Bombay High Court
Jyoti Mehta And Ors vs Kishore Janani And Ors on 31 January, 2019
Dixit
IN THE SPECIAL COURT AT BOMBAY
( Constituted under the Special Court [Trial of Offences
Relating to Transactions in Securities] Act, 1992 )
(Presided Over By : Hon'ble Dr. Justice Shalini Phansalkar-Joshi )
SPECIAL CASE NO.1 OF 2017
1. Smt. Jyoti H. Mehta ]
R/of 32, Madhuli, Dr. Annie Besant Road, ]
Worli, Mumbai - 400 018. ]
2. Shri Ashwin S. Mehta ]
R/of 32, Madhuli, Dr. Annie Besant Road, ]
Worli, Mumbai - 400 018. ]
3. M/s. ZEST Holdings Pvt. Ltd., ]
A Corporate Entity promoted under ]
The Companies Act, 1956, ]
Having office at 32, Dr. Annie Besant Road,]
Worli, Mumbai - 400 018. ] .... Plaintiffs
Versus
1. Shri Kishore J. Janani ]
Room No.11, 2nd Floor, Ghanshyam Niwas, ]
Behind Telephone Exchange, ]
L.B.S. Marg, Ghatkopar (West), ]
Mumbai - 400 086. ]
2. M/s. Federal Bank ]
Regional Office, ]
A-4, Laxmi Towers, ]
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1st Floor, Bandra-Kurla Complex, ]
Bandra (East), Mumbai ]
3. Reserve Bank of India ]
Central Office, ]
Department of Banking Operations and ]
Development, Centre 1, ]
World Trade Centre, Cuffe Parade, ]
Colaba, Mumbai - 400 005. ]
4. The Custodian ]
Having Office at 221, Nariman Bhavan, ]
Nariman Point, Mumbai - 400 021. ]
5. Bombay Stock Exchange, ]
Having Office at Dalal Street, ]
Fort, Mumbai - 400 023. ] .... Defendants
ALONG WITH
NOTICE OF MOTION NO.1 OF 2018
IN
SPECIAL CASE NO.1 OF 2017
Kishore Janani .... Applicant
In the matter between
Smt. Jyoti H. Mehta and Ors. .... Plaintiffs
Versus
Shri Kishore J. Janani and Ors. .... Defendants
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Ms. Mamta Sadh, I/by Mr. Ashwin Mehta, for the Plaintiffs.
Mr. Surin Usgaonkar for Defendant No.1.
Mr. Vivek Sawant for Defendant No.2.
Mr. Dhaval Patil, a/w. Mr. Nirav Parmar, I/by M/s. K. Ashar & Co., for
Defendant No.3.
Mr. J. Chandran, I/by M/s. Leena Adhvaryu & Associates, for
Defendant No.4-Custodian.
Mr. Kingshuk Banerjee, a/w. Ms. Radhika Gupta, I/by M/s. Wadia
Ghandy & Co., for Defendant No.5.
CORAM : DR. SHALINI PHANSALKAR-JOSHI, J.
RESERVED ON : 11 TH JANUARY, 2019.
PRONOUNCED ON : 31 ST JANUARY, 2019.
JUDGMENT :
1. The Plaintiffs have filed this Suit for recovery of the amount of Rs.6 Crores, as receivable from Defendant No.1.
2. Brief facts of the 'Suit' can be stated as follows :-
Plaintiff No.1 is the wife and Plaintiff No.2 is the brother of late Harshad S. Mehta. Plaintiff No.3 is a Body Corporate, promoted under the Companies Act, 1956. All the three of them are
3 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: the 'Notified Parties', under Section 3(4) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, (hereinafter referred to as "the Special Act") , with effect from 8th June 1992.
3. The present Suit is filed by Plaintiff No.1 in her capacity as sole legal heir of 'Late Harshad S. Mehta', who has expired in judicial custody on 30th December 2001, for recovery of the amount due to late Harshad S. Mehta from Defendant No.1.
4. The case of the Plaintiffs is that, during the relevant period, the 'Proprietary Brokerage Firm' of Defendant No.1, in the name and style of "M/s. Kishore J. Janani", was undertaking various transactions for and on behalf of the Plaintiffs as 'clients' for consideration of brokerage. Defendant No.2 was the Banker of the Brokerage Firm of Defendant No.1 and has been maintaining the Bank Account of Defendant No.1.
5. Defendant No.3 is the 'Reserve Bank of India', the Apex Body and Regulatory Authority of all the Banks in the country, which is joined only as a formal party.
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6. Defendant No.4 is the 'Custodian', appointed under the provisions of the Special Court Act, with a duty to manage the attached assets of 'Notified Persons / Entities', as per the directions of this Court in terms of Section 3(4) of the said Act.
7. Defendant No.5 is 'Bombay Stock Exchange', of which Defendant No.1 was a 'Member'. As the substantial amount to the tune of Rs.6 Crores of Defendant No.1 is lying with Defendant No.5, on account of cancellation of his 'Membership Card', Defendant No.5 is joined in the Suit in the capacity as 'Garnishee' for crediting the said amount with the 'Custodian'.
8. It is the case of the Plaintiffs that, during the period that ended on 8th June 1992, they had undertaken various transactions for purchase and sale of shares through the Brokerage Firm of Defendant No.1 and the said transactions are duly reflected in their respective 'Books of Accounts', which had been submitted by them to the three Firms of the Chartered Accountants, appointed by this Court by an order dated 3rd February 1994 in Miscellaneous Application No.270 of 1993. As per the said 'Books of Accounts', as on 8th June 1992, M/s. Harshad S. Mehta had receivable from 5 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: Defendant No.1 a sum of Rs.3,54,70,750/-; whereas, M/s. Ashwin S. Mehta had receivable of Rs.1,44,71,885=30 and M/s. Zest Holdings Private Limited had receivable a sum of Rs.1,52,17,000/-. Thus, the total amount receivable, as per the 'Books of Accounts' of the Plaintiffs, for all the three Plaintiffs put together as on 8 th June 1992, amounted to Rs.6,51,59,635=30. It was so, because, just in the month of May, 1992, before the accounts of the Plaintiffs came to be frozen by the C.B.I., under Section 102 of Cr.P.C., the following large payments were effected to Defendant No.1 by Harshad S. Mehta and M/s. Zest Holdings Private Limited.
Date of Name of the Party Amount Paid Name of the
Payment Making Payment [ In Rs.] Bank
ANZ Grindlays
07.05.1992 Harshad S. Mehta 3,42,00,000/-
Bank
ANZ Grindlays
07.05.1992 Zest Holdings Pvt. Ltd. 1,50,00,000/-
Bank
11.05.1992 Harshad S. Mehta 1,08,00,000/- Bank of India
[Rupees Six
TOTAL 6,00,00,000/-
Crores only]
9. Thus, according to the Plaintiffs, a large sum of about Rs.6 Crores was paid by the Plaintiffs to Defendant No.1 in the 6 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: middle of May, 1992 and a few days before they were declared as 'Notified Parties' on 8th June 1992 and from which date, all their assets got attached in the hands of the 'Custodian' appointed under the Act.
10. The contention of the Plaintiffs is that, as their 'Books of Accounts' and supporting documents were seized by the 'Custodian', when they were declared as 'Notified Parties', they were under the bonafide belief that the 'Custodian' would be taking requisite steps for recovery of these large sums. On 10th September 1992, the 'Custodian' has also issued a 'Public Notice', inviting the public at large to disclose the fact of outstanding transactions and holding of attached assets of the 'Notified Entities'. However, recently only, Plaintiffs came to know that Defendant Nos.1 and 2 have failed to comply with the said 'Public Notice' issued by the 'Custodian' and the 'Custodian' has also failed to take further steps.
11. According to the Plaintiffs, earlier, due to numerous unforeseen developments, the business activities of all the Plaintiffs had come to a grinding-halt in May, 1992 and after they were declared as 'Notified Entities', their assets also got attached. Their 7 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: accounts and business records, including the computers of Harshad S. Mehta, were also seized by the C.B.I., which brought abrupt closure of their business. As a result, the Plaintiffs themselves also could not take any steps for recovery of those outstanding amounts.
12. In the year 2014 only, after a prolonged legal battle, Plaintiffs received their seized accounts and at that time, they realized that those outstanding amounts remained to be unpaid from Defendant No.1. Hence, Plaintiff No.2 called upon Defendant No.1 to furnish the copies of supporting facts and documents and make payment of the monies owed by his Brokerage Firm to the Plaintiffs. Upon this, Defendant No.1 informed that, his Brokerage Firm had credit balances in the Bank Account and somewhere in or about 9 th May 1992, utilizing these credits, he has purchased, through his Bank Account with Defendant No.2, two Pay Orders of an amount of Rs.1,50,00,000/- and Rs.2,57,00,000/- (Rs.4.07 Crores) in favour of M/s. MAZDA Industries and Leasing Limited (MILL) and delivered the same to the MILL. The MILL was a Company, in which Plaintiff Nos.1 and 2 and their family members and Corporate Entities were holding large shares. According to Defendant No.1, the said Pay Orders had been lost by MILL and they were not encashed during 8 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: the six months of their validity period. Defendant No.1 has, therefore, requested Defendant No.2 to give credit of the said amount to him or handover the said monies to the 'Custodian'. However, for the last several years, Defendant No.2 has deliberately not been parting with the said funds and also not giving credit of the same to Defendant No.1, nor disclosing or handing over the same to the 'Custodian' and in this manner, taking advantage of the situation prevailing with the Plaintiffs as well as Defendant No.1.
13. Plaintiffs, therefore, repeatedly followed-up with Defendant No.2 for recovery of this amount. However, as Defendant No.2 has not been co-operating and responding to the Plaintiffs or even to Defendant No.1, the Defendant No.1 indicated to Plaintiff No.2 that, if the Plaintiffs file a claim for recovery of the amount against Defendant No.2, then Defendant No.1 is willing to support the claim of the Plaintiffs. According to the Plaintiffs, they are entitled to pursue recovery of their money, wherever it is found to be lying. The Plaintiffs are, therefore, constrained to file this Suit for recovery of this amount of Rs.4.07 Crores from Defendant No.2, with whom the said amount is lying, along with the interest @ 18% p.a., 9 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: with quarterly rests from 9th May 1992, and the remaining amount from Defendant No.1, with simple interest @ 18% p.a.
14. It is the case of the Plaintiffs that, in the meantime, the Brokerage Firm of Defendant No.1 also came to be discontinued, as his 'Membership Interests' were sold-off by the Bombay Stock Exchange (BSE) due to his adverse financial position and so as to meet his obligations and hence, Defendant No.5 is holding substantial amount of Defendant No.1 in their custody. Hence, Plaintiffs have sought a further direction to Respondent No.5 not to part with any monies allegedly lying to the credit of Defendant No.1, as per the claim made by him on BSE, and to deposit the same with the 'Custodian', together with all accrued interest thereon against the claims of the Plaintiffs on Defendant No.1.
15. A specific case is put up by the Plaintiffs that, as it was the duty of the 'Custodian' to recover the assets of the 'Notified Parties' and as the 'Custodian' has not performed its duty, it is for this Court to recover the said assets. Plaintiffs are only bringing these facts to the notice of this Court, which is duty-bound to recover the assets and hence, there is no question of the law of limitation 10 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: being applicable to the present Suit. Otherwise also, it is submitted that, the Plaintiffs were faced with several difficulties, as stated in the plaint, and hence, if there is any delay on their part in bringing to the notice of this Court the said facts, the said delay being reasonably and sufficiently explained, is required to be condoned.
16. It may be stated that, initially, this proceeding was registered as 'Miscellaneous Application No.86 of 2014', it being a recovery claim, bringing to the notice of this Court that attached assets of the Plaintiffs are lying with Defendant Nos.1 and 2. As per the order passed by this Court, this proceeding was converted to the "Suit".
17. This Suit came to be resisted by Defendant No.1 vide his affidavit-in-reply, admitting the fact that the 'Proprietary Firm' of Defendant No.1 was entering into various transactions of sale and purchase of shares with the Plaintiffs as a 'Brokerage Firm'. It is specifically admitted that, Defendant No.1 was acting as a 'Broker' in all these transactions relating to Equity Shares for the Plaintiffs and some of their Group Companies and he used to take instructions usually from late Harshad S. Mehta. It is further admitted that the 11 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: said 'Brokerage Firm' was the 'Member' of Defendant No.5-BSE from January, 1990 and had transactions with the Plaintiffs and their connected Entities in regular course of business on the BSE till May 1992. It is also admitted that, Defendant No.2 was the 'Banker' of Defendant No.1 and maintaining the account of Defendant No.1, bearing Nos.OD/111 and 11167.
18. It is further admitted by Defendant No.1 that, Harshad Mehta & Group has transferred an amount of Rs.7,59,00,000/- in his account maintained with Defendant No.2 on 7th May 1992 by three Cheques / Pay Orders. However, according to him, the said amount was transferred for purchase of various Equity Shares and for the forward positions taken by his Group in the Valan (Settlement). It was submitted that, as the market position of Harshad Mehta & Group came in trouble in the last week of April, 1992, Harshad S. Mehta has transferred these amounts to his account and instructed him to square-off his trading positions and out of the balance amount, to purchase a Pay Order favouring M/s. MAZDA Industrial and Leasing Limited. Therefore, he has purchased the Pay Order of Rs.3,47,50,000/- in the name of MILL vide his Cheque No.270297 dated 9th May 1992 for Harshad Mehta Group as a 'Broker'. The 12 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: losses suffered by the Harshad Mehta Group in the said positions in Valan (Settlement Nos.3 and 4 of 1992-93) was given appropriate effects in the 'Ledger' of Plaintiff No.1-Jyoti Mehta and Plaintiff No.3- M/s. Zest Holdings Private Limited. These facts and transactions were confirmed by Harshad S. Mehta during accounts reconciliation and finalization. A letter confirming the transactions was also, accordingly, issued. After the reconciliation, it was found that the amount of Rs.10 lakhs was due from Harshad Mehta Group and the said amount was shown by Defendant No.1 in the 'Books of Accounts' as 'Bad Debts'. It was, accordingly, categorized as 'Bad Debts' by the Income Tax Department vide order of ITAT dated 23 rd March 2010. Defendant No.1 has explained these transactions in the following chart, contained in paragraph No.6 of his Written Statement, as under :-
Amount Sr. Amount Received From Accounted As Utilized No. [In Rs.] [In Rs.] Purchased "Pay Order" in the name of Mazda Late Shri Harshad 3,42,00,000/-
Industrial & S. Mehta Leasing Ltd. On
1. (ANZ Grindlays (Rupees Three 3,47,50,000/-
behalf of J.H. Bank) Crores Forty-Two Mehta (Due on 07/05/1992 Lakhs only) credit given to me in the Ledger by Mehta Group) 13 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: Amount Sr. Amount Received From Accounted As Utilized No. [In Rs.] [In Rs.] Utilized for funding 1,50,00,000/-
loss for the
Zest Holdings Pvt. Ltd. (Rupees One
2 positions in 1,50,00,000/-
(Applicant No.3) Crore Fifty
Valan No.3
Lakhs only)
1992-93
1,08,00,000/- Reconciled
Late Shri Harshad
(Rupees One completely with
3 S. Mehta 1,08,00,000/-
Crore Eight the Ledger of
(Bank of India)
Lakhs only) Harshad S. Mehta
60 Lakhs
towards pay-in
2,57,00,000/- 60,00,000/-
of Valan No.2
(Rupees Two 1992-93
4* Smt. J.H. Mehta Crores Fifty
Seven Lakhs 1.97 Crores
only) funding the losses
1,97,00,000/-
of Valan No.3
of 1992-93
TOTAL 8,57,00,000/- 8,77,00,000/-
*Amount not indicated by the Applicants in their application.
19. Thus, according to Defendant No.1, he had no payables to the Plaintiffs or its connected Entities. He has never admitted his liability for the said amount and as a matter of fact, as the accounts were already reconciled and finalized during the lifetime of Harshad S. Mehta, this false claim made at the belated stage cannot be entertained. It is his specific contention that the Pay Order of Rs.4 Crores, which was issued and delivered to M/s. MAZDA Industries and Leasing Limited, has not been encashed. He has, therefore, taken up this matter with Defendant No.2-the Federal Bank. The 14 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: litigation with Defendant No.2 is pending before the 'Debt Recovery Tribunal, Mumbai' and the Plaintiffs had nothing to do with it.
20. As regards the cancellation or discontinuation of his 'Membership Card' with Defendant No.5-BSE, it is submitted by him that, his 'Membership Interests' are sold by Defendant No.5-BSE and proceeds are still frozen with the Defendant No.5-BSE, in view of the interim order passed by this Court in Writ Petition No.220 of 1997.
21. In sum and substance, the contention of Defendant No.1 is that, he owes no liability to the Plaintiffs and hence, as against him, Suit is required to be dismissed.
22. Defendant No.2-the Federal Bank has resisted the Suit by denying its liability either to the Plaintiffs, Defendant No.1 or even to the 'Custodian'. It was also denied that, any assets or money belonging to the Plaintiffs is lying with Defendant No.2. Further it is denied that, the Pay Order of Rs.4.07 Crores was issued by Defendant No.1 in favour of MILL and it was not encashed but lost and liability for the payment thereof lies with Defendant No.2.
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23. It is submitted that, as the Pay Order was delivered by Defendant No.1 to MILL, Defendant No.2 can pay back the amount of the Pay Order only upon submission of original Pay order and only with the consent of the 'Payee' i.e. Defendant No.1. In the present case, it was submitted that, neither the original Pay Order was submitted for the purpose of cacellation, nor the consent of the MILL was produced. Hence, there was no question of Defendant No.2 paying the amount of Pay Order either to Defendant No.1 or to the Plaintiffs.
24. It is further submitted that, the second Pay Order for the amount of Rs.3.47 Crores was duly encashed by MILL and the Plaintiffs have, therefore, no claim over the said Pay Order. Thus, according to Defendant No.2, therefore, the Suit against this Defendant, being without merits, is liable to be dismissed.
25. Defendant No.3-the RBI has also resisted the Suit, explaining the circumstances in respect of the Pay Order of Rs.4.07 Crores. It was submitted that, by the letter dated 18th December 2014, Defendant No.2 has informed that, it has issued Pay Orders of Rs.2.57 Crores and Rs.1.50 Crores during May, 1992 favouring 16 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: MILL and those Pay Orders are encashed. However, during May, 1992, it had issued a Pay Order for Rs.4 Crores, debiting the account of Defendant No.1. The said Pay Order was not encashed within the due date. Subsequently, the Loan Account of Defendant No.1 with Defendant No.2 turned into 'Non Performing Assets' and hence, Defendant No.2 has initiated 'Recovery Proceedings' against Defendant No.1 before the 'Debt Recovery Tribunal, Mumbai', which is pending and since the matter is subjudice, Defendant No.2 has not parted with the said amount. Defendant No.2 has also informed to Defendant No.3 that, the beneficiary of the Pay Order, i.e. MILL, was not a 'Notified Party' under the Special Court Act and hence, there was no question of Defendant No.2 holding the amount due to the 'Notified Parties'. Defendant No.3 has, thus, submitted that, in the facts of the present case, Defendant No.3 is not at all concerned and hence no relief can be granted against Defendant No.3. Otherwise also, only to seek explanation from Defendant No.2 about the Pay Order of Rs.4 Crores, which is already given, Defendant No.3 being joined as a formal party, no relief can be granted against it.
26. Defendant No.4-the 'Custodian' has denied that, as the accounts of the Plaintiffs were seized or retained, the Plaintiffs could 17 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: not bring the facts of this Suit earlier to its notice. It is also denied that, there was any negligence on the part of the 'Custodian' in taking action for recovery of the assets of the 'Notified Entities'.
27. Defendant No.5-the Bombay Stock Exchange has submitted that, on account of the auction of Defendant No.1's 'Membership Interests', the amount of Rs.6,67,80,455=25 is lying with Defendant No.5 in relation to Defendant No.1, which consists of surplus amount arising out of auction of Defendant No.1's 'Membership Right', after due appropriation of all dues and liabilities of Defendant No.1 under the Rules, By-Laws and Regulations. It is submitted that, as per the legal position confirmed by the Hon'ble Apex Court in the case of Bombay Stock Exchange Vs. V.S. Kandalgaonkar, (2015) 2 SCC 1, this surplus amount cannot be attached by third-party in garnishee proceedings or in other legal proceedings of similar nature and is required to be released to Defendant No.1. Accordingly, the letter was sent to Defendant No.1 on 4th April 2016; but, shortly thereafter, on 11 th April, 2016, Defendant No.5 had received a notice from the Income Tax Department, purportedly issued under Section 226(3) of the Income Tax Department, seeking attachment of surplus sale proceeds lying 18 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: in the account of Defendant No.5. The said letter was forwarded by Defendant No.5 to Defendant No.1. Defendant No.1 has, by his letter dated 26th April 2016, not disputed the claim made by the Income Tax Department and requested for release of the said amount. Hence, the said amount is remitted to Income Tax Department. However, as regards rest of the amount, it is submitted that, in view of the order of status-quo passed by this Court in Writ Petition No.220 of 1997, the said amount is yet not released to any of the parties. It is submitted that, Defendant No.5 is ready to abide by any order, to be passed by this Court in respect of the disbursement of this amount.
28. On these respective pleadings, the parties have submitted the 'Draft Issues' and in the light thereof, this Court has finalized following issues for its consideration at 'Exhibit-8' and I record my findings thereon for the reasons stated below :-
Sr. Issues Findings No. 1 Do Plaintiffs prove that money is receivable Yes from Defendant No.1?
1A If yes, at what rate of interest ? 18% p.a. 19 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: Sr. Issues Findings No. 2 Whether the Plaintiffs prove that they are entitled to seek any relief against surplus amounts lying with Defendant No.5, out of Yes sale proceeds of the Membership Card of Defendant No.1?
3 Whether Defendant No.1 has discharged his onus and obligation to disclose the fact of possession of attached assets belonging to No the Plaintiffs in terms of Section 3(3) and Section 13 of TORTS Act, 1992 ?
4 Whether the Bombay Stock Exchange is
liable to make good the amount of
Rs.49,45,584/- defrayed by it to Income No
Tax Department to meet their claim on
Defendant No.1?
5 Whether the Suit is barred by limitation ? No
6 What Order and Decree ? As per
Final Order
REASONS
29. In support of their respective contentions, Plaintiff No.2 and Defendant No.1 alone have examined themselves and have produced voluminous documentary evidence on record. The learned 20 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: counsels for all the parties have advanced their submissions orally and in writing.
Issue Nos.1 and 3
30. In the facts of the present case, the relationship between the Plaintiffs and Defendant No.1 is not disputed. It is admitted by Defendant No.1 that, his Firm was acting as a 'Brokerage Firm' for the Plaintiffs and there were financial relations between them for the purpose of the business.
31. As per paragraph No.11 of the plaint, according to Plaintiffs, by three Account Payee Cheques; two cheques drawn on M/s. ANZ Grindlays Bank and one cheque drawn on Bank of India, the amount of Rs.3,42,00,000/-, Rs.1,50,00,000/- and Rs.1,08,00,000/-, totally amounting to Rs.6,00,00,000/-, was paid by the husband of Plaintiff No.1, i.e. Late Harshad S. Mehta, on 7 th May 1992 and 11th May 1992, respectively. Defendant No.1 has not disputed the receipt of this amount. Moreover, as rightly submitted by learned counsel for the Plaintiffs, as the amount was paid through the Bank, otherwise also, Defendant No.1 could not deny 21 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:37 ::: receipt of the said amount. As a matter of fact, Defendant No.1 has also not disputed that the amount of Rs.6 Crores, as stated in paragraph No.11 of the plaint, was given to him by Harshad S. Mehta. Not only in his Written Statement, but in his evidence before the Court also, he has admitted receipt of the said amount. According to him, he has received some additional amount of Rs.2,57,00,000/-, the details of which he has given in paragraph No.6 of his Written Statement, as follows :-
"(6) In reply to paragraph No.11, I say that the contents are misleading and therefore, denied. The contention that I owed Rs.6 Crores to the Applicants at the time their account was frozen u/s. 102 of Cr.P.C. is baseless and false and therefore denied. It is true that, large sums of money on the dates stated therein i.e. on 7th and 11th May 1992 were received by me from Late Shri Harshad S. Mehta Group. However, as explained and elucidated in paragraph IV(4) above these amounts were transferred for a specific purposes and were utilized by me for those purposes leaving no surplus in my hand. I further submit that, in effect, not only Rs.6 Crores, but about amount in excess of Rs.8 Crores were transferred to my Bank Account
22 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: at Federal Bank Ltd. (Respondent No.2) and to my account in Bank of India (Stock Exchange Branch) from Late Shri Harshad S. Mehta Group and amount therein has been accounted for in the account reconciliation exercise undertaken by me with Late Shri Harshad S. Mehta.
Accounting of these amounts (in tabular form) is given below :-
Amount Sr. Amount Accounted Received From Utilized No. [In Rs.] As [In Rs.] Purchased "Pay Order" in the name of 3,42,00,000/- Mazda Late Shri Harshad Industrial & S. Mehta (Rupees Three Leasing Ltd.
1 (ANZ Grindlays 3,47,50,000/-
Crores Forty- On behalf of Bank) Two Lakhs J.H. Mehta on 07/05/1992 only) (Due credit given to me in the Ledger by Mehta Group) Utilized for 1,50,00,000/-
funding loss Zest Holdings Pvt.
for the 2 Ltd. (Applicant (Rupees One 1,50,00,000/-
positions in
No.3) Crore Fifty
Valan No.3
Lakhs only)
1992-93
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Amount
Sr. Amount Accounted
Received From Utilized
No. [In Rs.] As
[In Rs.]
Reconciled
1,08,00,000/- completely
Late Shri Harshad
(Rupees One with the
3 S. Mehta (Bank of 1,08,00,000/-
Crore Eight Ledger of
India)
Lakhs only) Harshad S.
Mehta
60 Lakhs
towards pay-
in of Valan 60,00,000/-
2,57,00,000/- No.2
(Rupees Two 1992-93
4* Smt. J.H. Mehta Crores Fifty
Seven Lakhs 1.97 Crores
only) funding the
losses of 1,97,00,000/-
Valan No.3 of
1992-93
TOTAL 8,57,00,000/- 8,77,00,000/-
*Amount not indicated by the Applicants in their application. I, therefore, deny the contents of this paragraph and reiterate that, I owed no money to Harshad Mehta Group as and upto 8th June 1992 or thereafter."
32. Therefore, once Defendant No.1 accepts receipt of this amount from late Harshad Mehta and M/s. Zest Holdings Private Limited, who had advanced this amount, as, admittedly, they were 'Notified Parties' and this amount was advanced before they were declared as 'Notified Parties' on 8th June 1992, the amount becomes 24 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: as an asset of the 'Notified Parties', lying in the hands of Defendant No.1. The onus is, therefore, shifted upon Defendant No.1 to show that this amount was received for specific purpose and it was utilized accordingly or was repaid, adjusted or defrayed, as per the instructions of the Plaintiffs.
33. According to Defendant No.1, this amount has been accounted for in reconciliation of accounts with Harshad S. Mehta and he has given the details thereof in paragraph No.6, as per the table referred above. According to him, Rs.1.50 Crores of M/s. Zest Holdings Private Limited were utilized towards funding the loss for positions in Valan No.3 in 1992-93. Rs.60 lakhs and Rs.1.97 Crores of Plaintiff No.1-Jyoti Mehta was utilized in Valan Nos.2 and 3; whereas, Rs.1.08 Crores were reconciled completely. As regards the amount of Rs.3.42 Crores, the Pay Order was issued by him to MILL, which was also encashed.
34. It may be stated that, Plaintiff No.2--Ashwin Mehta has, in his affidavit, admitted that, as regards his claim of Rs.1.50 Crores, he has received the same on reconciliation of the accounts and, therefore, he has given up his claim. Plaintiff No.2 has also admitted 25 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: that, out of the two Pay Orders, which were issued by Defendant No.1, one for the amount of Rs.3,47,50,000/- and another for Rs.4 Crores, the Pay Order of Rs.3,47,50,000/- was received by Smt. Jyoti Mehta.
35. Thus, the real dispute pertains to this amount of Rs.4 Crores, in respect of which the Pay Order was issued, and the amount of Rs.1.08 Crores received from Harshad Mehta and Rs.1,52,00,000/- received from M/s. Zest Holdings Private Limited. According to Defendant No.1, this amount was adjusted in the exercise of account reconciliation with Harshad S. Mehta towards the losses suffered by Harshad S. Mehta due to his bullish position. However, there is no evidence on record proving that, there was any such practice of the amount or money receivable or payable to one 'Entity' was being received or paid by another 'Entity' of Harshad Mehta Group. Plaintiff No.2 has, in his cross-examination, outrightly denied such practice. The alleged case put up by Defendant No.1 that this amount was adjusted in Valan Nos.2 and 3 of 1992-93 is not at all proved on record. Moreover, if the said amount, which was due to the account of Harshad S. Mehta, was adjusted by Defendant No.1 from the account of J.H. Mehta, then it follows that the said amount 26 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: will remain due towards the account of J.H. Mehta and Defendant No.1 will have to satisfy the said amount, as contended by the Plaintiffs, in the alternate.
36. Coming first to the Pay Order of Rs.4 Crores, which, according to Defendant No.1, he has issued for the purchase of the 'Rights Issue' of MILL, it is admitted position that the said Pay Order was issued from the account of Defendant No.1 with Defendant No.2- the Federal Bank and, admittedly, the said Pay Order has not been encashed. The benefits thereof are neither received by MILL, nor Defendant No.1. The letter issued by Defendant No.2-Federal Bank in response to the query made by RBI, goes to show that the amount of the said Pay Order is still lying with the Federal Bank.
37. As per the contention of Defendant No.1, this Pay Order was issued by him for the purchase of the 'Rights Issue' of MILL from his own amount towards investment. It is stated by him in paragraph No.13(d) of the Written Statement, that, it was purchased by him on 9th May 1992 as "the hedge against falling market" ; it was purchased out of his own funds and this Pay Order was delivered to MILL. However, subsequently, he was informed that, the said Pay 27 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: Order has not been encashed by the 'Payee'. It is his contention that, therefore, he has taken up the matter with Defendant No.2 and held negotiations and discussions on the matter and, ultimately, he had written a letter to the Board of Directors of the Federal Bank on 27 th May 2011.
38. In considered opinion of this Court, if according to Defendant No.1, the Pay Order was issued from his own funds, it becomes difficult to accept that for these last 20 years from 1992 till 2011, when the notice was issued for the first time to Defendant No.2, he will maintain silence and will never bother to make enquiry about the same. Moreover, though he states that this Pay Order of Rs.4 Crores was issued from his personal funds, this amount, as admitted by him, is not reflected in the 'Balance Sheet'. Further, the evidence on record clearly goes to prove that, before this amount of Rs.6 Crores was transferred by the Plaintiffs in the account of Defendant No.1, through the cheques, the amount lying in the account of Defendant No.1 was hardly Rs.17 lakhs. Hence, it follows that, he could issue these two Pay Orders of Rs.3.47 Crores and Rs.4 Crores only out of the funds received from late Harshad Mehta.
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39. Though Defendant No.1 has contended that this amount was given by Harshad S. Mehta to cover-up the losses, which he has incurred in the shares business on account of Harshad S. Mehta taking the bullish position; whereas, the market was falling and hence, Harshad S. Mehta has sustained the losses towards it, again there is no evidence on record to that effect at all. This case itself is unbelievable, as, during the said period, when Harshad Mehta Group of Entities were passing through the critical and difficult situation, it can hardly be accepted that they would invest this large amount towards the shares business. Secondly, the 'Contract Notes' of the alleged transactions are neither produced on record and the bills, which are produced on record, do not bear the acknowledgment of Harshad S. Mehta or of any one else from his Group Entities to show that these bills were received.
40. As submitted by learned counsel for Defendant No.1, it might not have been legally binding on him to preserve these 'Contract Notes', as per Rule 15 of the Securities Contracts (Regulation) Rules, 1957, beyond the period of 5 years, but then, in that case, Defendant No.1 should have the acknowledgment of receipt of the bills. In his 'Ledgers / Accounts', which are 29 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: contemporaneous documents, these bill numbers are not mentioned.
41. Moreover, if, according to him, the accounts were settled with Harshad S. Mehta in the year 1996, there is no explanation as to why Harshad S. Mehta has addressed the letter dated 7 th September 2001 to Defendant No.1, the copy of which is produced by him also and sent to 'Custodian', in which also Harshad S. Mehta has called upon Defendant No.1 to furnish copies of 'Statements of Accounts', containing details of the transactions, payments exchanged, contracts and bills. This letter is admittedly not replied by Defendant No.1 contending that accounts were already settled in 1996 itself. Hence, this letter dated 7th September 2001 establishes that the case of Defendant No.1 that he has settled the accounts with Harshad S. Mehta in 1996, is also not acceptable.
42. Though Defendant No.1 contends that he has sent reply to the said letter on 8th October 2001, there is no explanation why he did not clarify these facts to the 'Custodian', since the 'Custodian' had lodged a claim for recovery of the amount of Rs.1,52,000/- on behalf of M/s. Zest Holdings Private Limited.
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43. Admittedly, the alleged settling of accounts in 2001 was after the 'Public Notice' dated 10th September 1992 issued by the 'Custodian', calling upon the parties to disclose the facts of the transactions undertaken by them with 'Notified Parties'. Neither the 'Custodian', nor the three Firms of the Chartered Accountants appointed by this Court were informed about this settlement. In earlier two proceedings, bearing Miscellaneous Application No.267 of 1993 filed by Plaintiff No.2-Ashwin Mehta and Miscellaneous Application No.135 of 1994 filed by M/s. Infrastructure Leasing and Financial Services, to which Defendant No.1 was a party, he has not disclosed these facts.
44. It is a matter of record, as disclosed through affidavit-in- reply of Defendant No.1 that the 'Custodian' has, at the behest of the three Firms of the Chartered Accountants, written a letter dated 11 th September 2001 to Defendant No.1, calling upon him to pay a sum of Rs.1,52,17,000/-, together with interest @ 24% p.m. Defendant No.1 has not sent reply to this letter denying the said claim, which liability now he is denying after more than two decades. It was the duty of the 'Custodian' to place the matter before this Court, as stated in the letter, but the 'Custodian' has not done so. However, the 31 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: fact remains that, Defendant No.1 has not sent reply to the 'Custodian', but now he is producing the letter dated 8 th October 2001, in which he allegedly requested Harshad S. Mehta to inform the 'Custodian' about settlement of accounts. The authenticity of this letter is thus in question.
45. If, according to Defendant No.1, the purported positions of the Harshad S. Mehta and Plaintiffs were squared-up by 7 th May 1992, then there existed no position, which required any hedging. Moreover, if the money belonged to Defendant No.1, why he has purchased the Pay Order in the name of MILL? It is significant to note that, during subsequent period, he has allowed his Firm to be declared as a 'Defaulter', despite having such a huge amount to his credit.
46. If the Pay Order of Rs.3.47 Crores was drawn in the name of the MILL at the behest of M/s. J.H. Mehta, obviously, no credit can be given in the account of Harshad S. Mehta for this amount, which Defendant No.1 is doing in the present case. Defendant No.1 admits the receipt of sum of Rs.8.57 Crores, which includes the sum of Rs.2.57 Crores paid by M/s. J.H. Mehta on 7 th May 1992, for which 32 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: she has not filed the present claim and, therefore, this amount of Rs.2.57 Crores is not the subject matter of the claim. Most importantly, Defendant No.1 has admitted in his Written Statement that, his Firm was acting as 'Broker' of Harshad S. Mehta and Plaintiffs.
47. Moreover, it is pertinent to note that, on 11 th September 2011 itself, the 'Custodian' in his letter has called upon Defendant No.1 to explain the details of the payment of this amount, which was found receivable by M/s. Zest Holdings Private Limited. However, the said letter was not replied and no explanation was given that this amount was towards the losses sustained and it was arrived at after reconciliation of the accounts.
48. The cross-examination of Defendant No.1 in this respect is self-exposing the falsity of his stand. He has admitted that, he is not having any document to show that the 'Contract Notes' were actually delivered to the Plaintiffs. He has further admitted that, none of the bills produced in the Suit bear the acknowledgment of Harshad S. Mehta or his Office. It is admitted by him that, till the bills were not settled, the 'Contract Notes' used to be maintained in 33 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: their office. Here in the case, there is no evidence to show that the bills were settled. In view thereof, either the 'Contract Notes' should have been produced or the bills should have the acknowledgment. However, as admitted by him, none of the bill is having the acknowledgment of Harshad S. Mehta. They are also not mentioned in the 'Ledgers' produced at page Nos.963, 972 and 973. According to him, it was done to avoid the payment of taxes. On the advise of 'Tax Consultant', instead of referring to the bills, he has mentioned 'Amount Repaid'. Reliance in this respect is placed by learned counsel for Defendant No.1 on the 'Judgment' of the Hon'ble Apex Court in the case of Commissioner of Income Tax, Gujarat Vs. A. Raman, (1968) 1 SCR 10, holding that, 'avoidance of tax by whatever device available, may be permissible', but here the question is, 'why the bills are not produced and not having acknowledgment?'
49. There is also a question as to why these facts were not brought by him to the notice of the 'Custodian', when he has received the notice from the 'Custodian'. He has also not given reply to the letter dated 20th June 2001 sent by Sudhir Mehta to him. Thus, his entire case about the adjustment of this amount towards the alleged 34 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: losses sustained by Harshad Mehta and Group in the shares business, is put up just as an after-thought to avoid his liability. Hence, as regards the Pay Order of Rs.4 Crores, the evidence on record is clinching that the said amount belongs to Harshad S. Mehta and it was the money receivable by Plaintiffs from Defendant No.1. It is also pertinent to note that Defendant No.1 has nowhere pleaded in Written Statement that, at any time, he has acted on principal to principal basis with Harshad S. Mehta and his Group of Companies. In his Written Statement, he has categorically admitted that relationship was of a Broker. He has admitted in his cross- examination that, he was aware that if he had to act as a 'principal', it was necessary for him to obtain the prior permission of Bombay Stock Exchange. That permission is not produced in the case. Therefore, it is clear that this is a got up case put up by him to avoid his liability.
50. Even as regards the amount of Rs.1,08,00,000/-, Defendant No.1 has tried to explain the same by showing the amount of Rs.60,00,000/- as relating to third-party payment on his behalf. Neither the name of the third-party is mentioned, nor the details thereof are given even in the 'Audited Accounts'. He is unable to 35 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: state as to how payment was made by third-party to J.H. Mehta; whether by Pay Order, Demand Draft or by Cheque? Surprisingly, even after reconciliation of the accounts, he had not informed to Harshad S. Mehta by writing any letter that, after giving effect to the entries, the amount at the foot of the account should have been Rs.7,79,250/-. His contention that the amount of Rs.15 lakhs was reflected wrongly in the account of Plaintiff No.1-Jyoti Mehta is also unbelievable. What is most surprising to note is that, Valan No.3 of 'A' Group, produced at Page Nos.861 and 893, and Valan No.3 of 'B"
Group does not show that the bill numbers are mentioned therein. A vague entry is made as 'Amount Repaid'. It may have been done for the purpose of avoiding the payment of income tax and according to learned counsel for Defendant No.1, there is nothing wrong, if such entries are made to avoid the payment of income tax. However, the fact remains that, when those entries are challenged, it was necessary for Defendant No.1 to substantiate those entries by proving that this amount was actually incurred towards the bills.
51. Moreover, if the only amount lying in his account was Rs.17 lakhs, just before receipt of this large amount, there was no reason for the CBI also to freeze his account. The fact that he has
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52. Though much emphasis is laid by learned counsel for Plaintiff No.1 on the fact that the accounts of Defendant No.1 for the material time, which is Financial Year 1992-93, are 'Audited Accounts', that fact alone cannot wipe out the liability, if it is otherwise proved on record.
53. The point to be stressed is that, Defendant No.1 has failed to adduce any probable or reasonable explanation about the utilization or adjustment of this amount. Hence, so far as the amount of Rs.4 Crores, for which the Pay Order was issued by Defendant No.1 and which Pay Order is not yet encashed and the said amount being lying with Defendant No.2-the Federal Bank, it has to be held that the said amount being of the 'Notified Party' viz. late Harshad S. Mehta, that amount is required to be held as receivable to Plaintiff No.1, his wife Jyoti Mehta. The contention of Defendant No.2 that there is no privity of contract between Plaintiffs and Defendant No.2 and neither Defendant No.1, who has issued the Pay Order, nor MILL, in whose favour the Pay Order was issued, were 'Notified 37 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: Parties', may be true. But then, now once it is proved on record that the Pay Order was obtained by Defendant No.1 from the amount advanced by Harshad S. Mehta, who was a 'Notified Party, the amount of the Pay Order being the asset of 'Notified Party, it stands attached and, therefore, liable to be recovered by the 'Custodian'.
54. Reliance placed by learned counsel for Defendant No.2 on the 'Judgment' of Tukaram Bapuji Nikam Vs. The Belgaon Bank Ltd., AIR 1976 Bom. 185, is misplaced, as, in that case, the question raised for consideration was, 'whether the purchaser of a Demand Draft from a Bank, which has been made in favour of a third-party, has any right to stop payment of the Demand Draft and if so, at what stage can he do so?' About the contention of Defendant No.2 that it has got a lien on this amount, in view of the 'Decree' passed by the 'Debt Recovery Tribunal, Mumbai', the said lien could have been exercised, if the amount is proved to be that of Defendant No.1. Now if the amount is proved to be the asset of 'Notified Party - Harshad S. Mehta', it stands attached with effect from 8 th June 1992. Hence, the 'Custodian' alone can exercise the right over it. Whereas, the amount of Rs.1,08,00,000/- is receivable to Plaintiff No.1 and Rs.1,52,17,000/- is receivable to Plaintiff No.3 from Defendant No.1.
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55. Plaintiffs had claimed this amount of Rs.4 Crores, with interest @ 18% p.a. at quarterly rests, from Defendant No.2, as, according to Plaintiffs, this amount is used by Defendant No.2-the Federal Bank for commercial purposes and earned huge profits thereon. To substantiate this claim, the Plaintiffs have relied upon the 'Judgments' of the Hon'ble Apex Court in the case of Renusagar Power Co. Ltd. Vs. General Electric Co., along with connected matter, 1994 Supp. (1) SCC 644; Central Bank of India Vs. Ravindra and Ors., (2002) 1 SCC 367; and Indian Council for Enviro-Legal Action Vs. Union of India and Ors., (2011) 8 SCC 161 . It is submitted that, such claim of interest @ 18% p.a., with quarterly rest, is not only permitted, but must be awarded to balance the equities also. It is urged that, this amount of Rs.4 Crores, which is now proved to be that of the Plaintiffs, is retained by Defendant No.2-the Federal Bank, without disclosing the same, in spite of the 'Public Notice' issued by this Court, calling upon all the concerned to disclose the assets of the 'Notified Persons' or to approach the 'Custodian' or RBI, even in case of any doubt as to whether the assets in their hands belong to the 'Notified Persons'. It is submitted that, as the said 39 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: amount is circulated by Defendant No.2 in the market and has earned profits thereon, it is necessary to award interest @ 18% p.a. at quarterly rests. Such order alone will do the justice, as, for this period of more than 27 years, Defendant No.2 has used the said amount and, therefore, this is a fit case where the interest @ 18% p.a., at the quarterly rest, needs to be awarded as against Defendant No.2.
56. In my considered opinion, this submission on the face of it may appear to be persuasive, but then, on closer scrutiny, it cannot be accepted. As, admittedly, Defendant No.2 is a Bank, which has utilized this amount of Rs.4 Crores definitely, to earn the profits, instead of crediting the same to the account of Defendant No.1 or to the MILL; hence, Defendant No.2 is liable to pay interest @ 18% p.a. However, the claim of Plaintiffs for interest at quarterly rests cannot be granted. During all this period, neither MILL, nor Defendant No.1 has claimed this amount. Hence, as held in the 'Judgment' of Tukaram Bapuji Nikam (Supra), Defendant No.2 was not expected to go into the search of the rightful claimant of this amount. Moreover, neither MILL, nor Defendant No.1 was ever a 'Notified Party'. Hence, Defendant No.2 was not expected to have any doubt that this 40 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: amount can belong to the 'Notified Party'. Only in this proceeding and not at any time earlier, it is proved that the amount belonged to Harshad S. Mehta and, therefore, the asset of 'Notified Party'. It is pertinent to note that, in view of the proceedings before the 'Debt Recovery Tribunal, Mumbai', Defendant No.2 was also claiming lien over it. Hence, in my considered opinion, no case is made out for grant of interest at quarterly rest, as it would operate harsh and inequitable.
57. As regards the amount of Rs.1,08,00,000/- and Rs.1,52,17,000/- due from Defendant No.1, Plaintiffs are entitled to recover the same with interest @ 18% p.a.
58. In the instant case, therefore, it becomes the duty of the 'Custodian' to recover this amount from Defendant Nos.1 and 2, respectively.
Issue No.2
59. As to Defendant No.5-the BSE, it is joined in the light of the fact that Defendant No.5 is, admittedly, holding the substantial amount of Defendant No.1 to the extent of more than Rs.6 Crores as 41 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: surplus, after the sale of the 'Membership Card' of Defendant No.1 and after satisfying all outgoings, as per the Rules and Regulations. According to learned counsel for the Plaintiffs, in view of Rule 16 of the Bombay Stock Exchange Rules, By-Laws and Regulations, 1957, Plaintiffs are entitled to get this amount, as the liability therein is arising out of contract. Learned counsel for Defendant No.5 has submitted that, it would abide by any order passed by this Court and, therefore, it has to be directed that the 'Custodian' is entitled to recover the said amount from the assets of Defendant No.1, which are lying with Defendant No.5.
Issue No.4
60. The Plaintiffs have also made the claim on the amount of Rs.49,45,584/-, which is paid by Defendant No.5 towards the demand of the income tax dues made by the Income Tax Authorities. Much reliance is placed by learned counsel for the Plaintiffs on the 'Judgment' of the Hon'ble Supreme Court Court in the case of Bombay Stock Exchange Vs. V.S. Kandalgaonkar, (2015) 2 SCC 1 , to submit that, this deduction of the amount of Rs.49,45,584/- from the dues payable to Defendant No.1, was not legal and correct.
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61. In my considered opinion, as already this amount is deducted by Defendant No.5, in pursuance of the letter issued by the Income Tax Authorities dated 24th June 2016 and at that time, no status-quo order was passed by this Court and Defendant No.1 is not challenging the recovery of the said amount from the dues, the Plaintiffs cannot lay any claim over the said amount. Hence, issue No.4, framed to that effect, is answered in negative. Issue No.5
62. The last issue and which goes to the root of the matter is of the bar of limitation. According to learned counsel for Defendant No.1, as the claim is made in the year 2014 in respect of the amount, which is alleged to be paid in May, 1992, the claim is apparently barred by limitation and, therefore, on this very ground itself, it is liable to be dismissed. However, in this respect, the landmark decision of the Hon'ble Apex Court in the case of L.S. Synthetics Ltd. Vs. Fairgrowth Financial Services Limited and Anr., (2004) 11 SCC 456, clinches the issue. This very question of applicability of the provisions of the Limitation Act, 1963, to the proceedings for recovery of the assets of the 'Notified Entities' in the hands of the 43 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: third-party was raised for consideration in the said 'Judgment' and it was held that, "The jurisdiction of the Special Court is of wide amplitude. Sub-section (3) of the Act provides for non obstante clause in terms whereof any property movable or immovable belonging to the 'Notified Person' shall stand attached simultaneously with the issue of the notification. As the Special Court had the requisite jurisdiction to deal with the attached property, it is immaterial whether the factum of the statutory provisions is brought to its notice by the 'Notified Party' himself or by the 'Custodian'. The Court has the requisite jurisdiction; nay a duty to apply itself to the said question, once the matter is brought to its notice. Once a statutory attachment comes into force, although the properties in question unlike the provisions of some other Acts do not vest in the 'Custodian', but the same evidently remain under the control of the Special Court."
63. It was further held that, "The Act lays down a responsibility on the Special Court to recover these properties. Therefore, the proceedings before the Special Court is not a Suit for recovery of an amount, but they are extra-
44 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: ordinary in nature and the Special Court is duty- bound to pass appropriate orders in relation thereto. It is, therefore, idle to contend that, even in respect thereof, the provisions of the Limitation Act would apply."
64. In paragraph No.33 of the said 'Judgment', it was categorically held that, "The Limitation Act, 1963 is applicable only in relation to certain applications and not all applications, despite the fact that the words "other proceedings" were added in the long title of the Act in 1963. The provisions of the said Act are not applicable to the proceedings before the Bodies, other than Courts, such as a quasi-judicial tribunal or even an executive authority."
65. In this context, it was held that, "The proceedings before the Special Court being of extra-ordinary nature and not the civil proceedings or criminal proceedings, Limitation Act will have no application therefor."
66. In this 'Judgment' of the Hon'ble Apex Court, the view taken by this Court in the case of A.K. Menon, Custodian, Vs. Modern Chemical Corporation, (2002) 1 All MR 180 , was approved 45 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: and relied upon, wherein this Court was pleased to observe as under :-
"19. It is thus that the said Act lays down a responsibility on the Court to recover the properties. So far as monies are concerned, undoubtedly, the particular coin or particular currency note given to a Debtor would no longer be available. That, however, does not mean that the lender does not have any right to monies. What is payable is the loan i.e. the amount, which has been lent. The right which the Creditor has is not a 'right to recover' the money. The Creditor has the title/right in the money itself. An equivalent amount is recoverable by him and the title in any equivalent amount remains with the lender. Thus, the property, which a notified party would have is not the right to recover, but the 'title in the money itself', Thus, under Section 3(3), what would stand attached would be the title/right in the money itself. Of-course, what would be recoverable would be an equivalent of that money. Once the money stands attached, then no application is required to be made by any parties for recovery of that money. It is then the duty of the Court to recover the money. No
46 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: period of limitation can apply to any act to be done by a Court. Therefore, in all such applications, the only question which remains is, whether on the date of the notification, the right in the property existed? If the right in the property existed, then irrespective of the fact that the right to recover may be barred by limitation, there would be a statutory attachment of that property. Once there is a statutory attachment of that property, the Court is duty-bound to recover it for the purposes of distribution. There can be no period of limitation for acts, which a court is bound to perform. In this case, since the Court is compulsorily bound to recover the money, there can be no limitation to such recovery proceedings. To be remembered that, Section 3(3) as well as Section 13 provide that provisions of the said Act would prevail over any other law. This would include the Limitation Act."
67. In the light thereof, in paragraph No.37, it was held that, "Distribution of the assets of a 'Notified Person' may take a long time, but till all the claims filed before the Special Court are disposed off, the property of the 'Notified Person' stands attached. In other words, the 47 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: provisions of the Limitation Act would inter alia apply, only when a Suit is filed or a proceedings is initiated for recovery of an amount and not where a property is required to be applied towards the claims pending before the Tribunal for the purpose of discharge of the liabilities of the 'Notified Person' in terms of Section 11 of the said Act."
68. In paragraph Nos.38 and 39 of the said 'Judgment', it was categorically laid down as follows :-
"38. A Special Court, having regard to its nature and functions, may be a Court within the meaning of Section 3 of the Indian Evidence Act, 1872 or Section 3 of the Limitation Act, 1963, but having regard to its scope and object and in particular the fact that, it is a complete code in itself, in our opinion, the period of limitation provided in the Schedule appended to the Limitation Act, 1963, will have no application. For the applicability of Section 29(2) of the Limitation Act the following requirements must be satisfied by the Court invoking the said provision :
(1) There must be a provision for period of limitation under any special or local law in connection with any Suit, Appeal or Application.
48 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: (2) Such prescription of the period of limitation under such special or local law should be different from the period of limitation prescribed by the Schedule to the Limitation Act, 1963.
39. In terms of the provisions of the said Act, no period of limitation is prescribed, evidently because Parliament thought it to be wholly unnecessary. Once the statutory operation relating to the attachment of the property belonging to a notified person comes into being, the duties and functions of the Special Court start. In relation to the duties and functions required to be performed by a Court of law, no period of limitation need be prescribed.
Furthermore, Section 13 of the said Act provides for a non obstante clause, which has been used as a device to modify the ambit of the provisions of law mentioned therein or to override the same in the specified circumstances. The said Act does not provide for any period of limitation, the reasons wherefor have been noticed here-in-before and in that view of the matter, in our considered opinion, Articles 19, 28 and 55 providing for period of limitation prescribed would have no application. Section 13 of the said Act provides for a non obstante clause, which is of wide amplitude. In a case of conflict between the said 49 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: Act and any other Act, the provisions of the former shall prevail."
69. In the ultimate conclusion, it was held that, "The provisions of the Limitation Act have no application to the proceedings under the Special Court Act, as in construing a Special Statute, no period of limitation must receive a liberal and broader construction and not a rigid or a narrow one. The intent and purport of Parliament in enacting the said Act must be given a full effect. We are, therefore, of the opinion that, the provisions of the Limitation Act have no application, so far as directions required to be issued by the Special Court relating to the disposal of attached property, are concerned, Till all the claims, as provided under Section 11 of the said Act are fully satisfied, the amount belonging to the 'Notified Persons' can be directed to be released in his favour or in favour of any other person."
70. Hence, in the light of this categorical and clinching finding recorded by the Hon'ble Apex Court, the submission advanced by learned counsel for Defendant No.1, that a 'Notified Person' cannot be placed above the other litigants, so as to exclude the applicability of the Limitation Act to the assets of such 'Notified 50 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: Person', can no more hold the water. The law laid down in this 'Judgment' cannot be distinguished also on the ground that, in that case, the liability was admitted; whereas, in this case, it is disputed. Hence, the 'Judgment' relied upon by him in the case of K.B. Nagur MD (Ayurvedic) Vs. Union of India, (2012) 4 SCC 483 , holding that, even if the Statute does not prescribe the time limit, the claim should be filed within a reasonable time, cannot be of any help.
71. The 'Judgments' of the Hon'ble Supreme Court, relied upon by learned counsel for Defendant No.1, that of Basawaraj and Another Vs. Special Land Acquisition Officer, along with connected matter, (2013) 14 SCC 81, or of this Court in Miscellaneous Application No.86 of 2013, in the case of Mr. Ashwin S. Mehta Vs. Smt. Neeta A. Parekh and Others, dated 11 th December 2015, wherein the above referred 'Judgment' of the Hon'ble Apex Court in the case of L.S. Synthetics (Supra) was not referred or that of Miscellaneous Application No.79 of 2015, in the case of Kamlesh Shroff Vs. The Custodian, dated 11 th March 2016, and Standard Chartered Bank Vs. Andhra Bank Financial Services Limited and Others, (2016) 1 SCC 207, cannot have application to the present case.
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72. Moreover, this is not a case where the Plaintiffs have not offered any explanation for the delay in approaching this Court. It is a matter of record that, all the accounts of the Plaintiffs were seized during the relevant period and only on receipt of the 'Books of Accounts' in the year 2014 and after going through the relevant entries, Plaintiffs could file such application / Suit. Especially, in view of the death of Harshad S. Mehta, during the relevant period, Plaintiffs were handicapped and, therefore, they could not bring to the notice of the 'Custodian' the assets of Harshad S. Mehta, which were in the hands of Defendant Nos.1 and 2. Therefore, no fault could be found, if there is delay.
73. As a matter of fact, it was the duty of the 'Custodian' himself to recover these assets and it was also the duty of Defendant No.2 to inform the 'Custodian' about these assets. Even in case of doubt as to whether they belong to 'Notified Party' or not, as per the 'Circular' issued by the RBI, such third-party was required to approach the 'Custodian' to get the doubt clarified. Here in the case, when the amount was suddenly credited into the account of Defendant No.1 and two Pay Orders were issued within two days therefrom and one was not encashed, it was necessary for Defendant 52 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: No.2 also, to get the things clarified. Defendant No.2 has not done so on the spacious plea that, the Pay Order was issued in the name of MILL, which was not a 'Notified Party', and it was issued by Defendant No.1, who was also not a 'Notified Party'. But then, the amount, which came to the account of Defendant No.1 for the issuance of this Pay Order being received from the 'Notified Person', the least expected from Defendant Nos.1 and 2 was to inform the 'Custodian' about these assets. They have not done so and now, by taking advantage of the said fact, they cannot contend that there is delay in filing of this claim. It was for the 'Custodian' to do so and if a 'Notified Party' has done so, then the same explanation is applicable to him, as is applicable to the 'Custodian'. It is also the duty of this Court to ensure that the assets, which stood attached immediately on the date on which Plaintiffs were declared as 'Notified Entity', should be brought before this Court for distribution to the lawful claimants. Hence, it cannot be held that this claim is barred by limitation.
Issue No.6
74. To sum up, therefore, it has to be held that, so far as the 53 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: claim of Plaintiff No.1 towards the Pay Order of Rs.4 Crores, as it is proved on record that the said Pay Order was purchased from the amount parked or advanced by Late Harshad S. Mehta with Defendant No.1, the said amount becomes the asset of Harshad S. Mehta, who was a 'Notified Party', in the hands of Defendant No.1. Defendant No.1 has failed to explain that the said amount was advanced for a particular purpose and it was utilized for the said purpose. Now the said amount is, admittedly, lying with Defendant No.2-the Federal Bank and hence, Plaintiff No.1 is entitled to recover this amount of Rs.4 Crores, along with interest @ 18% p.a., from Defendant No.1 and from Defendant No.2, with whom the said amount is lying. It is necessary, therefore, to direct the 'Custodian' to recover this amount, along with the stipulated interest, for its distribution amongst the 'Debtors', as per Section 11 of the Special Court Act.
75. As regards the claim of Plaintiff No.3-M/s. Zest Holdings Private Limited for the amount of Rs.1,52,00,000/-, again the payment of which is accepted by Defendant No.1, Defendant No.1 is bound to repay the said amount, as it is proved to be the assets of the 'Notified Party' i.e. Defendant No.3-M/s. Zest Holdings Private 54 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: Limited. The Custodian is to recover this amount from Defendant No.1, along with interest @ 18% p.a., and to utilize the same towards the liability of Plaintiff No.3-M/s. Zest Holdings Private Limited.
76. As regards the amount of Rs.1.08 Crores, again though Defendant No.1 contends that he has settled the accounts thereof with Late Harshad S. Mehta, in the absence of convincing evidence on record to that effect, Defendant No.1 is liable to pay the said amount to Plaintiff No.1, with interest @ 18% pa., and the Custodian is to recover the said amount and utilize the same towards satisfying the liability of Late Harshad S. Mehta.
77. This settles the claim of the Plaintiffs, as made in the application / plaint. However, as Defendant No.1 has accepted the receipt of total amount of Rs.8,62,50,000/- from M/s. Zest Holdings Private Limited, Late Harshad S. Mehta and Smt. Jyoti H. Mehta in her personal capacity, the Plaintiffs are claiming this entire amount. However, once it is held that the Pay Order for the amount of Rs.3,42,000/- was issued by Defendant No.1 and the credit thereof was given to the MILL and it was towards satisfying the amount received from Smt. Jyoti H. Mehta in her personal capacity and as 55 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: Jyoti H. Mehta has in her personal capacity has not lodged this claim and the amount of Rs.2,57,000/- is stated to be towards the amount given by her, again in her personal capacity, this claim cannot be allowed in this proceeding.
78. As a result, I proceed to pass the following order :-
" O R D E R"
(i) Plaintiff No.1's claim for recovery of the amount of Rs.4 Crores, along with the interest @ 18% p.a. from 9th May 1992 till realization of amount, is allowed against Defendant Nos.1 and 2. The Custodian is directed to recover this amount from Defendant No.2 and utilize the same for distribution amongst the 'Debtors' of late Harshad S. Mehta, as per Section 11 of the Special Court Act.
(ii) Plaintiff No.1's claim for the amount of Rs.1.08 Crores and Plaintiff No.3's claim 56 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: for the amount of Rs.1,52,17,000/- is decreed, with interest @ 18% p.a. from 11th May 1992 till its realization. The 'Custodian' to recover this amount from Defendant No.5-Bombay Stock Exchange, with whom the said amount is lying as an asset of Defendant No.1, and utilize the same for distribution amongst the 'Debtors' of Late Harshad S. Mehta, as per Section 11 of the Special Court Act.
(iii) Plaintiff No.3's claim for recovery of the amount of Rs.49,45,584/-, paid by Defendant No.5-Bombay Stock Exchange to the 'Income Tax Department' towards the liability of Defendant No.1, stands rejected.
79. The Suit stands decreed in the aforesaid terms.
80. In view of the above, Notice of Motion No.1 of 2018 57 of 58 SPS-1-17-Judgment.doc ::: Uploaded on - 02/02/2019 ::: Downloaded on - 02/02/2019 22:00:38 ::: pending in the Suit does not survive and the same stands disposed off as infructuous.
81. At this stage, learned counsel for Defendant Nos.1, 2 and 5 seek stay to the execution of this 'Judgment and Order', in order to enable them to approach the Hon'ble Supreme Court against the 'Judgment and Order' of this Court.
82. Considering that this 'Judgment and Order' is subject to challenge before the Hon'ble Supreme Court, Plaintiff No.2, who is present before the Court, fairly concedes that he is not opposing the said request.
83. Hence, the execution of the 'Judgment and Order' passed by this Court is stayed till the Appeal period is over, which is of 30 days, as per Section 10 of the Special Court Act.
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