HARSHAD SHANTILAL MEHTA versus CUSTODIAN AND OTHERS

Citation: [1998] 3 S.C.R. 389 · Decided: 13-05-1998 · Supreme Court of India · Bench: SUJATA V. MANOHAR · Disposal: Disposed off

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Judgment (excerpt)

HARSHAD SHANTILAL MEHTA 
v. 
CUSTODIAN AND OTHERS 
MAY 13, 1998 
[SUJATA V. MANOHAR, S.P. KURDUKAR AND 
D.P. WADHWA, JJ.] 
The Special Court (Trial of Offences Relating to Transactions in 
Securities) Act, I 992: 
Sections I 1(2) and 3(3)-Disbursemen/ of properties r:tached under 
Section 3(3)-Liabilities to be paid or discharged under Section JI (2) are 
A 
B 
c 
of the person notified-If any person other then the notified person has any 
share, right, Ii/le or interest in the attached property on the date of notification 
under Section 3(3), right of third party cannot be extinguished-Any D 
application of third party has to be decided by the Special Court before 
proceeding under Section I I. 
Section I I-Disbursement of attached properties-Jn case of properties 
of the notified persons already mortgaged/pledged to banks or financial 
institutions on the date of attachment-Held, the liabilities mentioned in E 
Section I I (2)of the Act which were to be paid from the proceeds of the sale 
of the attached property, would only refer to proceeds of the sale of the right, 
title and interest of the notified person in the attached property and not the 
entire property itself 
Section I I (2)(a)-'Tax due'-Meaning-Unascertained and unassessed F 
tax which is not legally binding on the assessee not covered by Section I I 
(2)(a)-Discharge of tax liability of notified person-Do not include penalty 
or interest under Income Tax Act-Remedy of notified person assessed to 
penalty or interest would be to approach the tax authorities under the taxing 
statute-Income Tax Act, 1961-S. 2(43). 
G 
Words and phrases-"Tax due"-Meaning of-In the context of the 
Special Court (Trial of Offences Relating to Transaction in Securities) Act, 
1992. 
Section 11(2)(a) & 9-A-Tax liability-When it becomes due-Date of H 
389 
390 
SUPREME COURT REPORTS 
[1998] 3 S.C.R. 
A distribution-When the Special Court completes the examination of claims 
under Section 9-A-lf on this date any liability for the statutory period is 
legally assessed and the assessment is final and binding on the notified 
persons-Held, that liability will be considered for payment under Section 
11(2)(a). 
B 
The Special Court (Trial of Offences Relating to Transactions in 
Securities) Act~ 1992 deals with offences involving amounts of unusual 
magnitude procured by brokers from banks and financial institutions. The 
Special Court which was set up for a quick prosecution or adjudication of 
claims in respect of two notified parties, and the time was approaching for 
C the distribution of their assets under Section 11 of the Act which was 
attached under Section 3(3) of the Act. In this case there were interpretational 
difficulties generated by the casual drafting of the Act and the Special Court 
had raised three questions pertaining to distribution of assets under Section 
11(2) of the Act. 
D 
Disposing of the appeal, this Court 
HELD : 1.1. Since the property (movable and immovable or both) which 
.- -1. 
is attached is of the person notified, the liabilities to be paid or discharged 
under Section 11(2) of the Special Court (Trial of Offences Relating to 
Transaction in Securities) Act, are also liabilities of the person notified-
E whether these liabilities be in respect of payment of revenues, taxes, cesses · 
or rates, or whether they be the liabilities to any bank, financial institution 
or mutual fund. Before the Special Court makes any order under Section 
• 11(1), the Special Court must be satisfied that the property which· is attached 
and is being disposed of, is the property belonging to the notified persons. 
F If any person other than the notified person has any share, or any right, title 
or interest in the attached property on the date of notification under Section 
3, the right of the third party cannot be extinguished. The only right which 
the Custodian has, in respect of the right of the third parties in such· 
properties, is conferred by Section 4 under which, if the Custodian is satisfied 
that any contract or agreement which was entered into by the notified party 
G within the "statutory period" in relation to an attached property is fraudulent 
or entered into for the purpose of defeating the provisions of the Special 
Court Act, he can cancel such contract or agreement. There is no other 
provision under the Special Court Act which affects the existing rights of 
a third party on the date of attachment, in the property attached. The attached 
prope

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