REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 5524 OF 2004                                         

Premanand R. Shenoy        ..…Appellant

Versus

Custodian & Ors.                                    ....Respondents

JUDGMENT

Dr. Mukundakam Sharma, J.   

1. By filing  the  present  appeal  the  appellant  has  challenged the  

judgment and order dated 5.3.2004 passed by the Special Court  

established  under  sub-section  (1)  of  Section  5  of  the  Special  

Court (Trial  of  Offences Relating to Transactions in Securities)  

Act,  1992  (hereinafter  referred  to  as  ‘the  Act’)  whereby  and  

whereunder the Special Court allowed the application filed by the  

Custodian  (respondent  No.  1  herein)  thereby  directing  the  

appellant to pay to the Custodian an amount of Rs. 2,83,192/-  

with interest at the rate of 18% per annum from 22.7.1991 to  

29.2.1992  which amount the Custodian would receive for and on  

behalf of respondent No. 2.

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2. Shri B. Ratnakar, the father of the appellant was the Chairman  

and  Managing  Director  of  M/s.  Fair  Growth  Financial  Services  

Limited  (for  short  the  ‘Company)  which  is  respondent  No.  2  

herein.   There  is  no  dispute  with  regard to  the fact  that  the  

father of appellant was the Chairman and also In-charge of the  

aforesaid  Company.   He  died  on  2nd February,  1992.   The  

appellant  became  the  Director  of  the  aforesaid  Company  

immediately after the demise of his father.  An order was placed  

for purchase of a Mahindra Jeep by making payment of a cheque  

dated 22.7.1991 for                    Rs. 2,83,192/-.  The said order  

was placed with M/s. Tirupati Balaji Motors, New Delhi.  As per  

the  original  delivery  receipt  and  letter  addressed  to  the  

appellant,  the  vehicle  was  delivered  to  the  appellant  on  

15.4.1992.  In this connection, reference may be made to the  

letter dated 12.4.1992 (Annexure R-5 in the paper book) which  

is addressed to the appellant herein.  The subject of  the said  

letter was with respect to the delivery of his vehicle.  By the said  

letter  M/s.  Tirupati  Balaji  Motors,  New  Delhi  informed  the  

appellant  that  despite  repeated  reminders  for  the  last  five  

months regarding delivery of the aforesaid vehicle, the delivery  

was not taken.  As per the order placed, the said jeep was lying  

ready  for  the  last  five  months  and  was  duly  registered  

temporarily in the name of the appellant.  Copy of the temporary  

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registration and the bill of the receipt were also enclosed with  

the said letter.   

3. Before dwelling further, it would be relevant here to mention that  

the  Reserve  Bank of  India,  in  the  course  of  its  investigation,  

found  large  scale  irregularities  and  malpractices  in  the  

transactions  in  both  the  Government  and  other  securities  

indulged in by some brokers in collusion with the employees of  

the  various  banks  and  financial  institutions.   The  said  

irregularities and malpractices led to the diversion of funds from  

banks  and  financial  institutions  to  the  individual  accounts  of  

certain  brokers.   To  deal  with  the  aforesaid  situation  and,  in  

particular,  to  ensure  speedy  recovery  of  the  huge  amount  

involved,  to  punish  the  guilty  and  restore  confidence  in,  and  

maintain  the  basic  integrity  and  credibility  of  the  banks  and  

financial institutions, the Special Court was constituted for trial of  

offences relating to transactions in securities and in that regard  

an Act was enacted called “the Special Court (Trial of Offences  

Relating to Transactions in Securities) Act, 1992”.  Section 3 of  

the said Act reads as follows

“3. Appointment and functions of Custodian – (1)  The  Central  Government  may  appoint  one  or  more  Custodian as it may deem fit for the purposes of this  Act.

(2)  The  Custodian  may,  on  being  satisfied  on  information received that any person has been involved  in any offence relating to transactions in securities after  the 1st day of April, 1991 and on and before 6th June,  1992,  notify  the  name of  such person in  the Official  Gazette.

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(3)  Notwithstanding  anything  contained  in  the  Code and may other law for the time being in force, on  and from the date of notification under sub-section (2),  any  property,  movable  or  immovable,  or  both,  belonging to any person notified under that sub-section  shall  stand attached simultaneously  with the issue of  the notification.

(4) The property attached under sub-section (3)  shall be dealt with by the Custodian in such manner as  the Special Court may direct.

(5)  The  Custodian  may  take  assistance  of  any  person while exercising his  powers or for discharging  his duties under this section and Sec.4.”

4. In terms of the aforesaid provision, M/s. Fair Growth Financial  

Services Limited was declared as a notified person.  Sub-section  

3 of Section 3 empowers the Custodian to attach any property  

which could be either movable or immovable, or both, belonging  

to  the  notified  person.   The  said  property  which  is  attached  

under sub-section 3 could be dealt with by the Custodian in such  

a manner as the Special Court direct in that regard.  In order to  

comply with the statutory provisions, the Custodian (respondent  

No. 1 herein) issued a public notice dated 10.9.1992 calling upon  

all the persons who had dealings with M/s. Fair Growth Financial  

Services Limited to inform him about the same.  The appellant,  

however,  after  a  long period,  for  the  first  time,  by  his  letter  

dated 4.8.1998 informed the Custodian that one Mahindra Jeep  

belonging to respondent No. 2 was parked at S-25, Panchasheel  

Park,  New  Delhi-110001,  at  the  residence  of  one  Mr.  Vijay  

Sachadev.  It was also informed by the appellant in that letter  

that the said vehicle was supposedly under a hire purchase/lease  

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agreement.  The appellant also enclosed with the aforesaid letter  

dated 4.8.1998 five original letters pertaining to the said vehicle  

which are of the following nature :  

1. Letter  dated  11.1.1992  from  respondent  No.  2  to  

M/s. Tirupati Balaji Motors, New Delhi.

2. Original  invoice  for  Rs.  2,90,200/-  in  the  name  of  the  

appellant.

3. Original C.M. Form dated 3.3.1992.

4. Original  letter dated 12.4.1992 addressed to respondent  

No. 1.

5. Original delivery receipt dated 15.4.1992.   

5. All  the  aforesaid  letters  and  documents  are  addressed  to  the  

appellant.   After  receipt of  the aforesaid documents alongwith  

the  letters  annexed  therewith  and  after  making  necessary  

enquiries, the Custodian came to the conclusion that respondent  

no.  2  had  financed  the  purchase  of  the  said  vehicle  for  the  

appellant.  According to the respondent No. 1 (the Custodian),  

respondent No. 2 had placed an order for the said vehicle on  

behalf of the appellant to M/s. Tirupati Balaji Motors, New Delhi  

by issuing a cheque for Rs. 2,83,192/- dated 22.7.1991.  It was  

also  found  that  respondent  No.  2,  thereafter  by  letter  dated  

10.3.1992, informed the said              Ms/.  Tirupati Balaji  

Motors, New Delhi that they were constrained to cancel the order  

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of the said vehicle due to non-delivery thereof and demanded  

back the amount of Rs. 2,83,192/- along with interest at the rate  

of 22% per annum for the period from 22.7.1991 to 29.2.1992.  

It  transpires  from  the  original  delivery  receipt  that  the  said  

vehicle  was  delivered  to  respondent  No.  2  on  behalf  of  the  

appellant  on  15.4.1992 and,  therefore,  it  was  concluded  that  

there  was  an  agreement  between  respondent  No.  2  and  the  

appellant to enter into a hire purchase agreement in respect to  

the said vehicle.  On enquiry made, the Custodian found the said  

vehicle to be in a dilapidated and rusty condition parked at S-25,  

Panchasheel Park, New Delhi-110001.  On further enquiry being  

made  by  the  Custodian,  it  was  found  that  the  registration  

number found on the body of the vehicle was a fake one and, in  

fact, the same belonged to a Maruti Van registered.   

6. Consequent thereto and pursuant to the statutory responsibility  

placed on the Custodian under the Act, the Custodian filed an  

application before the Special Judge.  The appellant was served.  

The Special Court thereafter considered the said application.  In  

the light of the submissions made on behalf of both the parties  

and on consideration of the records, it was found that the entire  

transaction was authorised by the appellant and that he was all  

along  aware  of  the  aforesaid  transaction.   Consequently,  the  

application filed by the Custodian was allowed and the appellant  

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was  directed  to  pay  to  the  Custodian  the  amount  of  Rs.  

2,83,192/-  with  interest  at  the  rate  of  18% per  annum from  

22.7.1991.  The amount of Rs. 10,00,000/- was also deposited  

by the appellant during the course of hearing of the aforesaid  

application and the amount was directed to adjusted from the  

said deposit.

7. Being aggrieved by the aforesaid order passed by the Special  

Court, the present appeal is filed.   

8. We have heard the learned counsel appearing for the appellant  

as also the learned counsel appearing for the respondents.  We  

have also perused the documents placed on the records.

9. The father of the appellant, who was the Chairman of the notified  

party, expired on 2.2.1992.  Order for purchase of the aforesaid  

vehicle was placed on 22.7.1991.  Office note of the said debt of  

M/s.  Fair  Growth  Financial  Services  Limited  is  annexed  as  

Annexure R-2 with paper book and relevant portion thereof reads  

as follows :  

“1.0 Chairman  has  verbally  sanctioned  H.P.  Finance  for Mr. Premanand R. Shenoy Ms. Fairgrowth Agencies  Ltd. for a Mahindra Jeep.  The cost of the said good is  RS.2,83,192,  to  be  supplied  by  M/s  Tirupati  Balaji  Motors.

2.0 The payment for the vehicle is to be made to day  (prior to the announcement of the Budget on 24.7.91).  hence after taking approval from Mr. Rajagopalan, Vice  

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President, on phone a cheque for the said amount is  being released today.”

10. The aforesaid office note clearly indicates that the hire purchase  

finance was made available to the appellant by respondent No. 2  

and  the  said  amount  for  purchase  of  the  said  Mahindra  Jeep  

vehicle  was sanctioned by the Chairman verbally  as  stated in  

paragraph 1.0 of the office note mentioned hereinabove.  The  

cost of the said vehicle is Rs. 2,83,192/-.  It is also mentioned in  

that note that payment for the said vehicle was to be made on  

22.7.1991  and,  therefore,  after  taking  approval  of  Mr.  

Rajagopalan, Vice President, a cheque for the said amount was  

released.  There is another letter available on record annexed as  

Annexure R-3 which is dated 11.1.1992.  The said letter refers to  

the subject of the Mahindra Jeep to be sold to Mr. Premanand R.  

Shenoy, the appellant herein.  In the said letter, respondent No.  

2  has  made  reference  to  proforma  invoice  No.  791  dated  

22.7.1991 intimating further  that the cheque dated 22.7.1991  

for Rs. 2,83,192/- was sent for supply of the jeep which was  

subject to a hire purchase agreement between respondent No. 2  

and the appellant.  Reference is already made to letter dated  

12.4.1992 which again relates to the delivery of the aforesaid  

vehicle.  The said letter is also addressed to the appellant at the  

address of respondent No. 2 intimating that the aforesaid jeep is  

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lying ready for the last five months and is also duly registered  

temporarily in the name of the appellant.   

11. It is an admitted position that subsequent thereto the jeep was  

delivered along with Temporary Registration No. HRU 4413 AT  

which is annexed as Annexure R-4.  The name of the appellant  

appears against the name of the registered owner.  In fact, the  

aforesaid  documents  were  sent  by  the  appellant  himself  to  

respondent No. 1 (the Custodian) under his letter dated 4.8.1998  

informing the Custodian that one Mahindra Jeep is parked at S-

25, Panchasheel Park, New Delhi-110001.  The appellant, in that  

letter, had also stated that the ex-officials of M/s. Fair Growth  

Financial  Services  Limited  informed  him  that  the  vehicle  was  

supposed to be under hire purchase/lease agreement.   

12. On appreciation of the aforesaid documents, the Custodian has  

come to  a  finding  and  conclusion  that  the  appellant,  being  a  

Director  of  the M/s.  Fair  Growth Financial  Services  Limited of  

which  his  father  was  Chairman  and  Managing  Director,  was  

aware that the jeep had been purchased in his name for which  

consideration was paid by the M/s. Fair Growth Financial Services  

Limited.   The  premises  S-25,  Panchasheel  Park,  New  Delhi-

110001 was previously occupied by the father of the appellant.  

Having  found  all  those  facts  against  the  appellant,  it  was  

concluded  that  the  vehicle  in  question  was  purchased  by  the  

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appellant through respondent No. 2 on hire purchase agreement  

and,  therefore,  the  amount  was  paid  by  respondent  No.  2.  

Therefore,  the  vehicle  was  registered  in  the  name  of  the  

appellant.  When the temporary registration of the vehicle was  

taken on 3.3.1992, the delivery of the vehicle was taken by the  

notified party.   The appellant  was the Director  of  the notified  

party.  Consequent thereto, a categorical finding was recorded  

that the aforesaid transaction was known and authorised by the  

appellant who was aware that the vehicle was ordered by his  

father  on  his  behalf  for  which  consideration  was  paid  by  the  

notified  party.   In that  view of  the matter,  the  direction  was  

issued  for  payment  of  the  amount  in  accordance  with  the  

provisions of the aforesaid Act.  

13. Learned  Counsel  appearing  for  the  appellant,  however,  

submitted  that  the  aforesaid  conclusions  arrived  at  by  the  

Special  Court are perverse for when the order was placed for  

purchase of the vehicle and when the payment was made, that  

is, on 22.7.1991, he was nowhere connected with the business of  

respondent No. 2.  Therefore, the appellant had no knowledge of  

the  aforesaid  transaction.   This  submission,  however,  in  our  

considered  opinion,  is  misplaced  in  view  of  the  findings  and  

conclusions recorded hereinbefore on the basis of the documents  

on record.   

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14. All those documents which were sent by the appellant himself to  

the Custodian clearly indicate that the vehicle was ordered in the  

name of the appellant.  Order for purchase of the vehicle was  

placed in the name of the appellant.  Respondent No. 2 has also  

sanctioned hire  purchase finance for  the appellant  who is  the  

Chairman of M/s.  Fair  Growth Financial  Services Limited for a  

Mahindra Jeep.  The name of the appellant was also registered  

as a registered owner in the temporary registration.  Therefore,  

despite the dispute raised by the appellant, it is clear that the  

appellant was the owner of the vehicle in question and that it  

was  purchased  on  hire  purchase  and  that  it  was  financed by  

respondent No. 2 after the amount was sanctioned by the father  

of the appellant who was the Chairman towards hire purchase  

finance  for  the  appellant.   The  vehicle  was  delivered  on  

15.4.1992  when  he  was  the  Director  and  In-charge  of  

respondent No. 2 which is quite evident from the delivery note  

referred  to  hereinbefore.   Therefore,  the  nexus  between  the  

purchase of the vehicle and the involvement of the appellant in  

the deal is clearly established.   

15. In view of the aforesaid discussion, we find no infirmity in the  

order passed by the Special Court.  We uphold the said order but  

in the peculiar facts and circumstances of the case and taking  

into consideration the fact that the appellant himself  informed  

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the Custodian about the aforesaid vehicle we modify the order  

for  payment  of  interest  at  the  rate  of  18%  per  annum  by  

directing that interest on the aforesaid amount of Rs. 2,83,192/-  

shall be paid at the rate of 9% per annum from 22.7.1991 to  

29.2.1992.   An  amount  of  Rs.  10,00,000/-  is  already  lying  

deposited  in  terms  of  order  passed  which  was  deposited  by  

respondent  No.  1.   The  amount  payable  by  the  appellant,  

therefore, shall now be calculated in terms of this order and the  

said amount shall be adjusted out of the amount lying deposited.  

So  far  paragraph  No.  21  of  the  judgment  and  order  of  the  

Special Court is concerned, we find no infirmity in the same and,  

therefore, the same is upheld.   

16.In terms of the aforesaid order, this appeal is disposed of with  

modification with regard to the interest payable.

  ...............………………………J.         [Dr. Mukundakam Sharma]

   .…................………………..J.   [Dr. B.S. Chauhan]

New Delhi, May 26, 2009

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