# "~ SUDHIR S. MEHTA & ORS v. CUSTODIAN & ANR - **Citation:** [2008] 8 S.C.R. 1099 - **Court:** Supreme Court of India - **Decided:** 2008-05-16 - **Case number:** Civil Appeal Nos. 5690-5697 of 2007 - **Bench:** S.B. Sinha, V.S.Sirpurkar - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sudhir-s-mehta-ors-v-custodian-anr-24686 - **Pages:** 49 ## Headnote •· Special Courts (Trial of Offences Relating to Transaction in Securities) Act, 1992 Sections 3, 9 and 11: Jurisdiction of Special Court - Shares and securities - c Scam case - Special Court directing the custodian for selling of share held by notified parties, appellants, as per advise of Disposal Committee by way of auction - Challenged on ground of non-division of shares in groups, not giving adequate time >- for making offer, not selling of shares at the Stock Exchange D • and the'sale was not ordered at .right time- Held: - In tt;rms of the directions of Special Court, it was certain that shares in question were not to be sold unless directions so given complied with by the custodian/Disposal Committee - Appellants, without even waiting for compliance of the direction by CustaE ' dian/Disposal Committee, preferred to file appeals before Su- - for making offer, not selling of shares at the Stock Exchange D • and the'sale was not ordered at .right time- Held: - In tt;rms of the directions of Special Court, it was certain that shares in question were not to be sold unless directions so given complied with by the custodian/Disposal Committee - Appellants, without even waiting for compliance of the direction by CustaE ' dian/Disposal Committee, preferred to file appeals before Su- ( Ashwin S. Mehta and Anr. vs. Custodian & Ors. (2006) 2 • sec 385 - referred to. E 3.2 When the provisions of the Act are seen in the light of conclusions drawn and more particularly, the first conclusion in Ashwin Mehta's Case by this Court, the properties of the notified persons like the appellants would stand automatically attached and any other income from F such attached properties would also stand attached. It is .... ? obvious that on the day when the said judgment was delivered, there were no applications pending consideration before the Special Court nor are any such applications pending today also. Hence, an objection to the sale, on that ground is rejected. (Para 36) [1139-F-H] G 4.1 For the decision of a case, whether any appellant is referred to as a group or not is not a relevant aspect. rThe very fact that such appellant is a notified person would be enough for the attachment of his/her property because H of the Section 3(2) of the Special Courts (Trial of Offences • SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1107 &ANR. Relating to Transaction in Securities Act. There would be A no necessity to consider the individual liability of any such appellant being a notified person. Unless any appellant is denotified, there would be no question of raising of these defences regarding individual liability. It is obvious, that the notification covers all the properties including the B shares and securities of the notified persons and, therefore, comes into the hands of the Custodian. There would, therefore, be no question of raising the issues that the individual liability of such a notified person should be arrived at first, since the claim of the notified persons that c their assets exceeds the liability, is also not correct. (Para - 37) [1140-A-D] 4.2 The Custodian argues before this Court and not without any reasons that the tables prepared by the Custodian shows that the liability of the notified persons does D exceed assets, This Court will not go into that aspect at this juncture. However, the fact remains that there would be no question of any individual liability being arrived at before the shares are sold. The judgment of the Special Judge for selling the shares having been confirmed by E this Court, whereby, the decision to sell the shares has been confirmed by the three Judge Bench of this Court concluding the issue. The same is binding. Therefore, it cannot be said at this juncture at least, that on that account, the sale of the shares should be postponed, till F such time, as the question of individual liability vis-a-vis Harshad Mehta is decided upon. (Para - 37) [1140-E-G] 5.1. In paragraph 41 of the of the judgment of Ashwin Mehta's case, it was stated that it was open to the appellants to show that even if they continued to be notified, G the Custodian was not right in clubbing all the individual members of the family as a single entity styled as Harshad Mehta Group. This Court does not find that there was any attempt on the part of the appellants to disassociate themselves from Harshad Mehta Group. In the light of the judgH 1108 SUPREME COURT REPORTS [2008] 8 S.C.R. A ment dated 17.8.2000 passed by the Special Court, it is .. obvious that the counsel arguing that matter had argii~d l" it on behalf ofthe Harsahd Mehta Group. It is for this ;;urpose that this Court has quoted in the argument before the Special Judge in extenso. It was obvious that at that B juncture, when the question was as to whether the shares should be sold or not, the move was objected to by the appellants formulating themselves as Harshad Mehta *- Group. No such objection to form and treat the relatives • as a group was raised before the Special Court in the year c 2000 when the question of sale of shares fell for consideration for the first time. At any rate, unless it is shown as to what prejudice would be caused by treating them to be a group, this contention has no basis. This Court, therefore, does not think that the argument in this behalf has D any basis. (Paras - 39 & 40) [1141-B-D,G,H; 1142-A] 5.2 The judgment in Ashwin Mehta's Case did not ''( concern the shares in the name of the appellants/ noti- " tied parties and the sale thereof which question was already decided finally by this Court while confirming the E judgment dated 17.8.2000 passed by the Special Court. (Para - 42) [1142-H; 1143-A] Ashwin S. Mehta and Anr. vs. Custodian & Ors. (2006) 2 sec 385 - relied on. 6.1 This Court cannot ignore the fact that in 2005 it- ,.. . F self, in pursuance of the judgment dated 17.8.2000 and the confirming judgment of this Court, the majority of the shares have already been sold. It is only in respect of the Reliance Shares that the present sale was contemplated. G It is really surprising that when the major shares were sold way back in 2005, the appellants did not think it proper either to challenge the same or to raise this argument of " 4 the individual liabilities vis.-a-vis. the group liabilities or the second argument that unless the denotification apH SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1109 &ANR. • ... plications were decided upon, there should be no sale of A shares. It is already pointed out the hollowness of the argument regarding the denotification applications, which were claimed to be pending before the Special Court, which claim is also baseless. Therefore, on both these counts, there would be no question of finding fault with B the impugned order of the Special Court. (Para-46) [1145- .JI G-H; 1146-A-B] • 6.2 No mala tides were ever alleged against the Disposal Committee. Under the circumstances, this Court does not find any reason to accept the argument that the c earlier sale caused huge loss and, therefore, the shares should not be sold. In the opinion of this Court, the Special Court was right in confirming the advice and accepting the report filed before him on behalf of the Custodian ..., justifying the sale of shares. However, all that exercise, D ~ this Court is afraid, would have to be repeated again, particularly, because more than six months have elapsed atter that decision and the sale has yet not taken place. The Special Court has referred back the matter and has passed the directions for obtaining the legal and expert E advice to deal with the taxes. This Court was told at the Bar that such exercise had already been completed. It would, therefore, be proper for the Disposal Committee , 1 to again decide as to whether the shares should be sold at all and when. That would depend upon the market conF ditions and so many other factors which are certain to be considered by the Disposal Committee. The Custodian has referred all the happenings during the pendency of this appeal and has relied on the report dated 27.11.2007. The question need not be gone into by this Court, since, G .. 1 it would be for the Disposal Committee to decide upon the proper time and the manner in which the sale is to be executed, and it would be for the Special Court to further decide on the matter. The appeals lack merits. The sale, as well as the decision to make the sale at a particular H 1110 SUPREME COURT REPORTS [2008] 8 S.C.R. A time, stand frustrated because of the lapse of time. The )"~ whole procedure for sale of shares will have to be repeated now, meaning thereby, that the Disposal Committee would have to take a fresh decision in the light of the directions given by the Special Court, which are the corB rect directions. That shall be done at the opportune time. If the appellants so feel, they would be at liberty to put their objections subject to what has already been said in \I:_ this judgment. (Paras - 47 & 48) [1146-H; 1147-A-G] • CIVIL APPEALLATE JURISDICTION : Civil Appeal No. c 5690-5697 of 2007 From the Judgment and Order dated 2/11/2007 of the Special Court (Trial of Offences relating to Transactions in Securities) at Bombay in Misc. Application Nos. 272, 273, 274, D 275, 276, 277, 278, and 279 of 2007 '( Mahesh Jethmalini, Kamini Jaiswal for the Appellants. ~ Arvind Kumar Tewari and Abhishek Tewari for the Respondents. E The Judgment of the Court was delivered by V.S. SIRPURKAR, J. 1. These appeals are by way of a challenge to the order dated 02~11.2007 passed by the Special Court of Bombay constituted under the Special Courts (Trial of f·· Offences Relating to Transactions in Securities) Act (hereinafr- .... F ter referred to as 'the Act'). By the impugned common order, Miscellaneous applications filed by Mr. Sudhir S. Mehta, Ms. Deepika A. Mehta, Mr. Ashwin B. Mehta, Gromore Research Assets Management Ltd., Ms. Jyoti S. Mehta and Mr. Hitesh S. Mehta, as also Ms. Pratima Mehta were disposed of by the G learned single Judge. In that order, the Special Court directed the Custodian under the Act to refer two questions for the opin- ~~ ion of Disposal Committee They were: (i) What would be the appropriate time to be given to H the bidders foJ submitting bids after publication of SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1111 & ANR. [V.S. SIRPURKAR, J.] the notice inviting bids? (ii) Whether it will be admissible to break up the shares 1nto appropriate groups and to give options to the bidders to bid either for whole lot or for a limited number of groups? The Custodian was further directed to take legal and professional opinion in relation to the liability to pay Capital Gains Tax. The learned Judge further directed that if the notified parties wanted to make any submission on the above questions, A B the same may be submitted to the Custodian within the period c of 4 days and such submissions would be transmitted by the Custodian to the Disposal Committee for its consideration, and after the opinion of the Disposal Committee is given, the Custodian shall take steps in accordance with the said opinion, as also in accordance with the legal and professional advice. The D learned Judge further directed that the Custodian would be free to approach the Court and seek appropriate orders. With these directions, the learned Judge disposed of the report of the Custodian, as also the applications made by the parties. All the applicants are the family members of late Sh. Harshad S. Mehta, E while respondent no. 1 herein, is the Custodian appointed under Section 3(1) of the Act. The respondent no. 2 is the Disposal Committee in all the appeals, which are filed under Section 10 of the Act. Each of the individual appellant is in close relation late Sh. Harshad S. Mehta and have filed 6 appeals, while Gromore Research Assets Management Ltd. have filed 2 F appeals. The questions are common and the learned counsel also apprised us treating all the questions involved, to be common. Hence, the appeals are being disposed of by this common Judgment. 2. All the common questions have arisen on account of the advertisements issued by the Custodian dated 28.10.2007 for the sale of the shares of Reliance Industries Ltd. As many as 24,26,376/- shares belonging to the individual appellants and G 1, 75, 316 shares belonging to Fairgrowth Financial Services H 1112 SUPREME COURT REPORTS [2008] 8 S.C.R. A Ltd. and 5,300/- shares belonging to Mr. N.K. Aggarwal were r _. covered by these advertisements. It was stated in the advertisements that these shares would be sold in bulk categories and the offers were to be submitted on or before 1.11.2007. • Accordingly, the offers were received by the Custodian and the ' "" B same were considered by the Disposal Committee, and the Custodian submitted his report for sale of the shares in favour of the Life Insurance Corporation of India (UC of India), as the il UC of India had offered the highest price at the rate of Rs.2, 701/ - per share. c 3. At this stage, the objections were raised by way of the Miscellaneous Applications before the Special Cou,rt at the instance of the appellants herein. The common grievances made in these objections cum applications were:- D (i) that the time given in the advertisements for making • offers was too short for the intended investors ~ ' considering the huge number of shares and the prevailing market price of the shares. (ii) that the shares could fetch more price if the Custodian E . had divided the shares into appropriate groups and given the option to the offerers to make offer for the whole lot or one or more groups. (iii) that in fact, this was not an appropriate time to sell " the shares considering the prevailing market r- ' F conditions. (iv) that if the shares were to be sold privately as was being done, the Capital gains tax would be required to be paid and, therefore, the shares should have G been sold at the stock exchange. ~ 4. The Special Court dealt with all the 4 objections. It firstly ;.. . noted its order dated 17.08.2000, whereby, a scheme was framed for the sale of the attached shares and a Committee of experts known as Disposal Committee was constituted and the H sale of shares was conducted under the supervision of that SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1113 & ANR. [V.S. SIRPURKAR, J.] " ... Committee. The learned Judge also took the stock of the arguA ments before him that before issuing advertisements inviting the offers, the Custodian had not consulted the said Disposal Committee regarding the appropriate time to be given for submitting the offers. The learned Judge also took the notice of the earlier order dated 23.8.2001 passed by this Court regarding B sale of shares, wherein, this Court had permitted even the pri- .>. vate parties to submit their offers for the purchase of shares • and, therefore, the learned Judge observed that the Custodian should have sought the opinion of the Disposal Committee. 5. Further, the learned Judge also observed that in the or- c der passed by this Court, it was expressed that there was no provision for breaking up the bulk shares into groups and for selling each group separately, so as to invite the best price. The learned Judge, therefore, held that the opinion of the Dis~ 'r posal Committee was bound to be sought on the question as to D • "whether if the option is given to the buyers to bid for one or _, more groups instead of putting the bids for entire bulk, it would fetch more price?". The learned Judge, further observed that it was not for the notified parties to decide as to what would be the appropriate time, nor could the Court go by the opinion of E the notified parties regarding the appropriate time for sale of the shares. The learned Judge, therefore, came to the conclusion that since, the Custodian had taken the opinion of the Dis_:: '* i posal Committee on this aspect and since the Disposal Committee had opined that it was the opportune time for selling the F shares, the objection raised regarding the opportune moment could not be accepted and that the opinion of the Disposal Committee on that behalf would be final. In short, the objection regarding the time of the sale was overruled. Lastly, as regards the tax liability, since the Custodian represented before the Court G #, ' ..., that the legal and professional advice regarding the tax liability would have to be obtained, the learned Judge permitted the Custodian to obtain such legal and professional advice. In this view, the learned Judge wanted to know from the UC of India, whether they were willing to keep their offer open till the opinion H 1114 SUPREME COURT REPORTS [2008] 8 S.C.R. A of the Disposal Committee was obtained. It was noted that the r" representative of the UC of India was not willing to keep their offer open. The learned Judge, therefore, decided not to accept the report of the Disposal Committee recommending the sale in favour of the UC of India and issued the directions which 8 we have already mentioned above. 6. It is, therefore, obvious that, firstly, there is no immediate possibility of the sale of the shares as was intended by the Custodian unless the directions given by the learned Judge are complied with. So also, since as many as 6 months have C elapsed, the whole situation regarding the market has drastically changed and, therefore, the Disposal Committee would again be required to decide afresh as to whether the Reliance Shares should be sold and/or when they should be sold. It is also an admitted position that the legal opinions regarding the D tax liability has also not been obtained by the Custodian and, therefore, the matters have not been crystallized ~rid are still in a fluid state. 7. However, by these appeals, the basic objection is being raised to the effect that the Custodian or the Special Court E have not examined nor given a finding with respect to the involvement of the appellants with late Sh. Harshad S. Mehta, nor has the Custodian examined the claim inter se between the entities within the so called group. In short, the appellants have challenged the very concept of the sale of shares. The further t- -.. F contention raised now is that the assets of the appellants were appreciating, therefore, it would not be advisable to effect the sale of the assets. The appellants suggested that in the past also, the Custodian had sold the shares, the value of which were appreciating and, therefore, loss of Rs.6,500 Crores was G caused to the appellants. The further objection raised in the appeal is that the Special Court is acting contrary to the directions ,. • issued by this Court, whereby, it was mandated that Special Court should arrive at a firm conclusion as regards the involvement of the individuals with late Sh. Harshad S. Mehta. The H appellants dubbed the impugned order as a step towards the SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1115 & ANR. [V.S. SIRPURKAR, J.] "-1 sale of assets of the appellants without any liabilities having A been established against the appellants. It is also said that if the assets of the appellants are more than the liabilities, there would absolutely be no reason or warrant for the sale of appredating assets of the appellants. The appellants have also raised the question mark against the so called illegal and exaggerB > ated demands of revenue and according to them, there are • adequate liquid balances, which can meet any eventuality of further liability. They further point out that though 2·1 months have elapsed after the order of this court in Ashwin S. Mehta and Anr. Vs. Custodian & Ors. reported in 2006 2 SCC page 385, c the Custodian had neither preferred their claim nor had examined the inter se liability between the so-called group of individuals (meaning his relatives who are the appellants). The appellants objected to the entire group being considered as 'r one legal entity. Lastly, the aforementioned judgment of this Court D • in Ashwin Mehta's Case and some observations therein are heavily relied upon. 8. As against this, the Custodian has justified the sale of the assets as has been decided by the Special Court on various grounds. Our attention has been invited by the Custodian E to the various provisions of the Act, as also the earlier orders passed by the Special Court and this Court including the last ~ 'f judgment in 2006 (cited supra). It is firmly suggested that there was no question of doing anything contrary to the judgments of this Court nor could it ever be said that the Custodian in any F manner failed to do anything that was expected of him. Further, the Custodian had asserted that the appellants are trying to wake up the dead issues and non-issues without there being any occasion for the same. ' .. ~ 9. Shri Jethmalani appearing for the appellants mainly G stressed on the judgment of this court in Ashwin's case. Heavy reliance was placed on paragraphs 36, 41, 42, 46, 47, 50, 51, 52 and 77 and it was expressed that all these directions were never complied with by the Special Court nor were the individual liabilities were ever considered as was directed by this Court H ' 1116 SUPREME COURT REPORTS [2008] 8 S.C.R. A in that judgment. 10. Some basic facts were brought before us. BASIC FACTS 11. After the huge scam broke out in respect of the shares 8 and securities, which was almost of oceanic proportion, the Central Government came out with the aforementioned Act. 12. Section 3 of the Act provides for the appointment and functions of the Custodian. The Custodian, on being satisfied c that any person is involved in any offence relating to the transactions of securities between the period 1.4.1991 and 6.6.1992,, can notify the name of such person in the Official Gazette. Section 3(3) provides that any property movable or immovable or both belonging to any person notified under Section 3(2) stands 0 attached simultaneously with the issue of the notification: and such attached properties would be dealt with by the Custodian '( in such a manner as the Special Court may direct. Under Section 4(1), the Custodian is empowered to cancel any contract or agreement entered into between two aforementioned dates E by the notified person. Section 4(2) provides for hearing as regards the correctness or otherwise of the notification under Section 3 notifying any person, on an application being made within 30 days of the issuance of notification. The Special Court is established under Section 5 and has exclusive jurisdiction conferred upon it under Section 7 for any prosecution pending c: • in any court and such prosecution stands transferred to the Special Court under that provision. The ·special Court is also conferred with the jurisdiction in respect to the civil matters, more particularly, specified in Section 9A. Section 11 is the crux of this Act, which reads as under:- ' G "11. Discharge of liabilities:-(1) Not with standing ~· ~ r anything contained in the Code and any other law for the time being in force, the Special Court may make such order as it may deem fit directing the custodia:1 H for the disposal of the property under attachment. (2) '" ' J. SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1117 & ANR. (V.S. SIRPURKAR, J.] The following liabilities shall be paid or discharged A 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-Section (2) of Section 3 to the Central 8 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; c (c) any other liability as may be specified by the Special Court from time to time." • 13. Accordingly, on 8.6.1992, a notification was issued notifying the appellants and some other entities and obviously 0 ras per the mandatory need of the provision on and from that date any property movable or immovable or both, belonging to the notified persons/entities simultaneously and automatically stood attached. This property, which stood attached belonging , i to the notified persons and entities, included vast number of E shares held by late Sh. Harshad S. Mehta, as also the other close relatives of late Sh. Harshad S. Mehta like the appellants, so also the other entities including the one which is before us today, i.e. the Fairgrowth Financial Services Ltd. The shares belonging to late Sh. Harshad Mehta, as also the appellants herein and the entities were of various companies. On F 20.02.1995, in Misc. Application No. 107 of 1993 and other similar Misc. Applications, the Special Court formulated certain questions. On the interpretation of Section ·11 of the Act, more particularly, in respect of the priorities created under that Section, the learned Judge presiding the Special Court directed G the Custodian to move to the Supreme Court and hence, the appeal being Civil Appeal No. 5525 of 1995 came to be filed by the Custodian before this Court. In the same appeal all the notified persons were joined as the parties and they also filed their say. Not only that, but the notified parties also filed Civil H 1118 SUPREME COURT REPORTS [2008] 8 S.C.R. A Applications before this Court which were clubbed together and all these Civil Applications were disposed of by an order dated ,.... ..... l! 11.03.1996 passed by this Court. By the said order, this Court directed a scheme to be drafted in respect of the sale of shares from time to time. The Custodian was directed to forward the B scheme to the Union of India for approval and on such approval being obtained, the said scheme was directed to be placed before this Court again. In compliance of the order dated ~ .. 11.03.1996, n~ scheme for the sale of attached shares was ~ proposed. Civil Appeal No. 5225 of 1995 was heard along with c the other allied appeils like Civil Appeal No. 5326 of 1995, I 5147, 5325, 6080 of'1~95, 12574of1996 and TC.