9911796707
TMI Blog1998 (5) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... o Transactions in Securities) Act, 1992, against a judgment and order of the Special Court judge dt. 20th Feb., 1995. The appeal is filed by the Custodian pursuant to directions contained in the impugned judgment itself. The other appeals have been filed by various notified persons under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as the "Special Court Act"), from the same judgment and order of the Special Court judge. A writ petition challenging the constitutional validity of s. 11 of the Special Court Act pending in the Delhi High Court has also been transferred to this Court for consideration along with these appeals, as common questions of law arise. All these appeals along with the transferred case have been heard together. We have also heard various interveners in these appeals. The Special Court has observed that it has been functioning since June, 1992. In respect of two notified parties, namely, the Harshad Mehta group and Fairgrowth Financial Services Ltd., the time is approaching for distribution of their assets under s. 11 of the Special Court Act, 1992. In view of the different possible interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffenders with a view to prevent diversion of such properties by the offenders". The Ordinance was replaced by the Act. Under s. 3 of the Special Court Act sub-ss. (1), (2), (3) and (4) are as follows : "3. Appointment and functions of Custodian.-(1) The Central Government may appoint one or more Custodians as it may deem fit for the purposes of this Act. (2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after the 1st April, 1991, and on and before the 6th June, 1992, notify the name of such person in the Official Gazette. (3) Notwithstanding anything contained in the Code and any other law for the time being in force, on and from the date of notification under sub-s. (2), any property, movable or immovable, or both, belonging to any person notified under that sub-s. shall stand attached simultaneously with the issue of the notification. (4) The property attached under sub-s. (3) shall be dealt with by the Custodian in such manner as the Special Court may direct . . ." The Custodian has, therefore, the power to notify the names of persons involved in any offence relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in respect of transactions during the statutory period of 1st April, 1991 to 6th June, 1992; and in relation to the properties attached, of a notified person. The entire operation of the said Act, therefore, revolves around the transactions in securities during this statutory period. Sec. 11 deals with discharge of liabilities and distribution of the property attached. It provides as follows : "11. Discharge of liabilities.-(1) Notwithstanding anything contained in the Code and any other for the time being in force, the Special Court may make such order as it may deem fit directing the Custodian for the disposal of the property under attachment. (2) The following liabilities shall be paid or discharged in full, as far as may be, in the order as under :- (a) all revenues, taxes, cesses and rates due from the persons notified by the Custodian under sub-s. (2) of s. 3 to the Central Government or any State Government or any local authority; (b) all amounts due from the person so notified by the Custodian to any bank or financial institution or mutual fund; and (c) any other liability as may be specified by the Special Court from time to time." This section obviously deals wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight, title and interest of the notified person in the attached property. If, therefore, any application is filed before the Special Court by a third party claiming the property so attached and/or for releasing the right, title and interest of a third party in the property from attachment, the Special Court will have to decide the application before proceeding under s. 11. It has also been submitted before us by one of the notified parties [Dhanraj Mills vs. Custodian] that properties belonging to notified persons which have no nexus with the transactions in securities of the notified person during the "statutory period", also cannot be attached under s. 3. Reliance is placed on the decision of the Bombay High Court in the case of Hitesh Shantilal Mehta vs. Union of India (1992) 3 Bom CR 716 (to which one of us was a party) in this connection. Our attention is drawn to the following passage in the High Court's judgment), "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a specific period or to all taxes due from the notified person ? (3) At what point of time should the taxes have become due ? (4) Does the Special Court have any discretion relating to the extent of payments to be made under s. 11(2)(a) from out of the attached funds/property? (5) Whether taxes include penalty or interest ? (6) Whether the Special Court has the power to absolve a notified person from payment of penalty or interest for a period subsequent to the date of his notification under s. 3. In the alternative, is a notified person liable to payment of penalty or interest arising from his inability to pay taxes after his notification? The Custodian has raised certain further questions. We propose to consider one such question which has a bearing on the questions which have been framed by the Special Court. The question is whether in the case of mortgaged/ pledged properties of the notified persons already mortgaged/pledged to the banks or financial institutions on the date of attachment, the words of s. 3(3) "any property movable or immovable, or both, belonging to any person notified" would refer only to the right, title or interest of the notified person in the mort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g determined in each case from the context". Jowitt's Dictionary of English Law, vol. I, 2nd Edn., p. 669, defines "due" as, "anything owing, that which one contracts to pay or perform to another . . . As applied to a sum of money, 'due' means either that it is owing or that it is payable; in other words, it may mean that the debt is payable at once or at a future time. It is a question of construction which of these two meanings the word 'due' has in a given case". Wharton's Law Lexicon, 14th Edn., at page 365, defines "due" as anything owing. It has the following comment, "It should be observed that a debt is said to be due the instant that it has existence as a debt; it may be payable at a future time". Our attention has been drawn to s. 530(1)(a) of the Companies Act where the language used is "taxes, cesses and rates due and payable" and s. 61(1)(a) of the Provincial Insolvency Act, 1920, which refers to all debts due to the Crown. In the State of Rajasthan vs. Ghasilal (1965) 16 STC 318 : (1965) 2 SCR 805, this Court considered the provisions of the Rajasthan ST Act, 1954. It observed that s. 3 which is the charging s. of the Rajasthan ST Act, read with s. 5, makes tax paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notified person are taxes which have to be taken into account under s. 11(2)(a) while distributing the property of the notified person. Taxes which are not legally assessed or assessments which have not become final and binding on the assessee, are not covered under s. 11(2)(a) because unless it is an ascertained and quantified liability, disbursement cannot be made. In the context of s. 11(2), therefore, "the taxes due" refer to "taxes as finally assessed". Question No. 2. Do these taxes relate to any particular period or do they cover all assessed taxes of the notified person ? The Special Court Act is quite clear in its intent. It seeks to cover all criminal and civil proceeding relating to transactions in securities of a notified person between 1st April, 1991, and 6th June, 1992. The Special Court is empowered to examine all civil claims and to try all offences pertaining to such transactions during the said period. Under s. 3(2) it is the property of such offenders which is attached by the Custodian and which is disbursed under the directions of the Special Court under s. 11(2). Clearly, therefore, as the Special Court is empowered to examine all transactions in securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability for the period 1st April, 1991 to 6th June, 1992. Question No. 3. At what point of time should this tax liability have become quantified by a legal assessment which is final and binding on the notified person concerned ? It is contended before us by some of the parties that only that liability which has become ascertained by final assessment on the date of the Act coming into force should be paid under s. 11(2)(a). Others contended that it should have been so ascertained on the date of the notification. The third contention is that it should have been so ascertained on the date of distribution. Since we have held that tax liability under s. 11(2)(a) refers only to such liability for the period 1st April, 1991 to 6th June, 1992, it would not be correct to hold that the liabilities arising during this period should also be finally assessed before 6th June, 1992 (the date of the Act), or the date of the notification. It must refer to the date of distribution. The date of distribution arrives when the Special Court completes the examination of claims under s. 9A. If on that date, any tax liability for the statutory period is legally assessed, and the assessment is final and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uia vs. A.K. Menon (1996) 87 Comp Cases 539, where the Court said that if two interpretations are possible, a purposive interpretation should be resorted to. The Court in that case held that the income or property obtained by a notified person after the date of the notification could not be attached under s. 3(3). The purposive interpretation in the present case is to be resorted to for the purpose of ensuring that amounts realised from the properties attached come back to the banks and financial institutions. Our attention was drawn to the provisions relating to examination of claims in insolvency or of a company in winding up. Debts have to be proved in insolvency before they can be considered for payment either in part or in full. Explaining the powers of the insolvency Court, this Court in State of Punjab vs. S. Rattan Singh (1964) AIR 1964 SC 1223 : (1964) 5 SCR 1098 said, "It is well-settled that the Insolvency Court can, both at the time of hearing the petition for adjudication of a person as an insolvent and subsequently at the stage of the proof of debts, reopen the transaction on the basis of which the creditor had secured the judgment of a Court against the debtor. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R.960. The Court held that in matters relating to assessment of income-tax, the machinery that can be brought into action is the one provided by the IT Act which is a complete code by itself. The jurisdiction of the civil Court is impliedly barred. When a company is under liquidation, the IT authorities can prove their claim against the company by the production of the assessment order made by them. A company under liquidation is still an assessee and subject to income-tax law; and if the liquidator feels aggrieved by the assessment he must pursue the same remedies as are open to any other assessee. In the case of S.V. Kondaskar, Official Liquidator vs. VS. M. Deshpande 1972 CTR (SC) 141 : (1972) 83 ITR 685 (SC) : TC 24R.928, this Court examined the question whether under the IT Act before commencing the assessment proceedings, leave was required to be taken by the income-tax authority of the company Court under s. 446 of the Companies Act, when the assessee-company was in winding up. This Court said that the IT Act is a complete code with respect to the assessment and reassessment of income-tax. The proceedings under the IT Act would not fall within the meaning of the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority under s. 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 assessment proceedings. The assessee who is before the Special Court, is a person liable to be charged with an offence relating to transactions in securities. He may not, in these circumstances, explain transactions before the IT authorities, in case his position is prejudicially affected in defending criminal charges. Then, on account of his property being attached, he may not be in a position to deposit the tax assessed or file appeals or further proceedings under the relevant tax law which he could have otherwise done. Where the assessment is based on proper material and pertains to the "statutory period", the Special Court may not reduce the tax claimed and pay it out in full. But if the assessment is a "best judgment : assessment, the Special Court may examine whether, for example, the income which is so assessed to tax bears comparison to the amounts attached by the Custod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Special Court has, in the impugned judgment, also dwelt at some length on the question whether it can absolve a notified person from imposition of penalty or interest after the date of the notification. Since the liabilities covered under s. 11(2)(a) are only liabilities arising during the period 1st April, 1991, to 6th June, 1992, and do not cover penalty and interest, this question does not really arise. In any case, interest or penalty for any action or default after the date of the notification, are not covered by the Act. However, we must reiterate that a taxing statute is a code in itself for imposition of tax, penalty or interest. The remedy of a notified person who is assessed to penalty or interest, after the notified period, would be to move the appropriate authority under the taxing statute in that connection. If it is open to him under the relevant taxing statute to contend that he was unable to pay his taxes on account of the attachment of all his properties under the Special Court Act, and that there is a valid reason why penalty or interest should not be imposed upon him after the date of notification, the concerned authorities under the taxing statute can take n ..... 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