06 September 2004
Supreme Court
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L.S. SYNTHETICS LTD. Vs FAIRGROWTH FINANCIAL SERVICES LTD.

Bench: N. SANTOSH HEGDE,S.B. SINHA,A.K. MATHUR
Case number: C.A. No.-004268-004268 / 2003
Diary number: 10778 / 2003


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CASE NO.: Appeal (civil)  4268 of 2003

PETITIONER: L.S. Synthetics Ltd.                                             

RESPONDENT: Fairgrowth Financial Services Ltd. & Anr.                        

DATE OF JUDGMENT: 06/09/2004

BENCH: N. Santosh Hegde,S.B. Sinha & A.K. Mathur

JUDGMENT: J U D G M E N T with C.A. No. 4269 of 2003 and C.A. No. 4270 of 2003

S.B. SINHA, J:

These appeals arising out of the judgments and orders dated 21st  March 2003 passed by the Special Court at Bombay in Miscellaneous  Petition Nos. 71, 72 and 99 of 1999 involving similar questions of law and  fact were taken up for hearing together and are being disposed of by this  common judgment.

FACTS: The fact of the matter, however, is being noticed from Civil Appeal  No. 4268 of 2003.   

A notification was issued on 2.7.1992 by the Custodian notifying the  Respondent No. 1 as a notified party in terms of the provisions of the Special  Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992  (for short "the said Act").   

The Appellant herein obtained short term loans amounting to Rs.  14.25 lakhs from the notified party during the period 1.4.1991 to 6.6.1992 as  specified in the said Act.  The Custodian called upon the Appellant herein to  furnish particulars of the said loans pursuant to or in furtherance whereof the  Appellant herein accepted the same to be outstanding as on 30.6.1992 in the  books of Respondent No. 1 payable to him.  On the said amount of loan,  interest at the rate of 21% per annum was payable.

       The Appellant herein was directed to deposit the principal amount by  the Custodian which was not complied with.  The concerned Chartered  Accountant, however, gave a certificate to the effect that a sum of Rs. 14.25  lakhs was advanced as loan to the Appellant by the Respondent No. 1 with  interest at 21% per annum and that the total sum outstanding was Rs.  34,98,967.04/-.         The Respondent No. 1 thereafter initiated a proceeding  before the Special Court praying for a direction upon the Appellant herein to  pay to the Custodian a sum of Rs. 34, 99,900.68/- on behalf of his behalf.   

The contentions of the Appellant before the Special Court were that it  having furnished full details of the amount in question to the Custodian in  1993, the claim was barred by limitation and the said Act did not enable the  Respondent herein to recover any time barred debts from it.  It was further  urged that the transaction in question having not arisen out of transactions in  securities, the Special Court had no jurisdiction to deal with the matter.  It  was also contended that in that view of the matter Section 9A of the said Act

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must be read down.   

JUDGMENT: By reason of the impugned judgment, the Special Court, however,  rejected the said contentions holding that once a property is found to be  owned by a notified party,  all claims relating thereto must be adjudicated  upon by the Special Court.

Following its earlier decision of the Tribunal in A.K. Menon,  Custodian Vs.  Modern Chemical Corporation & ors. [2002 (1) All M.R.  180], the Special Court held that the provisions of the Limitation Act would  have no application to the proceedings under the said Act.  It was  consequently ordered:

"(a) I hereby direct Respondent No. 1 to pay to the  Custodian on behalf of FFSL Rs. 14.25 lacs with  interst at 15% per annum from the date on which  the loan(s) have been advanced upto payment."

SUBMISSIONS:

       Mr. G.L. Sanghi, learned senior counsel appearing on behalf of the  Appellant would contend that the advances made by the Respondent being  not transactions of the nature specified in the Act, an application filed by the  notified party was not maintainable.  It was submitted that the provisions of  the said Act and in particular those contained in Section 9A must be read  down so as to uphold the constitutionality of the said Act.  Strong reliance in  this connection has been placed on Harshad Shantilal Mehta Vs. Custodian  and Others [(1998) 5 SCC 1] and Canara Bank Vs. Nuclear Power  Corporation of India Ltd. and Others [1995 Supp (3) SCC 81].

       The learned counsel would further submit that by reason of the  provisions of the said Act, the plea of limitation which could have been  taken by the Appellant, had a suit been filed by the Respondent No. 1  against it, would still be available as the transaction is of civil nature.  It was  argued that only because a statutory attachment comes into force by reason  of Section 3(3) of the Act, the property of the notified party  does not vest in  the Custodian.  In any event, Mr. Sanghi would argue  that the notified party  had no locus to initiate the proceedings before the Special Court.

       The learned counsel would, in the alternative, submit with reference to  Civil Appeal Nos. 4269 and 4270 of 2003 that there being no agreement to  pay interest, the Special Court erred in directing such payment of interest  without arriving at a finding that any demand in relation thereto was made in  terms of the provisions of the Interest Act.   

       Mr. Subramonium Prasad, learned counsel appearing on behalf of the  Respondent, on the other hand, would argue that as all properties stood  attached in terms of the said notification on 22.7.1991 and all amount  recovered are required to be utilized towards the dues of the notified person;  an application at the instance of the notified person was maintainable.

       The learned counsel would submit that the Special Court could   initiate a suo motu proceeding and as it has a duty to issue direction(s) as  regards the attached property and in that view of the matter, the provisions  of the Limitation Act will have no application.  Strong reliance in this  connection has been placed on Mt. Laxmibai Vs. Tukaram [AIR 1930  Nagpur 206].

ATTACHMENT:         It is not in dispute that the Respondent No. 1 herein has advanced loan  to the Appellant by different cheques amounting to Rs. 14.25 lakhs which  were to be repaid at the interest rate of 21% per annum, the details whereof  are as under:

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"Cheque No.             Date                    Amount 234285                  28.01.92                1,50,000 244746                  27.04.92                3,50,000 244825                  06.05.92                1,00,000 246029                  25.05.92                1,00,000 246038                  25.05.92                   75,000 246159                  09.06.92                6,50,000"

       The said Act was enacted to provide for the establishment of a Special  Court for the trial of offences relating to transactions in securities and for  matters connected therewith or incidental thereto.  A Special Court is  established under Sub-Section (1) of Section 5 of the said Act.  Not only all  prosecutions relating to offences committed under the said Act are to be  initiated before the Special Court in terms of Section 7 of the Act, by reason  of Section 9A thereof which was inserted by Act 24 of 1994 with effect from  25th January, 1994, the Special Court is empowered to exercise all such  jurisdiction, powers and authority as were exercisable immediately before  such commencement by any Civil Court in relation to any matter or claim  inter alia relating to any property standing attached under Sub-section (3) of  Section 3 thereof.

       In terms of the provisions of the said Act, the Custodian has three  functions to perform: (i)     to notify a person in the Official Gazette, on being satisfied on  information received that he has been involved in any offence  relating to transactions in securities during the period specified  therefor; (ii)    He has the authority to cancel any contract or agreement relating to  the properties of the notified persons which, in his opinion, has  been entered into fraudulently or for the purpose of defeating the  provisions of the Act as specified in Section 4. (iii)   He is required to deal with the properties in the manner as directed  by the Special Court.       By reason of Sub-section (2) of Section 3 of the Act, the Custodian  who may be appointed under Sub-section (1) thereof is entitled to notify a  person on satisfying himself that he is involved in any offence relating to  transactions in securities, wherefor he may rely upon the information  received from any of the  sources specified in Rule 2 of 1992 Rules.  Sub- section (3) of Section 3 provides for a 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.

JURISDICTION OF THE SPECIAL COURT: The jurisdiction of the Special Court is of wide amplitude.  Subject to  a decision in appeal therefrom, its decision is final.

In this case, the notified person himself had disclosed that a sum of  Rs. 14.25 lakhs is owing and due to it from the Appellant.  The debt at the  hands of the Appellant payable to the Respondent being admitted, we have  no hesitation to hold that the same would be subject matter of attachment.

The debt in question is capable of being attached being a property  belonging to the notified party and upon such attachment the consequences  provided therefrom would ensue and in that view of the matter the Special  Court will have jurisdiction to pass an appropriate order in relation thereto  by issuing appropriate directions in terms of the provisions of the said Act.   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.   

 The jurisdiction of the Special Court, it is not correct to contend, is

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confined only to the illegal transactions in securities and properties acquired  by the notified person out of the same.  Once the properties are attached  under Sub-section (3) of Section 3, the Custodian has no other option but to  apply the same in such a manner as the Special Court may direct.

LOCUS OF THE RESPONDENT : The said Act does not specify as to who can initiate a proceeding  before the Special Court.  The Special Court, as would appear from the plain  wordings of the said Act, is entitled to direct the Custodian as regard  application of any property which stands attached.  It may, therefore, do so  at the instance of the notified person apart from the Custodian.  It can also  initiate a proceeding suo motu  once attachment of any property belonging to  a notified person is brought to his notice.

READING DOWN OF SECTION 9A OF THE ACT  :  The primal question which, however, arises for consideration is  whether a statutory attachment in terms of Sub-section (3) of Section 3 of  the said Act would apply only in relation to a property which was the  subject-matter of the transactions in securities.

Application of all properties belonging to the notified person who,  according to the Custodian, might have committed an offence within the  meaning of the provisions thereof evidently for the purpose of discharge of  such liabilities is obviated by reason of Section 11 of the said Act which  reads as under: "11. Discharge of liabilities. - (1)  Nothwithstanding anything contained in the Code  and any other law for the time being in force, the  Special Court may make such order as it may  deem fit directing the Custodian for the disposal of  the property under attachment.  (2) The following liabilities shall be paid or  discharged in full, as far as may be, in the order as  under :  (a) all revenues, taxes, cesses and rates due from  the persons notified by the Custodian under sub- section (2) of Section 3 to the Central Government  or any State Government or any local authority;  (b) all amounts due from the person so notified by  the Custodian to any bank or financial institution  or mutual fund; and  (c) any other liability as may be specified by the  Special Court from time to time."

It is not a case where a third party right is involved as was the case in  Kudremukh Iron Ore Co. Ltd. Vs. Fairgrowth Financial Services Ltd. and  Another [(1994) 4 SCC 246].  The purpose of the said Act is to discharge the  liabilities of the Government Banks, financial institutions, mutual funds, etc.  and for the said purpose, the statute itself provides that all properties  belonging to the notified person shall stand attached.  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.  There is, in our  considered opinion, no basis to hold, as has been urged by Mr. Sanghi, that  only those properties belonging to the notified person which are subject  matter of the transactions in securities would stand attached and for that  purpose Section 9A of the said Act is not  required to be read down.  

HARSHAD SHANTILAL MEHTA: Our attention has been drawn by Mr. Sanghi to paragraph 14 of  Harshad Shantilal Mehta (supra) which reads as follows: "14. It has also been submitted before us by one of  the notified parties (Dhanraj Mills v. Custodian)

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that properties belonging to notified persons which  have no nexus with the transactions in securities of  the notified person during the "statutory period",  also cannot be attached under Section 3. Reliance  is placed on the decision of the Bombay High  Court in the case of Hitesh Shantilal Mehta v.  Union of India ((1992) 3 Bom CR 716) (to which  one of us was a party) in this connection. Our  attention is drawn to the following passage in the  High Court’s judgment : (at p. 719)  "If the person ... approaches the Special Court and  makes out, for example, a case that the property  which is attached has no nexus of any sort with the  illegal dealings in securities belonging to banks  and financial institutions during the relevant period  and/or that there are no claims or liabilities which  have to be satisfied by attachment and sale of such  property, in our view, the Special Court would  have the power to direct the Custodian to release  such property from attachment."  Hence a property not having any nexus with the  illegal dealings in securities can be released from  attachment by the Special Court in an appropriate  case."  

This Court in paragraph 14 was merely recording the submissions of  one of the notified parties.  Even a question as to whether all properties of  notified persons would be subject to the statutory attachment under Sub- section (3) of Section 3 of the said Act or not did not arise for consideration  therein.

Therein indisputably this Court was referring to a judgment of the  Bombay High Court but did not pronounce finally on the correctness or  otherwise thereof.   

In Hitesh Shantilal Mehta (supra)  the Bombay High Court  appears  to have merely held that in appropriate cases the Special Court would have  the power to direct the Custodian to release such property from attachment,  in the event, it is found that the property which is attached has no nexus with  the illegal dealings in securities belonging to banks and financial institutions  during the relevant period and/ or there are no claims or liabilities which  have to be satisfied by attachment and sale of such property.  Once it is held  that a debt can be subject matter of attachment, the provisions of Sub-section  (3) of Section 3 of the said Act would squarely be applicable in view of the  fact that the same was the property belonging to a notified person.  This  position in law is not disputed.  Such attached property, thus, if necessary,  for the purpose of discharging the claims and liabilities of the notified  person indisputably would stand attached and can be applied for discharge of  his liabilities in terms of Section 11 of the said Act.

In Harshad Shantilal Mehta (supra), it was , inter alia, opined : 28\005 It was, therefore, expected that the available  funds from attached assets would be speedily  restored to the banks and financial institutions. It  was also expected that even after the discharge of  tax liabilities for the relevant period, substantial  funds would be left over for being paid to the  banks and financial institutions concerned."    CANARA BANK: In Canara Bank (supra) this Court was concerned with transfer of an  application pending before the Company Law Board in terms of Sub-Section  (2) of Section 9-A of the Act and only in that context, it was observed: "10. Sub-section (1) of Section 9-A is divisible  into two parts. By the first part, the Special Court

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is empowered to exercise, on and from the  commencement of the Amendment Ordinance, all  such jurisdiction, powers and authority as were  exercisable before such commencement by any  civil court. By the second part, the Special Court is  empowered to exercise such jurisdiction, powers  or authority in regard to the matters or claims  therein specified, which include matters or claims  arising out of transactions in securities entered into  between the stated dates in which a notified person  is involved. So read, the Special Court has the  jurisdiction, powers and authority of a civil court  to exercise the same in regard to matters or claims  arising out of transaction in securities entered into  between the stated dates in which a notified person  is involved. Sub-section (1) of Section 9-A,  therefore, invests the Special court with the  jurisdiction, powers and authority necessary for the  purposes of entertaining matters or claims of the  nature specified therein. Sub- section (2) provides  for the transfer of such matters or claims pending  in any court to the Special Court on the  commencement of the Amendment Ordinance.  And sub-section (3) expressly debars any court  other than the Special Court from exercising any  jurisdiction, powers or authority in relation to such  matters or claims."

LIMITATION:

The contention as regards the applicability of the Limitation Act must  be considered having regard to the foregoing findings .

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 bodies other than  courts, such as quasi-judicial tribunal or even an executive authority.  The  Act primarily applies to the civil proceedings or some special criminal  proceedings.  Even in a Tribunal,  where the Code of Civil Procedure or  Code of Criminal Procedure is applicable; the Limitation Act, 1963 per se  may not be applied to the proceedings before it.  Even in relation to certain  civil proceedings, the Limitation Act may not have any application.  As for  example, there is no bar of limitation for initiation of a final decree  proceedings or to invoke the jurisdiction of the Court under Section 151 of  the Code of Civil Procedure or for correction of accidental slip or omission  in judgments, orders or decrees; the reason being that these powers can be  exercised even suo motu by the Court and, thus, no question of any  limitation arises.  [See Nityananda, M. Joshi and another Vs. the Life  Insurance Corporation of India and others, AIR 1970 SC 209, Hindustan  Times Ltd. Vs. Union of India and Others, (1998) 2 SCC 242 and Mt.  Laxmibai (supra)]

Even no period of limitation is prescribed in relation to a writ  proceeding.

S.N. Variava, J. in A.K. Menon, Custodian (supra), whereupon the  learned Special Court has placed reliance, observed:

"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

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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 remain is 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 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  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."

We respectfully agree with the said view.   

We may, however, add that the attachment of the properties of the  notified party being for specific purposes, i.e., for the purpose of discharging  his liabilities, the Special Court is bound to pass appropriate orders in  relation thereto.  A property once attached shall remain under attachment till  an appropriate order is passed.  It is, therefore, idle to contend that even in  respect thereof the provisions of the Limitation Act would apply.  The Court  while issuing directions to the Custodian in relation to the attached property  for the purpose of discharge of the liability of the notified person must pass  an appropriate order.  So long the claims or other proceedings initiated  before the Special Court as regard discharge of liability of the notified  person continue, the attachment remains in force.  A proceeding before the  Special Court is not a suit for recovery of an amount.  The proceedings  before the Special Court are extraordinary in nature.  Distribution of the  assets of a notified person may take a long time but it would bear repetition  to state because all the claims filed before the Special Court are disposed of,  the property of the notified person stands attached.  In other words, the  provisions of the Limitation Act would inter alia apply only when a suit is  filed or a proceeding 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.

       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

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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. (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.

In terms of the provisions of the said Act, no period of limitation is  prescribed, evidently because the 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 devise to modify the ambit of  provisions of law mentioned therein or to override the same in the specified  circumstances. [See T.R. Thandur vs. Union of India and Others \026 (1996) 3  SCC 690 \026 para 8].  The said Act does not provide for any period of  limitation, the reasons wherefor have been noticed hereinbefore 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 Act and any other  Act, the provisions of the former shall prevail.

In  Solidaire India Ltd. Vs. Fairgrowth Financial Services Ltd. & Ors.  [2001 (2) SCALE 1], this Court held :    

"10\005The Legislature being aware of the  provisions of Section 22 under the 1985 Act still  empowered only the Special Court under the 1992  Act to give directions to recover and to distribute  the assets of the notified persons in the manner set  down under section 11(2) of the 1992 Act.  This  can only mean that the Legislature wanted the  provisions of Section 11(2) of the 1992 Act to  prevail over the provisions of any other law  including those of the Sick Industrial Companies  (Special Provisions) Act, 1985.  It is a settled rule  of interpretation that if one construction (sic  constructions) leads to a conflict, whereas on  another construction, two Acts can be  harmoniously constructed then the latter must be  adopted.  If an interpretation is given that the Sick  Industrial Companies (Special Provisions) Act,  1985, is to prevail then there would be a clear  conflict if it is held that the 1992 Act is to prevail."

A statute of limitation bars a remedy and not a right.  Although a  remedy is bared, a defence can be raised.  In construing a special statute  providing for limitation, consideration of plea of hardship is irrelevant.  A  special statute providing for special or no period of limitation must receive a  liberal  and broader construction and not a rigid or a narrow one.  The intent  and purport of the Parliament enacting the said Act furthermore must be  given its 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.

Only in the event, all the claims as provided for under Section 11 of

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the said Act are fully satisfied, the amount belonging to the notified person  can be directed to be released in his favour or in favour of any other person.

INTEREST:         It does not appear from the judgment of the Special Court that any  argument was advanced before it that there did not exist any agreement as  regard payment of interest.  No such contention has even been raised in the  Memorandum of Appeal or in the Affidavit filed before the Special Court.   In fact, it is admitted that the Custodian and the Appellant exchanged certain  correspondences in this behalf in the year 1992.      We do not find any merit in the contention of Mr. Sanghi that the  Special Court had no jurisdiction to issue any direction for payment of  interest.  The said direction, in our opinion, could have been issued having  regard to the fact that the attached amount was being utilized by the  Appellants; assuming that there existed no agreement in relation thereto.  As  the attached property remained in the hands of the Appellant and they had  applied the same for their own benefit, the Special Court was entitled to  grant interest by way of restitution.   

CONCLUSION: We, therefore, hold:

(i)     A notified party has the requisite locus to bring the fact to the notice  of the Special Court that certain sum is owing and due to him from a  third party whereupon a proceeding can be initiated for recovery  thereof by the Custodian and consequent application thereof in  discharge of the liability of the notified person. (ii)    Sub-section (3) of Section 3 should be literally construed and so  construed all properties belonging to the notified person shall be  subject to attachment which may, consequently, be applied for  discharge of his liabilities in terms of Section 11 of the said Act. (iii)   The provisions of Limitation Act, 1963 have no application in relation  to the proceedings under the said Act.

For the reasons aforementioned, we do not find any merit in these  appeals which are dismissed accordingly.  No costs.