# SMT. RASILA S. MEHTA v. CUSTODIAN, NARIMAN BHAVAN, MUMBAI

- **Citation:** [2011] 6 S.C.R. 234
- **Court:** Supreme Court of India
- **Decided:** 2011-05-06
- **Case number:** Civil Appeal No. 2924 of 2008
- **Bench:** P. Sathasivam, Dr. B.S. Chauhan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/smt-rasila-s-mehta-v-custodian-nariman-bhavan-mumbai-27818
- **Pages:** 67

## Headnote

Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992:
ss. 3(2) and 4(2) and 9-A - Notification of persons
involved in Securities Scam - Notification dated 4. 1. 2007
notifying two more family members of the entities initially
notified - HELD: When the earlier entities were notified,
0 complete details of their transactions were not known and the
appellants were not notified because their involvement and
diversion of funds to them was not clear - On the complaint
of Canbank Financial Services Ltd., the Custodian rightly
notified the appellants and the Special Court was justified in
E dismissing the petition of appellants for their de-notification
uls 4(2) - Securities Scam.
ss.3(2), 3(3), 3(4) and 9-A- Proceedings against persons
not involved in offences in transactions in securities -- HELD:
With the amendment carried out in the Act on 25.1.1994, by
F virtue of s. 9-A, civil jurisdiction has been conferred on Special
Court - The object of the Act is not merely to bring the
offender to book but also to recover the public funds - Even
if there is a nexus between third party, an offender and/or
property of the third party can also be notified - The word
G "involved" in s.3(2) has to be interpreted in such a manner as
to achieve the purpose of the Act - Interpretation of Statutes
- Purposive construction - Rule of construction, 'noscitur a
sociis' - Applicability of - Maxim 'ut res magis vafeat quam
pereat'
H
234
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
235
BHAVAN, MUMBAI
ss. 3(2), 3(3), 3(4), 9-A and 11 - Notified persons -
A
Attachment of properties -
HELD: From the date of
notification u/s 3(2} all movable/immovable properties whether
acquired by tainted fund of otherwise, belonging to notified
persons shall stand attached simultaneously with the issue
of the Notification and are available for distribution u/s 11.
s
ss. 3(2), 3(4) and 11- Notification uls 3(2) -Attachment
of property- Opportunity of hearing - HELD: s.3(2) does not
give any right of personal hearing to the person being notified,
as a pre-decisonal hearing would frustrate the entire purpose C
of the Act - Attachment of property is natural consequence
of notification and not sale of property - Power to order sale
of property lies with Special Court which is presided over by
a High Court Judge - Notified person can file a petition uls
4(2) within 30 days of the issuance of notification - This
amounts to post-decisional hearing satisfying the principles
D
of natural justice.
· ss. 3(2), 3(3), 3(4), 9-A and 11 - Notified persons -
Property attached - Claim for maintenance, repair charges,
interest and penalty for belated payment - HELD: The
E
attached properties continue to remain with the Custodian -
For their upkeep maintenance, repair etc., Custodian is liable
to pay to the Housing Societies, and as such his claim as
approved by the Special Court is sustained, except that he
is not permitted to collect interest and penalty charges on the
F
arrears of maintenance and repair charges.
·-
Special court (Trial of Offences relating to Transactions
in Securities) Rules, 1992:
·
r.2(b/ read with s.1.1(2) - !:Financial institution" -
G
Complaint by and claim of Canbank Financial Services Ltd.
(Canfina) - HELD: For the purp9se of the Special Cowt Act
and the Rules, C6nfina is a ';inancia/ institution' - /ts claim
/alls uis 11(2)(b) of the Act and complaint falls under r.2(b) -
H
236
SUPREME COURT REPORTS
[2011) 6 S.C.R.
A Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992 - s.11(2).
Interpretation of Statutes:
Purposive construction - Object and reasons of a statute
B - Significance of - HELD: It is incumbent on courts to strive
and interpret the statute as to protect and advance its object
and purpose and to keep the legislative policy in mind while
applying the provisions of the Act to the facts of the case -
When rule of purposive construction is gaining momentum,
C courts should be very reluctant to ignore the

## Text

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A
B
c
[2011] 6 S.C.R. 234
SMT. RASILA S. MEHTA
v.
CUSTODIAN, NARIMAN BHAVAN, MUMBAI
(Civil Appeal No. 2924 of 2008)
MAY 6, 2011
[P. SATHASIVAM AND DR. B.S. CHAUHAN, JJ.]
Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992:
ss. 3(2) and 4(2) and 9-A - Notification of persons
involved in Securities Scam - Notification dated 4. 1. 2007
notifying two more family members of the entities initially
notified - HELD: When the earlier entities were notified,
0 complete details of their transactions were not known and the
appellants were not notified because their involvement and
diversion of funds to them was not clear - On the complaint
of Canbank Financial Services Ltd., the Custodian rightly
notified the appellants and the Special Court was justified in
E dismissing the petition of appellants for their de-notification
uls 4(2) - Securities Scam.
ss.3(2), 3(3), 3(4) and 9-A- Proceedings against persons
not involved in offences in transactions in securities -- HELD:
With the amendment carried out in the Act on 25.1.1994, by
F virtue of s. 9-A, civil jurisdiction has been conferred on Special
Court - The object of the Act is not merely to bring the
offender to book but also to recover the public funds - Even
if there is a nexus between third party, an offender and/or
property of the third party can also be notified - The word
G "involved" in s.3(2) has to be interpreted in such a manner as
to achieve the purpose of the Act - Interpretation of Statutes
- Purposive construction - Rule of construction, 'noscitur a
sociis' - Applicability of - Maxim 'ut res magis vafeat quam
pereat'
H
234
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
235
BHAVAN, MUMBAI
ss. 3(2), 3(3), 3(4), 9-A and 11 - Notified persons -
A
Attachment of properties -
HELD: From the date of
notification u/s 3(2} all movable/immovable properties whether
acquired by tainted fund of otherwise, belonging to notified
persons shall stand attached simultaneously with the issue
of the Notification and are available for distribution u/s 11.
s
ss. 3(2), 3(4) and 11- Notification uls 3(2) -Attachment
of property- Opportunity of hearing - HELD: s.3(2) does not
give any right of personal hearing to the person being notified,
as a pre-decisonal hearing would frustrate the entire purpose C
of the Act - Attachment of property is natural consequence
of notification and not sale of property - Power to order sale
of property lies with Special Court which is presided over by
a High Court Judge - Notified person can file a petition uls
4(2) within 30 days of the issuance of notification - This
amounts to post-decisional hearing satisfying the principles
D
of natural justice.
· ss. 3(2), 3(3), 3(4), 9-A and 11 - Notified persons -
Property attached - Claim for maintenance, repair charges,
interest and penalty for belated payment - HELD: The
E
attached properties continue to remain with the Custodian -
For their upkeep maintenance, repair etc., Custodian is liable
to pay to the Housing Societies, and as such his claim as
approved by the Special Court is sustained, except that he
is not permitted to collect interest and penalty charges on the
F
arrears of maintenance and repair charges.
·-
Special court (Trial of Offences relating to Transactions
in Securities) Rules, 1992:
·
r.2(b/ read with s.1.1(2) - !:Financial institution" -
G
Complaint by and claim of Canbank Financial Services Ltd.
(Canfina) - HELD: For the purp9se of the Special Cowt Act
and the Rules, C6nfina is a ';inancia/ institution' - /ts claim
/alls uis 11(2)(b) of the Act and complaint falls under r.2(b) -
H
236
SUPREME COURT REPORTS
[2011) 6 S.C.R.
A Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992 - s.11(2).
Interpretation of Statutes:
Purposive construction - Object and reasons of a statute
B - Significance of - HELD: It is incumbent on courts to strive
and interpret the statute as to protect and advance its object
and purpose and to keep the legislative policy in mind while
applying the provisions of the Act to the facts of the case -
When rule of purposive construction is gaining momentum,
C courts should be very reluctant to ignore the legislative intent
when the language is tolerably plain what it seeks to achieve.
D
Harmonious construction - HELD: In the event of any
conflict, a har'!'onious construction should be given.
Words and Phrases:
Expression "involved in the offence" and "accused of the
offence" in the context of s.3(2) of Special Court (Trial of
Offences Relating to Transactions in Securities) Act, 1992 -
E Connotation of.
On 8.6.1992, the Custodian, under the provisions of
the Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992, notified late 'HSM'
F and 28 entities of 'HSM' group including his family
members, except the appellants in Civil Appeal Nos. 2924
and 2915 of 2008, namely, Smt. 'RSM', mother of 'HSM
and Smt. 'RM', the sister-in-law of 'HSM'. The appellants
were active investors and had built up a portfolio by
investment which appreciated in the value during the last
G three years. They owned flats at Madhuli Co-operative
Housing Society Ltd., which are merged and
amalgamated with other flats under the occupation of the
Joint family. The Bank account of shareholdings of these
appellants was held jointly wtiere the appellants were the
H
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
237
BHAVAN, MUMBAI
first holders and their family members were joint/second
A
holders. Due to the fact that joint/second holders were
notified entities, the assets of the appellants were treated
as attached on and from 8.6.1992 and the same were
managed by the Custodian for the last 15 years. On
21.7.2006 the Custodian preferred a common
B
miscellaneous Petition No. 20/2006 against the appellants
seeking relief of a declaration that the said appellants
were benamies and friends of late 'HSM' and other notified
entities, and, therefore, their assets should be utilized In
discharge of their liabilities. The appellants also filed M.A. c
No. 291 of 2006 on 11.9.1997, seeking relief of a
declaration that all the assets belonged to them and they
were the first holders and their bank accounts and fixed
deposits of the shareholdings may be declared as free
from attachment. On 4.1.2007, on the basis of the 0
complaint made by Canbank Financial Services Ltd.
(Canfina), the Custodian notified both the appellants u/s
3(2) of the 1992 Act, for which a public notice was
published in the newspaper on 6.1.2007. On 19.1.2007,
Smt. 'RSM', filed Miscellaneous Petition No. 1/2007 and
on 18.6.2007, Smt. 'RM' filed Miscellaneous Petition No.
E
2/2007 for de-notification u/s 4(2) of the Act. The Special
Court by its order dated 26.2.2008 dismissed both the
petitions. It also approved Report No. 19/2008 filed by the
Custodian in respect of outstanding dues towards flats
No. 32-A, 32-8, 33, 34A, 34-B, 44-A, 44-B and 4ii in Madhull
F
Co-operative Housing Society Ltd. belonging to 'HSM' as
well as other related notified entities of 'HSM' group and
Report No. 23/2009 of the Custodian on outstanding dues
towards flats No. 31 in Madhuli Co-operative Housing
Society Ltd. Aggrieved, Smt. 'RSM' filed Civil Appeal No. G
2294/2008 and Smt. 'RM' filed Clvil Appeal No. 2915/2008
against the final order dated 26.2.2008. Smt. 'RSM' also
filed Civil Appeal No. 4764 of 2010 challenging the order
dated 7.5.2010 passed by the Special Court approving
report No. 23/2009 of the Custodian. Smt. 'JSM' and six H
238
SUPREME COURT REPORTS
[2011) 6 S.C.R.
A other family members of 'HSM' filed Civil Appeal No. 3377/
2009 against the order of the Special Court approving of
Report No. 19/2008 filed by the Custodian.
B
Disposing of the appeals, the Court
HELD: 1.1. It is settled law that the objects and
reasons of an the Act are to be taken into consideration
in interpreting its provisions. It is incumbent on the court
to strive and interpret the statute as to protect and
advance its object and purpose. Any narrow or technical
C interpretation of the provisions would defeat the
legislative policy. The court must, therefore, keep the
legislative policy in mind while applying the provisions
of the Act to the facts of the case. [para 12] [256-C-D]
0
1.2. It is a cardinal principle of construction of statute
or the statutory rule that efforts should be made in
construing the different provisions, so that each
prov1s1on
may
have
effective
meaning
and
implementation and in the event of any conflict a
E harmonious construction should be given. [para 12] [256D-E]
1.3. The Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 provides for
stringent measures. It was enacted for dealing with an
F extraordinary situation in the sense that any person who
was involved in any offence relating to transaction of any
security could be notified, whereupon all his properties
stood attached. The provision contained in the Act being
stringent in nature, the purport and intent thereof must
G be ascertained having regard to the purpose and object
it seeks to achieve. [para 18] [261-D-F]
Harshad Shanti/al Mehta vs. Custodian and Ors. (1998)
3 SCR 389=(1998) 5 SCC 1; Hitesh S. Mehta vs. Union of
H India & Anr., 1992 (3) Bomb. C.R. 716; LS. Synthetics Ltd.
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
239
BHAVAN, MUMBAI
vs. Fairgrowth Financial Services Ltd. & Anr. 2004 (4) Suppl.
A
SCR 109 = (2004) 11 SCC 456; Jyoti Harshad Mehta & Ors.
Vs. Custodian & Ors. 2009 (12) SCR 1229 = (2009) 10 SCC
564; Ashwin S. Mehta vs. Custodian & Ors. 2006 (1) SCR 56
= (2006) 2 sec 385 - relied on
2. Provisions with· regard to Attachment:
2.1. Sub-s. (3) of s. 3 of the Special Court Act contains
B
a non-obstante clause providing that on and from the
date of notification under sub-s.(2), any property,
movable or immovable, or both, belonging to any person
C
notified under that sub-section shall stand attached
simultaneously with the issue of the notification and subs. (4) of s. 3 makes it clear that such attached property
shall be dealt with by the Custodian in such manner as
the Special Court may direct. There is nothing in the Act D
which suggests that only such properties which belong
to the notified party and which have been acquired by the
use of tainted funds alone can be attached for the
purposes of distribution u/s 11 of the Act. Attachment of
all the properties in terms of s. 3(3) of the Act is automatic.
E
The said section does not provide any qualification that
the properties which are liable to be attached should
relate to the illegal transactions in securities in respect
of which the Act was brought in force. [para 17 and 25]
[260-F-H; 267-A-C]
F
2.2. A reading of s. 11 of the Act further provides that
all the properties which stand attached to the Special
Court u/s. 3(3) are available for distribution u/s 11 of the
Act. There is again nothing which suggests that the
distribution must be restricted only to sale of such G
properties which have been acquired by use of tainted
funds. The statutory period is irrelevant for the
attachment of properties and sale of the same. All
properties which are attached would be liabfe to be sold
H
240
SUPREME COURT REPORTS
[2011] 6 S.C.R.
A for redemption of liabilities till the date of notification u/s
11 of the Act. [para 25) (266-H; 267-A-C]
3. Whether there are sufficient provisions for pre and post
decisional hearing thereby ensuring Rules of Natural
8 Justice?
3.1. Section 3(2) of the Special Court Act confers
power on Custodian to notify a person in the Official
Gazette on being satisfied on information received that
such person was involved in any offence relating to
C transactions in securities during the statutory period
1.4.1991 to 6.6.1992. Section 3(2) does not give any right
of personal hearing to the person being notified. In the
absence of any such right there is no pre-decisional
hearing The provisions of the Act do not provide for a
D pre-decisional hearing before notification but contain an
impeccable milieu for a fair and just post decisional
hearing. The fact that it does not provide for a predecisional hearing is not contrary to the rules of natural
justice because the decision of the Custodian to notify
E does not ipso facto take away any right of the person thus
notified nor does it impose any duty on him. Also a predecisional hearing would frustrate the entire purpose of
the Act. If there is time given to show cause why a person
should not be notified, that time could practically be
F utilized to further divert the funds, if any, so that It
becomes even more difficult to trace it. [para 30-31) [269F-G; 270-A-C; 271-F-G]
G
Swadeshi Cotton Mills v. Union of India, 1981 (2) SCR
533 = (1981) 1 sec 664 - relied on
3.2. Attachment of property is a natural consequence
of notification and not sale of the property. The power to
order a sale of the property lies only with the Special
Court u/s. 11 and at this instance where notified person
H can be adversely affected, sub-s. (2) of s. 4, provides for
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
241
BHAVAN, MUMBAI
a hearing as regards correctness or otherwise of the
A
notification notifying a person in this behalf, in the event
an appropriate application, therefor, is filed within 30
days of the issuance of such notification. The Special
Court is presided over by a sitting Judge of the High
Court. All material before the Custodian is placed before
B
the Special Court which independently analyses all the
material while deciding the application filed by the notified
party challenging the notification. This amounts to post
decisional hearing satisfying the principles of natural
justice. [para 18 and 31] [260-8-D; 271-D-F]
c
4. Notification of the appellants:
4.1. When 'HSM' and 28 members of his group
including his family members/entities were notified under
the Ordinance, the complete details of his transactions
D
were not known. At that time the appellants were not
notified because their involvement and diversion of funds
to them was not clear. The Reserve Bank of India
constituted the Janakiraman Committee to look into the
diversion of funds. Inasmuch as the scam relates to
E
accounts and money transactions by way of. transfer of
shares through nationalized banks and financial
institutions, various committees were appointed by the
Union of India which collected relevant materials and
unearthed the persons involved, therefore, the Custodian
F
and the Special Court are fully justified in relying on those
reports In order to ascertain the correctness or otherwise
of the transactions. [para 32 and 34] [272-B-D; 276-D-F]
Chi/dline India Foundation & Anr. Vs. Allan John Waters
& Ors., JT 2011(3) SC 750 - relied on
G
4.2. The accounts of the notified parties where
significant diversion of funds had taken place were not
completed due to non-cooperation of members of 'HSM'
Group. The important aspect is that the appellants have
H
242
SUPREME COURT REPORTS
[2011] 6 S.C.R.
A not explained the source of their income either to the
Custodian or to the Income Tax authorities. The
outstanding Income Tax from the appellants for the
assessment year 1991-92 is Rs.2,65,38,345; for the
assessment year 1992-93 it is Rs.11,55,28,951 and for the
B assessment year 1993-94, it is Rs.4,46,40,586. On a
complaint, filed by Canbank Financial Services Ltd.
(Canfina), the Custodian notified the appellants on
04.01.2007. The appellants filed petitions u/s.4 (2) of the
Act challenging the notification. The Special Court looked
c into all the materials including the Audit Report and came
to a conclusion that the appellants are only fronts of late
'HSM'. It further concluded that the appellants are only
housewives, having no independent source of income,
and were given loan by the brokerage firms for purchase
0 of shares. The Special Court, therefore, rightly held that
the money and assets were diverted to the appellants by
the brokerage firms who were notified parties. The order
of the Special Court does not suffer from any infirmity
and there was sufficient material before the Custodian to
E arrive at a satisfaction that monies had been diverted by
late 'HSM' to the appellants. [para 37,38,44 and 46] [278A-B; D-G; 286-C-D; 291-F-G; 292-8-C]
5. Whether the appellants being not involved in offences
in transactions in securities could have been proceeded
F against in terms of the provisions of the Act?
5.1. On 25.1.1994, an amendment was carried out in
the Act, wherein, s.9-A was inserted to confer civil
jurisdiction on the Special Court. The appellants were
G active investors and had built up a portfolio of
investments which has appreciated in value over the
years, more particularly, during the last three years. It
cannot be said that since the appellant have not been I
charged for any offence, they cannot be notified under
H the Act. The plea that the phrase "involved in the offence"
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
243
BHAVAN, MUMBAI
could only mean "accused of the offence" and since the
A
appellants are not charged with any offence they could
not be notified, cannot be accepted. In construing these
words which are used in association with each other, the
rule of construction noscitur a sociis may be applied. It
is a legitimate rule of construction to construe words in
B
an Act of Parliament with reference to words found in
immediate connection with them. The actual order of
these words in juxtaposition indicates that meaning of
one takes colour from the other. The rule is explained
differently: that meaning of doubtful words may be c
ascertained by reference to the meaning of words
associated with it. [para 5(e) and 47) [250-H; 251-A-B; 292D-G]
Ahmedabad Teachers' Association vs. Administrative
Officer, AIR 2004 SC 1426 - relied on.
D
5.3. In the instant case the nature of "offence", in
which the appellants are allegedly involved, is to be taken
into consideration. The Act does not create an offence for
which a particular person has to be charged or held
E
guilty. Thus the phrase "involved in the offence" would
not mean "accused of the offence". Also, the appellants
could have been reasonably suspected to have been
involved in the offence after consideration of the various
reports of the Janakiraman Committee, Joint F
Parliamentary Committee and the Inter Disciplinary Group
(IDG); and also the fact that 28 members of MIS 'HSM'
group including his family members/entities were notified
under the Special Act Ordinance itself. The said factual
matrix was sufficient for the satisfaction of the Custodian
G
to notify the appellants. [para 48) [292-G-H; 293-A-C]
5.4. The object of the Act is not merely to bring the
offender to book but also to recover what are ultimately
public funds. Even if there is a nexus between a third
party, an offender and/or property of the third party can
H
244
SUPREME COURT REPORTS
[2011) 6 S.C.R.
A also be notified. The word "involved" in s. 3(2) of the
Special Court Act has to be interpreted in such a manner
so as to achieve the purpose of the Act. (para 48) (293·
C-D]
Ashwin S. Mehta vs. Custodian & Ors., (2006) 2 SCC
8 386; and Jyoti H Mehta & Ors. vs. Custodian & Ors., (2009)
10 sec 564 - referred to.
5.5. In construing the statute of this nature the court
should not always adhere to a literal meaning but should
C construe the same, keeping in view the larger public
interest. For the said purpose, the court may also take
recourse to the basic rules of interpretation, namely, ut
res magis va/eat quam pereat to see that a machinery
must be so construed as to effectuate the liability
D imposed by the charging section and to make the
machinery workable. The statutes must be construed in
a manner which will suppress the mischief and advance
the object the legislature had in view. A narrow
construction which tends to stultify the law must not be
E taken. Contextual reading is a well-known proposition of
interpretation of statutes. The courts, when rule of
purposive construction is gaining momentum, should be
very reluctant to hold that Parliament has achieved
nothing by the language it used when it is tolerably plain
F what It seeks to achieve. [para 49] [293-H; 294-A-C, F]
6. Whether Canfina is a Financial Institution and whether '
the complaint filed by Canfina is invalid?
6.1. The complaint has been received from Canfina
G which is a 100% subsidiary of Canara Bank, a
nationalized bank. The term 'financial institution' has not :
been defined under the Act. It became necessary to
enact the Special Court Act because of the large scale
Irregularities which came to light as a result of the '
H investigations by the Reserve B~nk of India into the
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
245
BHAVAN, MUMBAI
affairs of various banks and financial institutions whose A
monies were siphoned out. It has come to light that there
were large scale siphoning out of monies from Canfina
also as held by the Special Court In its order dated
25.06.1997. [para 50) [294-G·H; 295-A·D]
6.2. The term "financial institution" for the purposes
of the Special Court Act should be interpreted in
accordance with the Statement of Objects and Reasons
B
of the Act. Thus, at the very inception of this Act are the
investigations by the Reserve Bank of India and these C
investigations were carried on by the Janakiraman
Committee. The Act was intended to be applied to the
workings of the banks and financial institutions (though
not covered by the strict definition of the term but involved
in the securities scam of 1992) into whose affairs the
Janakiraman Committee had investigated. Canfina, was
D
one such non-banking financial institution that
Janakiraman Committee had investigated and thus it was
meant to be covered under the Act. The sources of
information illustrated in r. 2 of the Special Court (Trial of
Offences Relating to Transactions in Securities) Rules,
E
1992 also indicates Canfina as a financial institution.
fhus, the claim of Canfina falls u/s 11(2)(b) of the Act and
their complaint falls under r. (2)(b). The power to deal with
the property ultimately lies with the Special Court. This
Court is entirely in agreement with the conclusion arrived
F
at by the Special Court. [para 51-55] [295-F-H; 296-A-C,
H; 297-A-D]
7. Claim for maintenance. repair charges. interest and
penalty for belated payment (CA Nos. 3377 of 2009 and G
4764 of 2010)
7 .1. The appellants in C.A.No. 3377 of 2009 were
notified under the Act. Upon enforcement of the Act, all
the properties of late 'HSM' and his family members,
h1cludlng the appellants apart from other corporate H
246
SUPREME COURT REPORTS
(2011] 6 S.C.R.
A entities stood attached by the Custodian. Consequently,
all eight residential properties/flats of the appellants,
namely, residential flat Nos. of 32A, 328, 33, 34A, 348,
44A, 448 and 45 in the Madhuli Cooperative Housing
Society Ltd. at Dr. Anne Besant Road, Worli, Mumbai
B continue to remain attached under the Act with the
Custodian. Their upkeep/repair is essential so that their
market value does not get depreciated. Further, all the
owners of the residential properties/flats, as the members
of the Housing Society, are liable to pay such amount as
c may be determined by the Society towards the upkeep,
maintenance and repairs of the flats as well as common
areas and amenities in the housing complex, and the
Cooperative Housing Societies are entitled to recover all
the arrears and charges from the members who have not
0 paid the society in time. The appellants have failed to pay
to the Madhuli Cooperative Housing Society Ltd. their
contfibution towards the maintenance charges, interest
thereon and the charges incurred towards the repair of
the attached property by the Housing Society. The total
dues demanded by said Housing Society by its letter
E dated 12.03.2009 relating to the eight attached properties
in question is Rs.1,87,97,011/-. In the same way, in Civil
Appeal No. 4764 of 2010, the appellant, namely, 'RSM' a
notified party who is the owner of the attached property
failed to pay to the Housing Society her contribution
F towards maintenance charges, interest thereon and also
the charges incurred by the Housing Society towards
repair of the attached property. The total dues demanded
by the Housing Society, by its letter dated 21.06.2010 qua
the attached property is Rs.21,06,230/-. The attached
G properties are to be properly maiatained and as per the
scheme, the repair and upkeep of the attached properties
are to be followed by the Custodian and on the orders
of the Special Court. [para 56-58, 60 and 61) [297-F; 298·
8-H; 299-A·B, F-H; 300-8)
H
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
247
BHAVAN, MUMBAI
7.2. It is also brought to the notice of the Court that A ·
during the course of hearing, either before the Special
Court or in this Court, certain amounts have been paid/
deposited by the appellants. Considering the fact that the
appellants are agitating the matter at the hands of the
Custodian, the Special Court and before this Court, the
B
appellants need not be burdened with interest and penal
charges for non-payment of maintenance and repair
charges to the society. Accordingly, while sustaining the
claim of the Custodian as approved by the Special Court,
it is clarified that the Custodian is not permitted to collect c
interest and penal_ty charges on the arrears of
maintenance and repair charges. The Custodian is free
to adjust the amounts deposited by the appellants on the
orders of this Court or the Special Court. The impugned
order in both the appeals is accordingly modified. [para
D
62) [300-C-F]
Case Law Reference:
(1998) 3 SCR 389
relied on
para 8
1992 (3) Bomb. C.R. 716
relied on
para 19
E
2004 (4 ) Suppl. SCR 109 relied on
para 20
2009 (12 ) SCR 1229
relied on
para 21
2006 (1 ) SCR 56
relied on
para 22
F
1981 ( 2) SCR 533
relied on
para 33
JT 2011 (3) SC 750
relied on
·para 34
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2924 of 2008.
G ·
From the Judgment & Order dated 26.2.2008 of the
Special Court (Trial of offences relating to transactions in
securities) at Bombay in Misc. Petition No. 2 of 2007.
H
248
SUPREME COURT REPORTS
[2011] 6 S.C.R.
A
WITH
C.A.Nos. 2915 of 2008, 3377of 2009 & 4764 of 2010.
K.K. Venugopal, l.H. Syed, Varinder Kumar Sharma,
Kamini Jaiswal, Sham Mohan, B. Vijayalakshmi Menon,
B Tushad Cooper, Sangeeta Mandal, Kayesh Begg, Taruna A.
Prasad (for Fox Mandal & Co.), Arvind Kumar Tewari,
Subramonium Prasad, S. Majumdar, Shyam Nanda for the
appearing parties.
c
The Judgment of the Court was deliverd by
P. SATHASIVAM, J.1. Civil Appeal No. 2924 of 2008 has
been filed by Smt. Rasila S. Mehta, mother of late Harshad S.
Mehta and Civil Appeal No. 2915 of 2008 has been filed by
Smt. Rina S. Mehta, sister-in-law of late Harshad S. Mehta
D against the final judgment and order dated 26.02.2008 passed
by the Special Court under the provisions of the Special Court
(Trial of Offences Relating to Transactions in Securities) Act,
1992 (hereinafter referred to as "the Act") at Bombay in Misc.
Petition Nos. 2 and 1 of 2007 respectively whereby the Special
E Court dismissed their petitions challenging the notification
dated 04.01.2007 issued by the Custodian exercising powers
under Section 3(2) of the Act notifying the appellants.
2. Civil Appeal No. 3377 of 2009 has been filed by Smt.
F Jyothi H. Mehta, widow of late Shri Harshad S. Mehta and six
others against the judgment and order dated 13.03.2009
passed by the Special Court in approving Report No. 19 of
2008 filed by the Custodian in respect of outstanding dues
towards Flat Nos. 32A, 328, 33, 34A, and 348 on the Third
G Floor and 44A, 448 and 45 on the Fourth Floor together with
terrace area on the Third Floor and eight car parking space in
Madhuli Cooperative Housing Society Limited, Worli belonging
to late Harshad S. Mehta as well as other related notified
entities of the Harshad Mehta Group.
H
3. Civil Appeal No. 4764 of 2010 has been filed by Smt.
RASILA S. MEHTA v. CUSTODIAN, NARIMAN .
249
BHAVAN, MUMBAI [P. SATHASIVAM, J.]
Rasila S. Mehta challenging the order dated 07 .05.201 O A
passed by the Special Court in approving Report No. 23 of
2009 of the Custodian on outstanding dues of Madhuli
Cooperative Housing Society Limited, Worli as on 31. 03. 2009 ·
towards Flat No. 31 on the Third Floor belonging to her being
a notified party.
·
B
4. Since all the parties in the above appeals are famiiy
members of late Harshad S. Mehta and the orders challenged
were of the Special Court, the same are being disposed of by
the following common judgment.
5. Brief Facts:
c
(a) Sometime in 1992, it was noticed that frauds and
irregularities involving colossal amounts of money were
committed by certain stock brokers and other persons as a:so o
by certain banks and financial institutions. The amounts involved
in the said frauds and/or irregularities were estimated to run
into several thousand crores. The Central Government,
therefore, formed an opinion that it was necessary to take
immediate steps to try offences relating to such transactions . E
in securities and for matters connected therewith or incidental
thereto. The President of India thereupon promulgated an
Ordinance on 6th June 1992 known as the Special Court (Trial
of Offences Relating to Transactions in Securities) Ordinance
1992 and the said Ordinance came into force on the same day.
The said Ordinance with certain modifications became the Act
F
when the assent of the President was given thereto on 18th
August 1992 and the said Act was deemed to have come into
force on 6th June 1992, namely, the date on which the said
Ordinance had been promulgated.
G
(b) On 6th June, 1992 the Central Government had also
framed certain rules under the provisions of Section 14 of the
said Ordinance known as the Special-Court (Trial of Offences
Relating to Transactions in Securities) Rules, 1992 (hereinafter
referred to as 'the Rules'). The said rules came into force on · H
250
SUPREME COURT REPORTS
[2011] 6 S.C.R.
A the 6th June 1992 and continue in force after the enactment of
the Act under section 15(2) of the Act and/or Section 24 of the
General Clauses Act, 1897.
(c) The object of the Act, as apparent from the provisions
8 thereof, is to ensure that offences relating to securities were
expeditiously tried and it, therefore, provides for the
establishment of a Special Court. The Act also provides that
an appeal lies from the judgment, sentence or order, not being
interlocutory order, of the said Special Court to the Supreme
C Court of India both on facts and on law. An important object of
the said Act is to ensure speedy recovery of the huge amounts
involved, to punish the guilty in such irregularities or fraud, to
restore confidence in and maintain the basic integrity and
credibility of the banks and financial institutions.
D
(d) On 13.05.1992, the Central Bureau of Investigation (in
short "the CBI") issued freeze orders under Section 102 of the
Code of Criminal Procedure (in short 'the Code) on all the bank
accounts of Smt. Rasila S. Mehta and Smt. Rina S. Mehta on
the ground that the appellants are recipients of monies diverted
E by M/s Harshad S. Mehta from banks and financial institutions.
This was a preventive measure taken by the CBI which powers
are normally invoked pending investigation to bring. within their
fold, any property which is the subject-matter of an offence.
Since then, all the charge-sheets came to tie filed by the CBI
F after thorough investigation and trial has been completed in
several cases. Based on the provisions of the Act, on
08.06.1992, the Custodian notified 29 entities except the
appellants (Smt. Rasila S. Mehta and Smt. Rina S. Mehta) in
the Mehta family comprising four brothers, the wives of three
G brothers, their three HUFs, a partnership firm, three brokerage
firms in the family and 15 corporate entities promoted by them.
These persons were notified on the basis of information/
complaint received from the Ministry of Finance in which the
Janakiraman Committee report was cited and relied upon.
H
(e) On 25.01.1994, an amendment was carried out in the
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
251
BHAVAN, MUMBAI [P. SATHASIVAM, J.]
Act, wherein, Section 9-A was inserted to confer civil jurisdiction
A
to the Special Court. Smt. Rasila S. Mehta and Smt. Rina S.
Mehta were active investors and had built up a portfolio of
investments which has appreciated in value over the years,
more particularly, during the last three years. They own one
each of the nine flats at Madhuli Cooperative Housing Society
B
Limited which are merged/amalgamated with other flats under
the occupation of the joint family. The bank accounts and
shareholdings of these appellants are held jointly where the
appellants are the first holders and their family members are
joint/second holders. Due to the fact that joint/second holders c
are notified entities, the assets of the appellants have been
treated as attached on and from 08.06.1992 and the same are
being managed by the Custodian for the last 15 years. On
21.07 .2006, the Custodian preferred a common Misc. petition
No. 20 of 2006 against Smt. Rasila S. Mehta and Smt. Rina
0
S. Mehta seeking relief of a declaration that the said appellants
are benamis and fronts of late Harshad S. Mehta and other
notified entities and, therefore, their assets should be utilized
. in discharge of their liabilities. The appellants also filed M.A.
No. 291/2006 on 11.09.2007 seeking relief of a declaration that
E
all the assets belonged to them and they were the first holders,
namely, bank accounts and fixed deposits and the
shareholdings may be declared as free from attachment.
(f) On 04.01.2007, the Custodian issued a notification
notifying both the appellants under Section 3(2) of the Act for
F
which a public notice was published in the newspapers on
06.01.2007.
(g) On 19.01.2007, Smt. Rina S. Mehta filed Misc. Petition
No. 1 of 2007 and on 18.06.2007, Smt. Rasila S. Mehta filed
G
Misc. Petition No. 2 of 2007 for the relief of de-notification under
Section 4(2) of the Act. It transpired that the appellants were
notified on the basis of the alleged complaint by Canbank
Financial Services Ltd. (in short "Canfina"). On considering the
materials, the Special Court, by impugned order dated
H
252
SUPREME COURT REPORTS
[2011) 6 S.C.R.
A 26.02.2008, dismissed the petitions filed by the appellants ·
Smt. Rasila S. Mehta and Smt. Rina S. Mehta.
(h) Inasmuch as the other two appeals relate to the order:-
passed on the report submitted by the Custodian, there is n<-
B need to traverse all the details as stated therein.
6. Heard Mr. LH. Syed, learned counsel for the appellants
Mr. Subramonium Prasad, learned counsel for the Custodian
Mr. K.K. Venugopal, learned senior counsel for intervenor,....
Standard Chartered Bank and Mr. Tushad Cooper, learnet
C counsel for intervenor/State Bank of India.
7. Mr. Syed, learned counsel for the appellants after taking•
us through the relevant provisions of the Act, Rules and the
materials available with the Custodian as well as the reasonings
0 of the Special Court raised the following contentions:
(i) The impugned notification is non-reasoned and nonspeaking. The validity of a statutory order must be judged by a
court of law by the reasons mentioned in the order itself and a
statutory order cannot be explained and supplemented by fresh
E reasons in the shape of affidavit or otherwise whereas in the
present case the Special Court accepted the same which is
contrary to settled law.
(ii) Delay of 15 years in passing the order of notification
F is unreasonable. The explanation offered for delay is also
unacceptable.
(iii) Material relied upon in passing the order of notification
i.e. Canfina's letter dated 28.12.2006 is not supported by an
G affidavit which could not have been relied upon as it is contrary
to proviso to Rule 2 of the Rules.
H
(iv) Reliance on the reports of Joint Parliamentary
Committee, Jankiraman Committee, IDG and Chartered
Accountants' by the Custodian is unacceptable.
RASILA S. MEHTA v. CUSTODIAN. NARIMAN
253
BHAVAN, MUMBAI [P. SATHASIVAM, J.]
(v) Pre-decisional hearing by the Custodian was required
A
., be given and in the case on hand such opportunity was not
•fforded.
(vi) No effective post-decisional hearing as the materials
-elied upon was not supplied in time.
8
(vii) The Special Court erroneously held the transaction ~o
->e benami in general on the basis of Chartered Accountants'
-eports without examining individual transactions.
(viii) The onus to establish the validity, correctness, legality, c
->ropriety of the notification order is on the Custodian but
-Yrongly shifted on the appellants.
(ix) Satisfaction of Custodian while passing an order of
1otification should be objective and based on materials as
0
>rovided in the Rules.
(x) The Special Court erroneously held that the meaning
::>f the phrase "involved an offence" has attained finality by this
8ourt, though the said question was left open. In any event, the
-case of the Custodian was that a sum of Rs. 50 crores was
E
::liverted by M/s Harshad S. Mehta to the appellants during the
1period 01.04.1990 to 06.06.1992. In such event, monies
ltransferred/diverted from the banks/financial institutions can only
lbe recovered from the appellants and nothing more.
F
(xi) The jurisdiction of the Special Court is limited to the
-statutory period only, i.e. 01.04.1991 to 06.06.1992.
(xii) No interest can be levied on the notified parties as per
the judgment of this Court in Harshad Shanti/al Mehta vs.
Custodian and Ors. (1998) 5 SCC 1.
G
8. On the other hand, Mr. Subramonium Prasad, learned
counsel for the Custodian heavily relying on the circumstances
for passing the Act, the statement of Objects and Reasons and
the releva!lt provisions submitted that:
H
254
SUPREME COURT REPORTS
[2011) 6 S.C.R.
A
(i) The impugned order of the Special Court is valid and
the appellants have not made out any case for interference by
this Court.
(ii) As per Section 4(2) of the Act, it is for the appellants
B to show to the Special Court that they are not involved in any
offence in securities between 01.04.1991 to 06.06.1992.
· (iii) A perusal of various reports like the Auditor's report,
Janakiraman Committee's report, report of Inter Disciplinary
Group (IDG), report of Vinod K. Aggarwal and Company
C coupled with materials placed and discussed, the impugned
decision of the Special Court cannot be faulted with.
(iv) From the materials placed, it is clear that the appellants
are nothing but front benamidars of Harshad S. Mehta and there
0 is no acceptable material to show that the appellants were
having sufficient funds in their hands due to the purchase and
sale of shares by placing acceptable materials such as
income-tax returns etc. Inasmuch as the Special Court is
manned by or presided over by a sitting Judge of High Court,
E sufficient safeguards are provided in the Act and, in any event,
the appellants have no way prejudiced.
(v) As per the provisions of the Act and interpreted by this
Court on various occasions, it is for the appellants to make out
a case before the Special Court that they are not involved in
F any offence or that they have no nexus.
9. Mr. K.K. Venugopal, learned senior counsel for
intervenor/Standard Chartered Bank and Mr. Tushad Cooper,
learned counsel for intervenor/State Bank of India assisted the
G Court by highlighting the object and salient features of the Act
as well as huge financial implications on the banks due to the
act of Harshad S. Mehta in the sale and purchase of shares.
They also highlighted that crores of public monies were lost due
to the conduct of Harshad S. Mehta and his family members
H which resulted in huge financial loss to the banks.
RASILA S. MEHTA v. CUSTODIAN, NARIMAN
255
BHAVAN, MUMBAI [P. SATHASIVAM, J.]
10. Before going into the rival submissions, it is necessary
A
to trace the history of enactment of the Act.