REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2724 OF 2006

KILLICK NIXON LTD. … APPELLANT

VERSUS

THE CUSTODIAN AND OTHERS … RESPONDENTS

WITH

      CIVIL APPEAL NOS. 4802-4803 OF 2008  

          LODESTAR SLOTTED ANGLES LTD. … APPELLANTS            ETC.

VERSUS

          THE CUSTODIAN AND OTHERS      … RESPONDENTS

AND

CIVIL APPEAL NOS. 4806-4818 OF 2008

          KILLICK NIXON LTD. & ORS. ETC. … APPELLANTS

VERSUS

          THE CUSTODIAN AND OTHERS ETC. … RESPONDENTS

J U D G M E N T

    B. SUDERSHAN REDDY, J.

1. These appeals are directed against the orders of  

interlocutory  nature  passed  by  the  Special  Court  constituted  

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under the provisions of the Special Courts (Trial of Offences  

Relating to Transactions in Securities) Act, 1992 (hereinafter  

referred to as  ‘the Act’).  They are being disposed of by this  

common  order  since  the  question  that  arises  for  our  

consideration is one and the same.

2. M/s. Dhanraj Mills Private Limited in its ordinary  

course  of  business  had  advanced  interest  free  loans  to  the  

appellant M/s. Killick Nixon Limited and its group of companies.  

In  the  year  1992,  the  Special  Court  found  that  M/s.  Dhanraj  

Mills Private Limited, its Directors and their close associates  

indulged  in  fraudulent  securities  transactions  resulting  in  

siphoning of huge funds of various banks. The banks had gone  

into  liquidation  as  a  result  of  those  fraudulent  securities  

transactions.  The  Special  Court  also  held  that  the  end  

beneficiaries of the siphoned funds were the Directors of M/s.  

Dhanraj  Mills  Private  Limited  and  Director  of  Bank  of  Karad  

which  bank  was  used  as  a  conduit  for  the  fraudulent  

transactions.

3. M/s. Dhanraj Mills Private Limited was accordingly  

notified under the provisions of the said Act. On and from the  

date of notification, the properties, movable or   immovable, or  

both belonging to any person notified under sub-section (2) of  

Section 3 of the said Act shall stand attached, simultaneously  

with  the  issue  of  the  notification.  Be  it  noted  that  M/s.  

Dhanraj Mills Private Limited itself owned 33% of M/s. Killick  

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Nixon Limited and the person in ultimate control, ownership and  

management of M/s. Killick Nixon Limited is one T.B. Ruia (who  

at all relevant points of time was Managing Director of M/s.  

Dhanraj Mills Private Limited) who was also notified under the  

Act.

4. The  Custodian,  on  behalf  of  M/s  Dhanraj  Mills  

Private Limited, proceeded against the appellant M/s. Killick  

Nixon  Ltd.  and  its  group  Companies  for  recovery  of  loans  

totaling  Rs.20,81,67,031/-.  The  amounts  due  to  M/s.  Dhanraj  

Mills  Private  Limited  also  stood  attached  with  the  issue  of  

notification.

5. In the year 1995, the appellant M/s. Killick Nixon  

Limited  and  its  group  Companies  filed  separate  applications  

before  Special  Court  for  ascertaining  their  individual  

liabilities  with  a  request  to  grant  time  for  recompense.  

Simultaneously,  the  Custodian  also  filed  applications  for  

fixation of liability and demanding interest @ 24% per annum. In  

the  year  1997,  the  Special  Court  passed  decrees  against  the  

appellant and its group Companies which are consent decrees qua  

invitum  the Custodian, whereby individually ascertained amounts  

were to be paid in installments with the interest @ 15% per  

annum.  Similar  consent  decree  was  passed  against  13th group  

Company also.

6. M/s  Dhanraj  Mills  Private  Limited,  in  the  

meanwhile,  made  an  application  before  the  Special  Judge  

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contending that the amounts recovered from the group Companies  

cannot be attached towards the debt payable by M/s Dhanraj Mills  

Private  Limited  to  the  Custodian,  since  there  was  no  nexus  

between  loans  advanced  to  original  judgment-debtors  and  the  

transactions with the banks. The prayer in the said application  

was that the amount so recovered was to be freed from attachment  

until to be paid back to M/s Dhanraj Mills Private Limited, by  

the Custodian. The Special Court dismissed the claim so made on  

the  ground  that  the  Directors  of  M/s  Dhanraj  Mills  Private  

Limited  and  its  close  associates  were  involved  in  fraudulent  

deals  and  have  siphoned  off  funds  belonging  to  banks.  The  

Special Court found overwhelming evidence that M/s Dhanraj Mills  

Private Limited is liable to make payment and all its assets  

fall within the purview of the Act. It is in this order the  

Special Court specifically held that this is a fit case “for the  

corporate  veil  to  be  torn  off”  as  M/s  Dhanraj  Mills  Private  

Limited had no explanation whatsoever for how such large amounts  

of “loans” could have been advanced to the appellant and its  

group Companies when M/s Dhanraj Mills Private Limited itself  

had been defunct for many years without any commercial activity  

of its own.

7. In  the  year  1999,  The  Special  Court  having  

considered the request of the original judgment debtors, granted  

extension of time and directed the Custodian not to proceed with  

execution  of  the  decrees,  subject  to  payment  of  defaulted  

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installments. As usually, the appellant and its group Companies  

defaulted in payment of the said amounts once again. Left with  

no  alternative,  the  Custodian  filed  execution  applications  

against  the  judgment  debtors  for  recovery  of  dues  from  M/s  

Dhanraj Mills Private Limited. It is not necessary to refer the  

facts, the subsequent events in detail and various objections  

raised from time to time as to the sale of properties in the  

process  of  realizing  the  decretal  amounts.  However,  one  

important fact that may be required to state is that the Special  

Court by its earlier order dated 30th November, 2001 required the  

judgment debtors to pay Rs.16 crores payable towards all decrees  

for considering the prayer for extension of time to which all of  

them agreed to do so. This singular fact establishes that even  

judgment  debtors  were  treating  the  separate  decrees  passed  

against each one of them as a consolidated common decree. The  

Custodian, at all points of time treated them as a group to  

which no objections were raised at any point of time. The sale  

proceeds  were  accordingly  appropriated  against  dues  of  the  

entire group of M/s Killick Nixon Ltd.

8. The dispute now raised by the appellants is that  

the sale proceeds or the properties of M/s. Killick Nixon group  

companies ought to be apportioned individually decree wise. This  

is contrary to its earlier stand.  The material available on  

record  also  reveals  that  these  group  companies  have  always  

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referred to the aggregate principal amount of alleged loan given  

by M/s.  Dhanraj Mills Private Limited.

9. The appellants submitted before the Special Court  

that  the  liabilities  of  the  judgment  debtors  under  separate  

decrees  were  not  joint  liabilities  inasmuch  as  each  judgment  

debtor  is  a  separate  entity  in  law  having  their  separate  

properties and assets.  It was the case of the appellants that  

merely  because  the  judgment  debtors  are  group  companies  the  

amount of decree passed against them cannot be consolidated.  It  

was  their  case  that  the  Custodian  cannot  be  permitted  to  

appropriate the amounts paid by the judgment debtors as also the  

sale proceeds realized from the sale of properties towards a  

consolidated decree.  It is not necessary to refer in detail the  

stand  taken  by  the  Custodian  opposing  the  plea  of  the  

appellants.  Various instances were pointed out by the Custodian  

as to how the appellants themselves were treating the decrees as  

a consolidated one.    

10. It was specifically demonstrated by the Custodian that  

the  appellants  not  only  treated  them  as  one  group  but  have  

themselves  proceeded  and  agreed  to  have  appropriation  of  the  

sale  proceeds  of  the  properties  sold  on  group  basis.   The  

averment in the petition filed in the Special Court contained  

figures  relating  to  the  aggregate  dues  of  the  group,  the  

aggregate amounts received from the sale of properties and the  

aggregate balance amount.

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11. The Special Court after a detailed consideration came to  

the conclusion that M/s. Killick Nixon Limited and others are  

group  companies  and  they  are  all  controlled  by  M/s.  Dhanraj  

Mills Private Limited – notified party and the amounts that are  

being recovered in execution of the decrees are really public  

funds which were siphoned off by the Directors of M/s Dhanraj  

Mills Private Limited, and parked in the companies controlled by  

them.  The Special Court accordingly held that the appropriation  

of sale proceeds made by the Custodian is proper and accordingly  

the Custodian should proceed further to recover the amount that  

remained in balance.

12. In these appeals, the singular submission made by Shri  

Dhruv Mehta, learned senior counsel for the appellants, is that  

the appropriation of sale proceeds ought to have been carried  

out individually against each of the decree and not as done by  

the Custodian treating all the decrees as a consolidated decree.

13. Having  heard  learned  counsel  for  the  appellants  and  

respondent,  we  are  satisfied  that  an  interference  with  the  

impugned  order  passed  by  the  Special  Court,  which  is  purely  

interlocutory and does not decide any rights of any party, is  

unwarranted.  The Special Court did not decide any rights of the  

parties but merely passed orders from time to time including the  

one under the appeals for the realization of the amounts under  

the decrees passed which attained their finality. The procedure  

adopted for realization of the amounts under the decrees and the  

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manner of appropriation, in our considered opinion, by itself  

does not amount to deciding any lis as such between the parties.  

Under Section 10 of the Act that an appeal shall lie to this  

Court from any judgment, sentence or order of the Special Court  

but  not  against  the  interlocutory  orders.  Appeals  against  

interlocutory  orders  are  specially  excluded  under  the  said  

provision.

14. There cannot be any iota of doubt that M/s Killick Nixon  

and other companies were always treated as one group and there  

is a clear finding in this regard by the Special Court that the  

said group of companies are nothing but front companies of M/s.  

Dhanraj Mills Private Limited.

15. The  orders  impugned  in  these  appeals  are  purely  

interlocutory in nature against which no appeal lies to this  

court under Section 10 of the Act.  We are fortified in that  

view of ours by a decision of this court in CIFCO Properties (P)  

Ltd. and Others vs. Custodian and Others1.   Even on merits, we  

find  that  the  Special  Court  having  meticulously  analyzed  the  

facts, arrived at a proper conclusion and rightly treated the  

decrees as a consolidated one.   

16. We  find  no  merit  in  these  appeals  and  they  are  

accordingly dismissed without any order as to costs.

--------------------------J.

1   [ (2005) 3 SCC 708 ]

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      [B.SUDERSHAN REDDY]

 --------------------------J.                       [SURINDER SINGH NIJJAR]

New Delhi, April  27, 2010.

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