KILLICK NIXON LTD. v.

THE CUSTODIAN AND ORS. (Civil Appeal No. 2724 of 2006)

APRIL 27, 2010 [B. Sudershan Reddy and Surinder Singh Nijjar, JJ.]

2010 (5) SCR 275

The Judgment of the Court was delivered by

B. SUDERSHAN REDDY, J. 1. These appeals are directed against the orders of  

interlocutory nature passed by the Special Court constituted 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 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  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  

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  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.

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 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.