REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5176 OF 2009@ D-25207 OF 2008

Mrs. Jyoti Harshad Mehta and others …. Appellants

Versus

The Custodian and others ….Respondents

J U D G M E N T

S.B. SINHA, J.  

Interpretation and/or application of the provisions of the Special  

Court  (Trial  of  Offences  Relating  to  Transactions  in  Securities)  Act,  

1992, (hereinafter, for the sake of brevity, referred to as ‘the Special Act’)  

is involved herein.

It arises out of an order dated 25th July, 2008 passed by the learned  

Judge, Special Court at Mumbai in Misc. Petition No.41 of 1999.  

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HISTORICAL BACKGROUND

The history as well as the purpose and object for which the Special  

Act was enacted, in view of the several decisions rendered by this Court,  

is  now  well-settled.   The  Reserve  Bank  of  India  in  course  of  an  

investigation conducted by it, had inter alia opined that Harshad Mehta  

(since  deceased),  alongwith  his  other  associates  had  diverted  a  huge  

amount of public funds belonging to Public Sector Banks and Financial  

Institutions for short term investments in the securities market.    

An  Inquiry  Committee  was  thereafter  constituted  under  the  

Chairmanship of Shri Janakiraman.  The said Committee in its report had  

noticed  a  large  number  of  gross  malpractices  and  irregularities  in  

transactions of both Government and other securities, pursuant whereto  

and in furtherance whereof the Special Act was enacted providing inter  

alia for the constitution of a Special Court for trial of criminal offences,  

as  also  civil  disputes,  arising  therefrom during  the  period  between 1st  

April,  1991  to  6th June,  1992,  hereinafter  referred  to  as  the  “window  

period”.   

Around this time, the family members of late Harshad Mehta had  

purchased  movable,  immovable  properties  and  shares.  Out  of  these  

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properties, there were nine residential flats purchased, in a building called  

“Madhuli”, in Worli, Mumbai. These flats were merged and redesigned  

for joint living of the entire family and these properties are the subject  

matter of this lis.

HISTORY OF THE PROCEEDINGS

In terms of the said Special Act, a Custodian was appointed.  The  

Custodian notified Harshad Mehta as also the appellants herein; pursuant  

whereto all their properties stood attached.  Some of the appellants had  

filed  applications  for  de-notifications.   The  same  were,  however,  not  

pressed and were later withdrawn. It has been claimed by the appellants  

in an Affidavit dated 28.07.2009 that they had filed their denotification  

applications  registered as  M.A.  Nos.  50 to  55 of  2009,  however  they  

withdrew the same again with a liberty to file afresh by an order dated  

12.06.2009.

In  the  aforementioned  premise  a  question  came  up  before  the  

learned Judge, Special Court in regard to sale of movable and immovable  

properties belonging to the notified persons. The learned Judge, Special  

Court, on an application filed by the custodian inter alia directed sale of  

flats purported to be belonging to the appellants.

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The learned Judge, Special Court, by his judgment and order dated  

17th October, 2003 directed sale of the said flats.  The aforementioned  

order  came  to  be  challenged  before  this  Court  by  way  of  appeals  

preferred under Section 10 of the Special Act.  They were registered as  

Civil Appeal Nos. 667-71 of 2004 and 672 to 681 of 2004.  This Court by  

its judgment and order dated 3rd January, 2006 allowed the said appeals  

and remitted the matter back to the Special Court with some directions.  

That decision of this Court has since been reported in Ashwin S. Mehta  

and another  v.  Custodian and others, [ (2005) 2 SCC 385 ].

The matter was taken up thereafter by the learned Judge, Special  

Court which passed the impugned judgment.    

INVOLVEMENT OF CHARTERED ACCOUNTANTS

The findings of Chartered Accountants have a major role to play in  

this case. We may notice that during pendency of the proceedings before  

the  Special  Court  M/s  Vyas  &  Vyas,  Chartered  Accountant,  was  

appointed in respect of assets and liabilities of Harshad Metha on 16th  

October, 2003.  They submitted a report upon auditing the Accounts of  

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Late Harshad Mehta for the financial year ending 31.03.1992 and for the  

period ending 08.06.1992 on 17th January,  2006.   The notified parties  

have contested this, in an affidavit dated 28th July, 2008, by stating that  

the Custodian had actually received the same on 30.11.2005.

After  the  order  of  this  Court  in  Ashwin  Mehta  (supra)  another  

Chartered Accountant, M/s. Vinod K. Aggarwala & Co. was appointed  

by the custodian for preparation of “Realistic Estimates of the Assets and  

Liabilities”.  The report of the said Chartered Accountant was based on  

the Report of the three firms of Chartered Accountants appointed by the  

court.  This  report  was  submitted  on  the  27.02.2006.  The  Realistic  

Estimates of Assets and Liabilities of the Harshad Mehta Group as on  

01.01.2007  was  prepared  by  Vinod  K.  Aggarwala  &  Co.  and  was  

submitted on 26th April, 2007.   

We may also place on record that M/s Vyas & Vyas,  Chartered  

Accountant had categorically stated that the said books of accounts were  

not complete.  This can be seen through excerpts mentioned in their own  

report,  

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“19.6 Due to the compelling nature of limitations  on our work and unreliable  nature  of  the  books of  accounts, we are unable to accept responsibility for  the  accuracy  and  completeness  of  the  information/particulars  provided  to  us  nor  do  we  accept such responsibility.”

“…Therefore, we are unable to comment about the  true and fair state of affairs of HSM and M/s HSM  for the year ended 31st March, 1991, 31st March 1992  and for the period ended as on 8th June, 1992”.

IMPUGNED JUDGEMENT OF THE SPECIAL COURT

The Special Court in the impugned judgment noticed that it was  

to decide the issues in accordance with the directions of this court in  

Ashwin Mehta (supra), wherefor it quoted  in extenso the conclusions  

and directions issued. We shall proceed to deal with each of the eleven  

directions  that  had  been  given  by  the  this  Court  in  Ashwin  Mehta  

(supra) while remitting the matter back to the learned Judge, Special  

Court  and how accordingly the Special  Court  went on to deal  with  

them.

Direction No. 1 of this Court in Ashwin Mehta (supra) was:-

“(i)  The  contention  of  the  Appellants  that  they  being not  involved in offences in transactions in  securities could not have been proceeded in terms  

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of the provisions of the Act cannot be accepted in  view of  the  fact  that  they  have  been notified  in  terms thereof.”  

The  Special  Court  noted  that  this  Court,  as  regards  the  first  

direction,  had  itself  recorded  a  finding  against  the  appellants  and  

therefore nothing further was to be done by it in that regard.

Direction  No.  2  of  the  court,  which  is  most  relevant  for  our  

purposes reads as under:-

“(ii) The Appellants being notified persons all their  personal  properties  stood  automatically  attached  and  any  other  income  from  such  attached  properties would also stand attached. The question  as  to  whether  the  Appellants  could  have  been  considered to be part of Harshad Mehta Group by  the learned Special Court need not be determined  by us as, at present advised, in view of the fact that  appropriate applications in this behalf are pending  consideration  before  the  learned  Special  Court.  The question as regard intermingling of accounts  by the Appellants, herein with that of the Harshad  Mehta  Group  and/  or  any  other  or  further  contentions raised by the parties hereto before us  shall  receive  due  consideration  of  the  learned  Judge,  Special  Court  afresh  in  the  light  of  the  observations made hereinbefore.”  

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The learned Judge, Special Court, considered the said direction into  

three parts.

The  first  part  of  the  direction  being  that  the  appellants  being  

notified persons, all their personal properties stood automatically attached  

and any other income from such attached properties would also therefore  

get attached.

As regards this part the learned Judge, Special Court noted that this  

was a finding recorded against the appellants and accordingly no orders  

were necessary to be passed by it in that respect.

The second part of the said direction being that the question that  

the appellants could have been considered to be part of Harshad Mehta  

Group  by  the  learned  Special  Court  need  not  be  determined  by  the  

Supreme Court, in view of the fact that appropriate applications in this  

behalf were pending consideration before the learned Special Court.  

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In regard to the said direction the learned Special Judge, Special  

Court noted that the applications referred to in the said direction issued  

by  the  Supreme  Court  were  a  reference  to  the  applications  for  de-

notification filed by members of the Harshad Mehta Family.  The court  

thereafter having made reference to Sudhir S Mehta v. Custodian & Ors,  

[(2008)  12  SCC  84]  noted  that  there  were  no  applications  for  de-

notifications  pending before  the  Special  Court,  as  all  applications  had  

been withdrawn and therefore there was no further steps required to be  

taken by the learned Judge, Special Court.  

However  in  the  alternative,  again  referring  to  Sudhir  Mehta  

(supra), the learned Judge, Special Court also noted that the contention  

whether the appellants should be treated as a ‘group’ or not would not be  

relevant  unless  they  were  able  to  show that  some prejudice  had been  

caused to them thereby.

The third and the final part of the said direction dealt  with the  

question as regards intermingling of accounts by the Appellants, herein  

with that of the Harshad Mehta Group which in the opinion of this Court  

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were required to be dealt with by the Special Court afresh in the light of  

the observations made therein.   

This  part  of  the  direction  in  the  opinion  of  the  learned  Judge  

Special  Court  was  the  main  question,  which  was  required  to  be  

considered by him.   

He went on to note the observations of this court in Sudhir Mehta  

(supra) as regards the finding that the claim of the notified parties that  

their  assets exceeded their  liabilities  was not correct.  In  Sudhir  Mehta  

(supra) the court had accepted the submissions of the custodian that even  

the individual liabilities of the notified parties far exceeded their assets.  

The Special Court in the impugned judgment then went on to deal  

with the contention that the properties in question had been purchased  

before the statutory period or window period prescribed under the said act  

being 01.04.1991 to 06.06.1992 and they were therefore not liable to be  

attached.  

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It noted that the properties of the notified parties held by them on  

the date of their notification got statutorily attached and became liable to  

be sold for discharging the liability of the notified parties, therefore, the  

previous contention does not stand.   

It, thereafter, went on to deal with the argument that the  properties  

in question had no nexus with the illegal securities transactions and the  

flats had been purchased by the notified parties at the relevant time by  

taking interest bearing loan from M/s Harshad S Mehta.  These loans had  

been repaid either fully or substantially.   

As  regards  this  contention  the  Special  Court  again  referred  to  

Sudhir Mehta (supra) to note that properties of the notified persons stood  

attached irrespective of the fact whether those properties were bought by  

using tainted funds or not.   Therefore the nexus to the illegal  security  

transactions was irrelevant.  

It also came to the conclusion that all the residential properties had  

been funded by Harshad S Mehta and they could therefore be disposed of  

accordingly. In this regard the Special Court relied on the report of the  

auditors, M/s. Vyas and Vyas who had considered the flow of funds from  

Harshad Mehta to various other notified parties.  This was the fact that  

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the funds had specifically been transferred for purchase of the properties  

just before the purchase.  There was also a huge amount outstanding in  

the accounts of the notified parties to Harshad Mehta on the 1st of April,  

1990 and 1991.   

The Special Court also noted that one of the flats in Madhuli, being  

No. 34-A was owned by M/s Aatur Holding Pvt. Ltd.  In regard to the  

said company the Special Court found it necessary to pierce the corporate  

veil.  This was based on the fact that even though the paid up capital of  

the said company was only Rs. 10,000/- and the highest salary paid by the  

company was only a meager Rs. 4,000/- p.m., the company had entered  

into  trading  security  transactions  running  into  crores  of  rupees.   It  

therefore opined that the real owner of the said company was none other  

than Shri Harshad Mehta.

In  conclusion  it  was  opined  that  the  business  and  dealings  of  

various individuals who held flats in Madhuli and the company M/s Aatur  

Holding were nothing but fronts of Harshad Mehta and the money that  

was invested for buying the flats was that of Harshad Mehta. Harshad  

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Mehta, therefore, had merely used the names of various individuals who  

were related to him for buying the said flats.

Direction No. 3 of this Court in  Ashwin Mehta (supra) reads as  

under :-

“(iii) As regard the tax liabilities of the Appellants,  herein,  we  would  request  the  learned  Judge,  Special Court to consider the matter afresh in the  light  of the observations made hereinbefore.  The  learned Judge, Special Court, in this behalf, having  regard  to  the  fact  that  several  orders  of  Best  Judgment  Assessment  have  been  passed  by  the  Assessing Authority, may take into consideration  the ratio laid down in the decision of this Court in  Harshad Shantilal Mehta v. Custodian & Ors. 1998  (3) SCALE 556.”

As regards this direction the Special Court noted that the order had  

already been made on applications which were filed by the decree holder  

bank by it and the said matter was pending before this Court.

Direction No 4 of this Court reads as under:-

“(iv)  The learned Special  Court  shall  proceed to  pass appropriate orders as regard confirmation of  the  auction  sales  in  respect  of  commercial  properties.”

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As regards this direction the Special Court noted that the necessary  

orders had already been passed.

The next direction, being Direction No 5 reads:-

“(v)  As  regard,  sale  of  residential  properties,  an  appropriate  order  may  be  passed  by  the  learned  Judge,  Special  Court  in  the  light  of  the  observations made hereinbefore.”

In respect of this direction the Special Court directed the custodian  

to  sell  Flats  No.  32 A,  32 B,  33,  33A, 33 B,  44 A,  44 B and 45 in  

‘Madhuli’  by following the procedure laid down by the Special  Court  

itself  for sale  of  the property belonging to the notified parties.  It  also  

directed  the  custodian  to  seek  directions,  if  necessary,  from it  in  this  

behalf.

Direction Nos. 6, 7 and 8 are as under:-

“(vi)  We  direct  the  Custodian  to  permit  the  Appellants to have inspection of all the documents  in his power or possession in the premises of the  Special Court in the presence of an officer of the  court.  Such  documents  must  be  placed  for  inspection for one week continuously upon giving  due  notice  therefor  to  the  Appellants  jointly.  As  the  Appellants  have  been  represented  in  all  the  proceedings  jointly,  only  one  of  them would  be  

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nominated by them to have the inspection thereof.  The Appellants shall be entitled to take the help of  a  Chartered  or  Cost  Accountant  and  may  make  notes  therefrom  for  their  use  in  the  pending  proceeding.

(vii)  The Appellants shall  file their  objections to  the said report, if any, within ten days thereafter.  The  Custodian  may  also  take  assistance  and/  or  further assistance from a Chartered Accountant of  his choice. A reply and/ or rejoinder thereto shall  be  filed  within  one  week  from  the  date  of  the  receipt  of  the copy of  the  objection.  The parties  shall  file  their  respective  documents  within  one  week  thereafter.  Such  documents  should  be  supported by affidavits.  Both the parties shall  be  entitled to inspect such documents and filed their  responses thereto within one week thereafter. The  parties  shall  file  the  written  submissions  filed  before this Court together with all charts before the  learned Special Judge, Special Court within eight  weeks from date.

(viii) The learned Judge, Special Court shall allow  the  parties  to  make  brief  oral  submissions  with  pointed  reference  to  their  written  submissions.  Such  hearing  in  the  peculiar  facts  and  circumstances  of  this  case  should  continue  from  day to day. (ix) The learned Judge, Special Court  while hearing the matter in terms of this order shall  also consider as to whether the auction sale should  be confirmed or  not.  It  will  also be open to the  learned  Judge,  Special  Court  to  pass  an  interim  order or orders, as it may think fit and proper, in  the event any occasion arises therefore.”

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As regards these three directions the Special Court noted that the  

Custodian had already complied with the said directions and allowed for  

the necessary inspection. The Special Court further noted that there were  

no  complaints  made  before  it  that  the  said  directions  had  not  been  

complied with.

 Direction No 9 reads:-

“(ix)  The  learned  Judge,  Special  Court  while  hearing the matter in terms of this order shall also  consider as to whether the auction sale should be  confirmed  or  not.  It  will  also  be  open  to  the  learned  Judge,  Special  Court  to  pass  an  interim  order or orders, as it may think fit and proper, in  the event any occasion arises therefore.”

As regards this the Special Court noted that necessary orders had  

already been passed.

Direction No 10 of the court in Ashwin Mehta (supra) was:-

“(x)  We  would,  however,  request  the  learned  Special  Judge,  Special  Court  to  complete  the  hearings of the matter, keeping in view of the fact  that  auction  sale  in  respect  of  the  residential  premises  is  being  consideration,  as  expeditiously  as possible and not later than twelve weeks from  the date of the receipt  of the copy of this order.  Save and except for sufficient or cogent reasons,  the learned Judge shall not grant any adjournment  to either of the parties.”

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As regards the said direction the Special Court noted after the said  

matter had been taken up by them for hearing, the notified parties had  

given their consent for initiating the process of sale of the flats.  This  

process was set in motion and at the request of the parties,  both were  

granted time to submit their pleadings and documents.

The last Direction of the Court, being No 11:-  

“(xi) The learned Judge, Special Court shall take up  the  matter  relating to confirmation of  the  auction  sale  in  respect  of  the  commercial  properties  immediately  and  pass  an  appropriate  order  thereupon  within  four  weeks  from  the  date  of  receipt of copy of this order. If in the meanwhile  orders of assessment are passed by the Income Tax  Authorities,  the  Custodian  shall  be  at  liberty  to  bring the same to the notice of the learned Special  Court which shall also be taken into consideration  by the learned Judge, Special Court.”

As regards this  direction the Special  Court  noted that  necessary  

orders had already been passed.

SUBMISSIONS

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Mr.  I.H.  Syed,  learned  counsel  appearing  on  behalf  of  the  

appellants contended :-

(i) That the learned Judge, Special Court misconstrued and  

misread  the  directions  issued  by  this  Court  in  Ashwin  

Mehta (supra).   

(ii) That he failed to take into consideration that the properties  

belonging to the appellants were not and could not have  

been treated as the benami properties of Harshad Mehta.  

(iii) In  such  an  event  the  provisions  of  the  Benami  

Transactions  (Prohibition)  Act,  1988,  should  have  been  

invoked or in any event Sub-section (1) of Section 4 of the  

Special  Act  which deals  with  transactions  to  defeat  the  

provisions  of  the  Act  was  attracted.   These  provisions  

provide for an opportunity of hearing to be given.  

(iv) That  Sub-section  (1)  of  Section  4  of  the  Special  Act  

postulates that the notified persons must acquire property  

in the name of another from the tainted money during the  

window period and having regard to the findings of the  

Auditors  that  Harshad  Mehta  had  purported  to  have  

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advanced amounts  by way of  loans or  otherwise  to the  

appellants  herein  much  prior  thereto,  the  impugned  

judgment is wholly unsustainable.  

(v) That the right to keep property being a Constitutional as  

well  as Human Right and furthermore the provisions of  

the  Special  Act  being   penal  in  nature,  they  deserve  a  

strict construction.  

(vi) No finding having been arrived at, that the properties in  

question had any nexus with the tainted funds received  

from the  illegal  security  transactions,  they  should  have  

been released from attachment by the Custodian.

(vii) That the properties having not been acquired within the  

‘window period’  i.e.  during  1st April,  1991 to  6th June,  

1992, the order of the learned Special Court for auction  

sale thereof must be held to be wholly illegal.  

(viii) The  learned  Judge,  Special  Court,  committed  a  serious  

illegality  in  so  far  as  he  relied  upon  the  Janakiraman  

Reports and other reports, which are wholly inadmissible  

as evidence.

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(ix) The appellants being notified persons are responsible for  

discharging their own liabilities from their own assets and  

not those of Harshad Mehta and/or any other person and  

therefore  it  was  not  proper  on  the  part  of  the  learned  

Judge, Special Court to club the appellants herein as part  

of the Harshad Mehta Group.  

(x) The  learned  Judge,  Special  Court  seems  to  have  

reproduced large amounts of the Custodians’ report in the  

Judgment, this raises the question as to whether he took  

into account the arguments of the appellants in the case.

Mr. Arvind Kumar Tewari, learned counsel for the custodian, on  

the other hand, contended :-   

(i) As the appellants were notified persons, Section 4(1) of  

the Special Act has no application as all their properties  

stood attached in terms of Section 3 of the Act and as such  

they  could  have  been appropriated  for  discharge  of  the  

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liabilities of Harshad Mehta and group under the scheme  

of the latter provision.  

(ii) Appellants having not filed any application for their de-

notification  and the Custodian and/or  the  Special  Court  

having  all  along  proceeded  with  the  case  against  the  

appellants and the late Harshad Metha as one group, it is  

too late in the day to contend that they are not bound to  

discharge  the  liability  of  Harshad  Mehta  and  should  

instead be treated individually.  

(iii) In a case of this nature where Section 3 would apply and  

not the sub-section (1) of Section 4; properties can be sold  

in discharge of the liabilities  of all  the notified persons  

irrespective  of  the  fact  whether  they had been acquired  

from the tainted money or  acquired during the window  

period or not.

(iv) The  learned  Judge,  Special  Court,  having  proceeded  to  

determine the issues raised before it by the parties on the  

basis of the Audit Reports filed by M/s. Vyas & Vyas, the  

impugned judgment is unassailable.

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(v) Harshad Metha was not acting alone.  There were various  

corporate entities, firms etc. involved and the appellants  

were in one way or the other involved actively in the said  

companies  and/or  the  firms.   It  was  in  that  sense  the  

custodian  proceeded  on  the  basis  that  the  appellants  

should be clubbed together as a part of the same group.

(vi) All  the  appellants  are  notified  persons.   Proceedings  

started  against  them  in  1992.   They  were  proceeded  

against  as  the  Harshad  Mehta  Group  and  not  in  their  

individual capacity.  Indisputably they had acted as a part  

of this group, whatever might have been their individual  

contribution  in  regard  to  the  acts  of  omission  and  

commission  towards  defrauding  the  banks  and  the  

financial institutions for the purpose of making investment  

in the security transactions.  

(vii) In the absence of any proof that they have no connection  

with the said business they should be treated as belonging  

to the said group.   

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(viii) That the flow of fund from one member to the other, as  

reflected  from  their  own  books  of  accounts,  clearly  

establish that they are part of the same group and/or it is  

the contribution of Harshad Mehta alone which enabled  

the  appellants  to  purchase  the  flats  in  their  individual  

names.   

USE OF SECTION 4(1) OF SPECIAL ACT

As regards intermingling of accounts of the appellants with that of  

the Harshad Mehta Group and/or any other or further contentions raised  

by the parties, it was directed by this Court in Ashwin Mehta (supra) that  

the same shall  receive due consideration of the learned Judge, Special  

Court afresh in the light of the observations made therein.

On a plain reading of sub-section (1) of Section 4 of the Special  

Act it would appear that the same applies to the third parties and not any  

notified party.  It is only when a property has been purchased in the name  

of a third party by a notified party from the tainted funds acquired by him  

during  the  window  period,  that  the  provisions  of  sub-section  (1)  of  

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Section 4 would would apply.  But in a case where the properties have  

been purchased by the notified parties themselves as members of a group  

in the name of one or the other, the rigours of sub-section (1) of Section 4  

shall  not  apply.   Section  3  of  the  Special  Act,  on  the  other  hand,  

postulates automatic statutory attachment of the properties of the notified  

party.   The  acquisition of  the  properties  whether  prior  to  the  window  

period, during the window period or thereafter can be attached for the  

discharge of liabilities.   

Indisputably, a statute which seeks to take away a person’s right in  

property deserves strict construction.  However, it is also well settled that  

the courts are required to give purposive construction to a statute to see  

that the purpose and object thereof is fully attained.  This Act is a Special  

statute.  It is a complete Code in itself.  The purpose and object for which  

it was created was to punish the persons who were involved in the acts of  

criminal  misconduct  in  respect  of  defrauding  banks  and  financial  

institutions.  Its object was to see that the properties of those who were  

involved  shall  be  appropriated  for  discharge  of  liabilities  not  only  of  

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banks  and  financial  institutions  but  also  other  governmental  agencies  

including the Income-tax Department.    

It is, however, not an expropriatory legislation as such.   The Act  

provides for sufficient safeguards in the matter of sale of properties by  

auction or otherwise towards discharge of debts of the notified persons.  

It provides for grant of full opportunity of hearing to the notified persons.  

Notified  persons  have special  knowledge  of  the  facts  relating  to  their  

assets and liabilities and, therefore, can always show that they have been  

notified  wrongly  or  that  their  properties  are  not  liable  for  sale  either  

because their liabilities can otherwise be discharged or the quantum of  

liabilities projected by the Custodian is not correct.  

In construing the statute of this nature the Court should not always  

adhere to a literal meaning but would construe the same, keeping in view  

the larger public interest.  For the said purpose the Court may also take  

recourse to the basic rules of interpretation, namely ut res magis valeat   

quam pereat to see that a machinery must be so construed as to effectuate  

the liability imposed by the charging section and to make the machinery  

25

workable. [See  Indian Handircrafts Emporium and others  v.  Union of  

India and others, (2003) 7 SCC 589 ].   

In Balram Kumawat  v.  Union of India and others, [ (2003) 7 SCC  

628 ] this Court preferred a dictionary meaning of the word “ivory” in  

preference to the technical meaning stating :-

“20. Contextual  reading  is  a  well-known  proposition of interpretation of statute. The clauses  of a statute should be construed with reference to  the context vis-à-vis the other provisions so as to  make a consistent enactment of the whole statute  relating  to  the  subject-matter.  The  rule  of  “ex  visceribus  actus”  should  be  resorted  to  in  a  situation of this nature.”

It was furthermore held :-

“23. Furthermore,  even  in  relation  to  a  penal  statute any narrow and pedantic, literal and lexical  construction  may  not  always  be  given  effect  to.  The  law  would  have  to  be  interpreted  having  regard to the subject-matter of the offence and the  object of the law it seeks to achieve. The purpose  of the law is not to allow the offender to sneak out  of the meshes of law. Criminal jurisprudence does  not say so.”

It was observed :-

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“26. The  courts  will  therefore  reject  that  construction which will defeat the plain intention  of the legislature even though there may be some  inexactitude in the language used. [See Salmon v.  Duncombe (AC  at  p. 634).]  Reducing  the  legislation futility shall be avoided and in a case  where  the  intention  of  the  legislature  cannot  be  given effect to, the courts would accept the bolder  construction for the purpose of bringing about an  effective result. The courts, when rule of purposive  construction is gaining momentum, should be very  reluctant  to  hold  that  Parliament  has  achieved  nothing by the language it used when it is tolerably  plain  what  it  seeks  to  achieve.  [See  BBC  Enterprises v.  Hi-Tech Xtravision Ltd. (All ER at  pp. 122-23).]”

Yet  again  in  relation  to  application  of  doctrine  of  strict  

construction, it was noticed :-  

“34. In  State  of  Maharashtra v.  Natwarlal   Damodardas Soni this Court was concerned with  search and seizure of gold under the Customs Act  and the  Defence  of  India  Rules.  The  Court  was  dealing with smuggling of gold into India affecting  the public economy and financial  stability of the  country and in that context the Court applied the  Mischief  Rule.  While  interpreting  the  words  “acquires possession” or “keeping” in clause (b) of  Section  135(1)  of  the  Customs  Act,  this  Court  observed  that  they  are  not  to  be  restricted  to  “possession” or “keeping” acquired as an owner or  

27

a purchaser of the goods, observing: (SCC p. 677,  para 22)

“Such a narrow construction — which has  been erroneously adopted by the High Court —  in our opinion, would defeat the object of these  provisions  and  undermine  their  efficacy  as  instruments  for  suppression  of  the  mischief  which the legislature had in view. Construed in  consonance with the scheme of the statute, the  purpose of these provisions and the context, the  expression  ‘acquired  possession’  is  of  very  wide amplitude and will  certainly  include the  acquisition  of  possession  by  a  person  in  a  capacity other than as owner or purchaser….”

35. This Court while setting aside a judgment of  acquittal  passed  in  favour  of  the  respondents  therein  on  the  basis  of  the  interpretation  of  the  Customs Rules observed: (SCC p. 678,  para  25)

“… These provisions have, therefore, to be  specially  construed  in  a  manner  which  will  suppress  the  mischief  and advance  the  object  which  the  legislature  had  in  view.  The  High  Court  was  in  error  in  adopting  too  narrow  a  construction  which  tends  to  stultify  the  law.  The  second  charge  thus  had  been  fully  established against the respondent.”

[See also P.K. Arjunan v. State of Kerala (2007) 9 SCC 516, para  

11]

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Mr. Syed, therefore, in our opinion is not correct in contending that  

the advances made by Harshad Metha to the appellants  herein for the  

purpose of purchase of properties would amount to benami transactions  

whereof sub-section (1) of Section 4 of the Special Act shall apply.   

ISSUES REGARDING NOMENCLATURE  

In Ashwin Mehta (supra), this Court had specifically asked the ld.  

Judge of the Special Court to decide on the issue of nomenclature of the  

parties,  namely  whether  to  consider  them  as  a  whole  group  or  as  

individuals.  The Special  Court  in the impugned judgment  preferred to  

rely on the judgment of this court in Sudhir Mehta (supra) on this issue;  

wherein this Court observed:

45. This  takes  us  to  the  aforementioned  paragraphs  heavily  relied  upon  by  the  learned  counsel in the judgment of Ashwin Mehta case. In  para  41,  it  was  stated  that  it  was  open  to  the  appellants to show that even if they continued to  be  notified,  the  Custodian  was  not  right  in  clubbing all the individual members of the family  as  a  single  entity  styled  as  the  Harshad  Mehta  Group. We do not find that there was any attempt  on  the  part  of  the  appellants  to  disassociate  themselves from the Harshad Mehta Group. When  

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we see the  judgment dated 17-8-2000 passed by  the  Special  Court,  it  is  obvious  that  the  learned  counsel arguing that matter had argued it on behalf  of the Harshad Mehta Group. It  is  for  this  purpose that we have quoted the argument before  the learned Special Judge in extenso. We will only  quote  a  sentence  which  forms  a  part  of  the  argument:

“It  was  contended  that  on  a  proper  and  legal  assessment, the actual tax liability of the Harshad  Mehta  Group would  be  marginal  and  a  large  portion of the amounts would have to be refunded  by the Revenue.  He contended that in case of the   Harshad Mehta Group, the demands made by the  Department  are  based  on  the  best-judgment  assessments,  which  are  highly  exaggerated.  He  contended that the assessment orders are ex parte  in nature.  He contended that the  Harshad Mehta  Group  is  contesting  the  demands  before  the   appellate authorities.”

(emphasis supplied) It  was,  therefore,  obvious  that  at  that  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  the  Harshad Mehta Group. No  such  objection  to  form and treat the relatives as a group was raised  before the Special Court in the year 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.  We,  therefore,  do not  think that  the  argument  in  this  behalf has any basis.”  

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Criticism has also been made with regard to the application of the  

doctrine of lifting the corporate veil which was not supposed to be made  

applicable to the individual.  The said doctrine was applied by the learned  

Judge of the Special Court in the instant case in respect of the company  

M/s. Aatur Holding Pvt. Ltd.  The abovementioned company purchased a  

flat,  although its paid up capital  was only Rs.10,000/- and the highest  

salary paid to the employee by it was only Rs.4000/- per month. Despite  

this the said company allegedly entered into security trading transactions  

amounting to crores.  

The appellants were members of an H.U.F. and were seen to be  

working in tandem. Harshad Metha vis-à-vis the appellants was, thus, not  

a third party.     

ISSUE OF DENOTIFICATION

Appellants  contend  that  they  had  withdrawn  the  denotification  

applications in 2000 although the same had been filed in 1993.  The delay  

in  disposal  of  the  said  applications  is  sought  as  a  reason assigned in  

support of the same.  We fail to see any justification in the said stand.  

Appellants contend that they wanted to file fresh applications.  If that be  

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so the reason why the earlier applications were withdrawn had not been  

properly  and  sufficiently  explained.   The  reason  assigned  is  hardly  a  

ground for withdrawal of the applications. We have been informed by the  

appellants that fresh applications for denotifications have been filed and  

the same have been withdrawn in the year 2009. The same issue may  

have to be dealt with by the Special Court. We wonder, why it took nine  

years to file these fresh applications.   

We may notice that applications for denotification were filed by  

Raseela Mehta and Rina Mehta which were rejected by the Special Court.  

The order rejecting the same have been challenged before this Court by  

way of Appeals which are numbered as Civil Appeal Nos. 2915 of 2008  

and 2924 of 2008 and are pending.    

NEXUS  OF  THE  PROPERTIES  WITH  THE  ILLEGAL  

SECURITIES TRANSACTION

It is contended by the learned counsel for the appellants Mr Syed  

that if any of the properties or assets of the notified parties have no nexus  

with  the  illegal  security  transactions,  the  same  can  be  released  from  

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attachment or at least need not be sold. It has further been argued that no  

evidence has been adduced that loans given by M/s Harshad S Mehta to  

his family members or monies used by Shri Harshad Mehta for purchase  

of his flat were acquired from the tainted funds. It is submitted by the  

appellants that unless it can be shown that the properties in question were  

acquired from the tainted funds they would be liable to be released from  

attachment.  It  is  argued  that  the  fact  that  the  properties  had  been  

purchased much before the securities scam would go on to show that they  

had no nexus with the funds diverted there from.

In our opinion the arguments advanced on behalf of the appellants  

need to be rejected at the outset because a plain reading of the sections of  

the  Special  Act  would  clearly  point  otherwise.  In  our  opinion  the  

attachment of all the properties in terms of sub- section (3) of Section 3  

of  the  Special  Act  is  automatic.  The  attachment  restricts  sale  of  the  

properties which have been acquired from illegal securities transaction.  

The sub-section specifically mentions that on and from the date of the  

notification, ‘any property, movable or immovable, or both’, belonging to  

any person notified under the Act shall  stand attached.  The said sub-

section does not provide for any qualification that the properties which  

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are liable to be attached should relate to the illegal securities transactions  

in  respect  of  which  the  Act  was  enacted.  Had  the  intention  of  the  

Parliament been so, it would have clearly mentioned it.  It is well settled  

that when the meaning of the words used in an Act is plain and clear,  

effect must be given thereto.   

This is supported by the decision of this court in LS Synthetics Ltd.  

v. Fairgrowth Financial Services Ltd. [ (2004) 11 SCC 465 ]. Therein the  

appellants had taken a loan from the respondents, Fairgrowth who had  

admittedly  been  notified  under  the  Act.  The  respondent  therein,  

Fairgrowth  thereafter  filed  an  application  before  the  Special  Court  

seeking attachment of the said funds due to them by LS Synthetics. It was  

argued on behalf of the debtors, LS Synthetics, that the loans due to the  

respondents had no nexus to the nature of securities transactions specified  

under the Special Act and they were therefore not liable to be attached.  

This Court while rejecting the said contention noted that having regard to  

the  provisions  of  the  Act,  it  was  not  required  that  the  properties  in  

question  must  have  a  nexus  to  the  illegal  securities  transaction.  

Accordingly all assets of the notified parties including the loans advanced  

by them in the case at hand were found liable to be attached.  

34

The Court  however in  LS Synthetics (supra)  was not  concerned  

with the issue of whether the properties in question had been acquired  

before the window period or not. The loans in that case had admittedly  

been  advanced  within  the  window  period  and  accordingly  the  only  

question before the  court  was whether  the loan would be liable  to  be  

attached despite not having a nexus to the illegal security transactions.  

This  accordingly  brings  us  to  the  next  submissions  as  regards  the  

statutory window period.

STATUTORY WINDOW PERIOD

It was contended on behalf of the Appellants, that the properties in  

question had been purchased much before the statutory window period  

provided under the Special Act. It is argued that the jurisdiction of the  

Special  Court  is  strictly  confined  to  the  period  from  01.04.1991  to  

06.06.1992 and as such the Court would not have the power to investigate  

and give any findings pertaining to any transaction entered into prior to  

the statutory period. The appellants state that, the fact,  no claims have  

been  received  by  the  custodian  from any  bank  pertaining  to  the  pre-

35

statutory  period,  should  be  conclusive  evidence  that  no  monies  were  

siphoned off in that period as falsely alleged.

In our opinion the interpretation advanced by the appellants on the  

provisions would be a clear misreading of the Act. We must in this regard  

refer to the relevant provisions of the Act.

Provisions of Section 3(2)  should not be read into Section 3(3).  

Though Section 3 (3) is dependent on Section 3(2) for its operation, but  

once  Section  3(2)  comes  into  operation,  Section  3(3)  becomes  

independent  of  it  and  accordingly  the  qualifications  of  Section  3(2)  

cannot be read into Section 3(3).  We must place emphasis on a plain  

reading of the said section. Had it been the intention of the legislature to  

attach only those properties acquired within the statutory period, it would  

have  clearly  said  so.  The  statutory  window period  is  only  a  relevant  

criterion for application of Section 3(2) and therefore has no bearing on  

the application of Section 3(3).  

A plain reading of Section 3(3) would suggest that all properties of  

the  notified  persons  on  the  date  of  the  said  notification  would  

36

automatically stand attached irrespective of the fact as to whether they  

had been acquired before,  during or even after  the statutory period. A  

logical corollary of this would be that all income accruing or arising from  

the  said  property  even  after  the  date  of  attachment  would  also  

automatically stand attached.  

However  property  acquired  by  a  notified  person  after  the  

notification under the Special Act cannot be attached. That property does  

not  come  within  the  purview  of  the  Section  3(3).  [See  Tej  Kumar  

Balakrishna Ruja v. A K Menon, (1997) 9 SCC 123 para 6]

The cut off date for the attachment of the property accordingly is  

the date of notification.  All  properties  of  the persons on the said date  

automatically stand attached. The statutory window period is irrelevant  

for the attachment of the property. It would have no bearing on the said  

attachment.

It is true that to such an extent all properties would be liable to be  

sold which are needed for redemption and not beyond the same.  What  

should be kept  uppermost in the  mind of  the  Court  is  to  see that  the  

37

liabilities are discharged and not beyond the same.  It is with that end in  

view that the powers of the Special Court contained in Sections 9A and  

11 must be construed.   

It is an accepted fact that the reports of the Jankiraman Committee,  

the  Joint  Parliamentary  Committee  and  the  Inter  Disciplinary  Group  

(IDG) are admissible only for the purpose of tracing the legal history of  

the Act alone.  The contents of the report should not have been used by  

the ld. Judge of the Special Court as evidence.  

However, a lot of documents have been filed before us with regard  

to Audited Reports. Vyas and Vyas had filed an Audited Report in 2003.  

Copies  whereof  were  supplied in  2005.   Audited Report  of  Vyas  and  

Vyas  related  only  to  Harshad  Mehta.   A  Report  on  the  Assets  and  

Liabilities of the Appellants by M/s. Vinod K. Agarwala and Co. as on  

November, 2007 has also been placed on record.  It does not appear that  

the Special Judge had considered this aspect of the matter in great detail.  

The learned Judge,  Special  Court,  should consider  the  aforementioned  

two audit reports so as to arrive at a positive finding with regard to the  

38

liabilities and assets possessed by them so as to enable to pass appropriate  

orders.  

The learned Judge, Special Court, in his judgment has mainly dealt  

with  the  contentions  raised  by  the  custodian  in  terms  of  the  written  

submission filed on its behalf.   The contentions of the appellants have  

not  been  considered  in  the  impugned  judgment.  It  is  furthermore  

contended  on  behalf  of  the  appellants,  that  out  of  the  twenty  six  

paragraphs of the impugned judgment, 15 paragraphs are near verbatim  

reproductions.  

In our opinion this clearly shows the non-application of mind of the  

learned Judge, Special Court. He was required to weigh the submissions  

and counter-submissions of both the parties in his proper perspective and  

then arrive at a well reasoned opinion, which doesn’t seem to be the case  

before us. It is well settled that “Justice must not only be done, but also  

must be seem to be done”.   

The Audited Reports and the objections have been filed before us.  

We direct the parties to file the same before the learned Judge, Special  

39

Court, so as to enable him to consider the matter afresh strictly in the  

light of the earlier judgment passed in Ashwin Mehtas (supra) as well as  

the observations made herein.  

For  the  reasons  aforementioned,  the  impugned  judgment  is  set  

aside and the matter is remanded to the learned Judge, Special Court, for  

consideration thereof afresh in the light of the observations of this Court  

as expeditiously as possible and preferably within a period of six months  

from  the  date  of  this  judgment.   The  appeal  is   allowed  with  the  

aforementioned observations.  In the facts and circumstances of the case,  

there shall be no order as to costs.  

…….……………………J. [ S.B. Sinha ]

…….……………………J. [ Deepak Verma ]

New Delhi August 07, 2009

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