ASEA BROWN BOVERI LTD. versus INDUSTRIAL FINANCE CORPORATION OF INDIA AND ORS.

Citation: [2004] SUPP. 5 S.C.R. 671 · Decided: 27-10-2004 · Supreme Court of India · Bench: R.C. LAHOTI · Disposal: Appeal(s) allowed

Judgment (excerpt)

ASEA BROWN BOVERI LTD. 
A 
v. 
INDUSTRIAL FINANCE CORPORATION OF INDIA AND ORS. 
OCTOBER 27, 2004 
[R.C. LAHOTI, CJ. AND ASH OK BHAN, 1.] 
B 
Special Courts (Trial of offences Relating to Transactions in Securities 
Act, 1992-Sections 3(1), 3(2), JO-Custodian of notified party-Powers 
of-Properties of notified party-Held, do not vest with custodian at any C 
point of time, he is not a receiver or a final liquidator-Further Held-
Position of custodian is same as that of notified person and he remains bound 
by the obligations incurred 
Words and Phrases-Lease Finance Agreement-Meaning of-
Financial /ease-Explained-Held, such a lease is non-cancel/able. 
D 
Appellant entered into a Lease Finance Agreement with Mis Fairgrowth 
Financial Services Limited ('Fairgrowth'), the respondent No. 3 taking 56 
cars under lease finance with the appellant. Appellant deposited total security 
amount on the 56 cars. The terms of the lease finance agreement mutually 
agreed to by the parties, prescribed all the required payments to be made by E 
the appellant. The cars were to be transferred to the appellant at the end of 
initial lease period of 5 years the terminal fee was to be 20%. Fairgrowth 
became a notified party under sub-section (2) of Section 3 of the Special 
Courts (Trial of offences Relating to Transactions in Securities) Act, 1992 
due to certain illegal transactions. The Central Government appointed IFCI F 
as the custodian, under Section 3(1) of the Act, over the properties belonging 
to Fairgrowth. Appellant Company continued to make payment to IFCI in place 
of Fairgrowth as per lease finance agreement Appellant squared up fully and 
finally its liability for all payments subject to adjustment of security deposit 
and interest agreed thereon and all that remained to be done thereafter was 
transfer of the 56 cars in favour of the appellant after cancellation of the G 
hypothecation which obligation was to be discharged by the custodian which 
had taken over the properties of Fairgrowth. 
The Special Court refused to treat the transaction between the appellant 
671 
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672 
SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R. 
A and Fairgrowth as one oflease finance and instead treated it to be a transaction 
of lease only and directed the appellant to hand over possession of all the 56 
cars to the custodian within one week. 
Before this Court, appellant contended that all sums due and payable 
under the lease finance agreement were already paid and nothing was due 
B and payable at all to any of the respondents. Termination ofhypothecation and 
transferring on paper of the ownership of the cars to the appellant was only 
a matter of formality and that in no case the 56 cars could have been directed 
to be delivered to the custodian, and that inspite of having made full payment, 
direction for delivery of cars to the custodian has caused failure of justice. 
C The custodian contended that it has filed a calculation sheet prepared b a 
Chartered Accountant appointed by the Special Court and, according to his 
calculation, an amount ofRs.6,48,370 was due and payable by the appellant to 
respondent No.3. 
During the course of having before the Supreme Court it conceded that 
D the transaction was of lease finance. The issue was to work out right and 
obligations of the parties accordingly. 
Allowing the Appeal, the Court 
HELD: 1. Financial lease is a transaction current in the commercial 
E world, the primary purpose whereof is the financing of the purchase by the 
financier. The purchase of assets or equipments or machinery is by the 
borrower. For a!I practical purposes, the borrower becomes the owner of the 
property inasmuch as it is the borrower who chooses the property to be 
purchased, takes delivery, enjoys the use and occupation of the property, bears 
F the wear and tear, maintains and operates the machinery/equipment, 
undertakes indemnity and agrees to bear the risk of loss or damage, if any. 
He is the one who gets the property insured. He remains liable for payment 
of taxes and other charges and indemnity. He cannot recover from the lessor, 
any of the above mentioned expenses. The period ·of lease extends over and 
covers the entire life of the property for which it may remain useful divided 
G either into one tern or divided into tWo terms with clause for renewal. In either 
case, the lease is non-cancellable. [679-A-D] 
H 
Dictionary of Accounting & Finance by R. Brockington (Pitman 
Publishing, Universal Boo

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