was detained and arrested for non-payment of dues and .....

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. Bank of Cochin, AIR 1980 SC 470, the Apex Court while considering the provisions of Section 61 and Order 21 Rule 37 of CPC has held that : "the simple default to discharge is not enough. There must be some element of bad faith beyond mere indifference to pay, some deliberate or recusant disposition in the past or, alternatively, current means to pay the decree or a substantial part of it. The provision emphasises the need to establish not mere omission to pay but an attitude to refusal on .....

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clause (a) and (b) of Rule 73(1) were satisfied and had further not complied with the mandate of Rule 73(1) of recording the reasons of satisfaction in writing. The absence of satisfaction as well as recording of reasons vitiates the exercise of power of arrest. We are, therefore, of the considered view that the detention and arrest is patently illegal and arbitrary. 34. The records further reveals that the petitioner was not given reasonable opportunity as stipulated in Rule 74. The Tax Recover .....

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