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The provision contained in the Act being stringent in nature, the purport and intent thereof must be ascertained having regard to the purpose and object it seeks to achieve Ratio |
The right of a person notified to file an application or to raise a defence that he is not liable in terms of the provisions of the Act or 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-s Ratio |
2) of S. 4 of the Act Ratio |
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 Ratio |
In terms of the provisions of the Act, the Special Court had been conferred a very wide power Ratio |
RECEDENTS AS REGARD SCOPE OF THE ACT PRE |
Constitutionality and / or interpretation of the Act came up for consideration before this Court in Harshad Shantilal PRE |
Mehta 1998 PRE |
Indlaw SC 732 v. Custodian and Others [(1998) 5 SCC 1] wherein the following questions were framed: "What is meant by revenues, taxes, cesses and rates due PRE |
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 PRE |
Do the taxes [in cl PRE |
a) of S. 11(2)] refer only to taxes relating to a specific period or to all taxes due from the notified person PRE |
At what point of time should the taxes have become due PRE |
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 PRE |
Whether taxes include penalty or interest PRE |
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 u/s PRE |
In the alternative, is a notified person liable to payment of penalty or interest arising from his inability to pay taxes after his notification PRE |
As regard, Question No. 1, it was held: "In the present case, the words "taxes due" occur in a section dealing with distribution of property PRE |
At this stage the taxes "due" have to be actually paid out PRE |
Therefore, the phrase "taxes due" cannot refer merely to a liability created by the charging section to pay the tax under the relevant law PRE |
It must refer to an ascertained liability for payment of taxes quantified in accordance with law PRE |
In other words, taxes as assessed which are presently payable by the notified person are taxes which have to be taken into account under S. 11(2)(a) while distributing the property of the notified person PRE |
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 PRE |
In the context of S. 11(2), therefore, "the taxes due" refer to "taxes as finally assessed PRE |
In regard to Question No. 2, it was opined: "Every kind of tax liability of the notified person for any other period is not covered by S. 11(2)(a), although the liability may continue to be the liability of the notified person PRE |
Such tax liability may be discharged either under the directions of the Special Court under S. 11(2)(c), or the taxing authority may recover the same from any subsequently acquired property of a notified person (vide Tejkumar Balakrishna Ruia v. A.K. Menon 1996 Indlaw SC 2403) or in any other manner from the notified p... |
The priority, however, which is given under S. 11(2)(a) to such tax liability only covers such liability for the period 1-4-1991 to 6-6-1992 PRE |
In respect of the Question No. 3, it was opined that the date of distribution arrives when the Special Court completes the examination of claims under Section 9-A 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 liabi... |
11(1)(a PRE |
subject to what follows PRE |
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 ta... |
This is because the tax liability of a notified person having priority under S. 11(2)(a) is only tax liability pertaining to the "statutory period PRE |
Secondly payment in full may or may not be made by the Special Court depending upon various circumstances PRE |
The Special Court can, for this purpose, examine whether there is any fraud, collusion or miscarriage of justice in assessment proceedings PRE |
The assessee who is before the Special Court, is a person liable to be charged with an offence relating to transactions in securities PRE |
He may not, in these circumstances, explain transactions before the Income Tax authorities, in case his position is prejudicially affected in defending criminal charges PRE |
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 PRE |
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 PRE |
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 Custodian, or whether the taxes so assessed are grossly disproportionate to the properties of the assessee in the hands of the... |
The Special Court may in these cases, scale down the tax liability to be paid out of the funds in the hands of the Custodian PRE |
In regard to Question No. 5, this Court agreed with the finding of the Special Court that neither penalty nor interest can be considered as tax under S. 11(2)(a) of the Act PRE |
So far Question No. 6 is concerned, it was held that the remedy of a notified person who is assessed to penalty or interest, after the notified period, would be entitled to move the appropriate authority under the taxing statute stating: "If it is open to him under the relevant taxing statute to contend that he was una... |
The Special Court is required to consider this question only from the point of view of distributing any part of the surplus assets in the hands of the Custodian after the discharge of liabilities u/ss PRE |
11(2)(a) and 11(2)(b PRE |
The Special Court has full discretion under S. 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 PRE |
We must, however, notice that reliance was sought to be placed on the said judgment wherein reference was made to a Bombay High Court judgment in Hitesh Shantilal Mehta v. Union of India PRE |
1992) 3 Bom CR 716] 1992 Indlaw MUM 6066 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 a... |
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. v. Fairgrowth Financial Services Ltd. and Another [(2004) 11 SCC 456] 2004 Indlaw SC 715 holding: "(i PRE |
A notified party has the requisite locus to bring the fact to the notice of the Special Court that certain sum is owing and due to him from a third party whereupon a proceeding can be initiated for recovery thereof by the Custodian and consequent application thereof in discharge of the liability of the notified person ... |
ii) Sub-s PRE |
3) of S. 3 should be literally construed and so construed, all properties belonging to the notified person shall be subject to attachment which may, consequently, be applied for discharge of his liabilities in terms of S. 11 of the said Act PRE |
The provisions of the Limitation Act, 1963 have no application in relation to the proceedings under the said Act PRE |
The ratio of the said decision as regard applicability of the Limitation Act was further considered by a Division bench of this Court in Fairgrowth Investments Ltd PRE |
v. Custodian [(2004) 11 SCC 472] 2004 Indlaw SC 868 wherein it was held that S. 5 of the Limitation Act will have no application in relation to an application falling under Sub-s PRE |
2) of S. 4 of the Act stating: "It is enough for the purpose of this appeal to hold that S. 29(2) of the Limitation Act, 1963 does not apply to proceedings under S. 4(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 PRE |
Since the appellant's petition of objection had been filed much beyond the period prescribed under that section, the Special Court was right in rejecting the petition in limine PRE |
The appeal is accordingly dismissed but without any order as to costs PRE |
The Appellants herein are notified persons in terms of the provisions of the Act Ratio |
Therefore, all the properties belonging to them stand attached Ratio |
Such attachment being automatic, no finding was required to be arrived at that the same had been acquired either during the notified period or the Appellants were involved in offences in transactions in securities Ratio |
In Tejkumar Balakrishna Ruia v. A.K. Menon and Another [(1997) 9 SCC 123] 1996 Indlaw SC 2403, this Court held: "In our view, the terms of sub-s PRE |
3) of S. 3 are clear PRE |
By reason thereof, the property that belongs to a notified person stands attached simultaneously with the issue of the notification that makes him a notified party PRE |
The words "on and from the date of notification" indicate the point of time at which the attachment takes effect; this is reiterated by the words "shall stand attached simultaneously with the issue of the notification PRE |
This also indicates that no separate notification or order in regard to the attachment is necessary PRE |
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 PRE |
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-s PRE |
3) would have stated that such property would stand attached the moment it was acquired by the notified person PRE |
The Act would also have made provision for a subsistence allowance or the like for the notified person PRE |
It seems to us that to give to S. 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 PRE |
Even to say that such interpretation would reduce a notified person to beggary would not be accurate because the alms that he received, being his property, would stand attached PRE |
The apprehension expressed by the Special Court does not appear to be well founded: if what a notified person obtains by way of purported income or gift or inheritance is really his own money, such money would, upon establishment of the fact, stand attached automatically under the provisions of S. 3(3 PRE |
In any event, it is for Parliament to enact a law that meets all contingencies PRE |
The courts must interpret the law as it reads PRE |
While a purposive interpretation is permissible where two interpretations are possible, the purposive interpretation must be such as preserves the constitutionality of the provision PRE |
It has further been held that the property, be shares, dividends and bonus and rights shares, would also be attached property PRE |
ISSUES Ratio |
i)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 Ratio |
ii)Whether individual liabilities of the Appellants ought to have been separately considered by the Special Court as not a part of Harshad Mehta Group Ratio |
iii)Whether the tax liabilities could not have been held to be due as the order of assessments did not become final and binding Ratio |
iv)Whether the commercial properties could have been sold in auction Ratio |
v)Whether the residential properties should have been released from attachment Ratio |
Before adverting to the questions raised herein, we may notice that both the parties have raised several contentions before us which have not precisely been raised before the learned Special Judge Ratio |
Several subsequent events have also been brought to our notice Ratio |
The parties have also filed several charts before us showing individual assets and liabilities Ratio |
It has, as noticed hereinbefore, further been contended that various best judgment assessment passed by the Assessing Authority against some of the Appellants have been set aside in appeal and the matters are pending reassessment before the Assessing Authority Ratio |
The Appellants' case is that the individual and corporate Appellants other than Harshad Mehta, Ashwin Mehta and Sudhir Mehta filed applications, within the prescribed period, before the Special Court praying for their de-notifications FAC |
However, by an order dated 14.July.2000, the said applications were permitted to be withdrawn with a permission to re-file the same FAC |
It is not in dispute that the said applications are pending for consideration before the Special Court Ratio |
They have not been heard Ratio |
What would be the effect of the jurisdictional question as regard maintainability of the said application, being barred by limitation, would indisputably fall for consideration before the Special Court Ratio |
We, therefore, as at present advised, refrain ourselves from adverting to the said question Ratio |
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 Ratio |
It is no doubt true that the law of limitation bars a remedy but not a right Ratio |
See Bombay Dyeing & Manufacturing Co. Ltd. v. The State of Bombay and others, AIR 1958 SC 338, Savitra Khandu Beradi v. Nagar Agricultural Sale and Purchase Co-operative Society Ltd. Ahmednagar and others Ratio |
AIR 1957 Bom 178] 1957 Indlaw MUM 110 and Hari Raj Singh v. Sanchalak Panchayat Ratio |
Raj U.P. Govt Ratio |
Lucknow and others Ratio |
AIR 1968 All 246], 1967 Indlaw ALL 16 but as observed hereinbefore Ratio |
it would not be proper for us to consider as to whether such a remedy being not available, in terms of S. 4(2) of the Act can still be determined if raised by way of defence Ratio |
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