2006 (1) TMI 257 - SC - Companies Law

Appellants' Properties Attached Under Special Courts Act Despite Lack of Involvement

Ashwin S. Mehta Versus Custodian

Ashwin S. Mehta Versus Custodian - [2006] 65 SCL 261 (SC), 2006 AIR 795, 2006 (1) SCR 56, 2006 (2) SCC 385, 1998 (3) SCALE 556 Issues Involved:1. Whether the Appellants being not involved in offences in transactions in securities could have been proceeded against in terms of the provisions of the Act.2. Whether individual liabilities of the Appellants ought to have been separately considered by the Special Court as not a part of Harshad Mehta Group.3. Whether the tax liabilities could not have been held to be due as the order of assessments did not become final and binding.4. Whether the commercial properties could have been sold in auction.5. Whether the residential properties should have been released from attachment.Detailed Analysis:Issue 1: Involvement in OffencesThe Appellants, related to Harshad S. Mehta, were notified under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992. Despite not being directly involved in securities transactions, their properties were automatically attached as per the Act. The court held that the stringent measures of the Act apply to all notified persons, and their properties stand attached regardless of direct involvement in offences.Issue 2: Individual LiabilitiesThe Appellants argued that their liabilities should not be clubbed with Harshad Mehta's. The court noted that the Special Court should have analyzed individual assets and liabilities separately. The principle of lifting the corporate veil does not automatically apply to individuals. The Custodian must show intimate connections between transactions by Harshad Mehta and properties acquired in others' names. The Special Court failed to consider the individual liabilities and assets adequately, necessitating a fresh determination.Issue 3: Tax LiabilitiesThe Appellants contended that tax liabilities should not be considered due as assessments were not final. The court referred to previous judgments, stating that liabilities remain unless stayed by a higher court. However, many Best Judgment assessments were set aside on appeal, requiring reassessment. The court directed the Special Court to reconsider tax liabilities in light of new assessments and appellate orders.Issue 4: Sale of Commercial PropertiesThe Appellants did not seriously contest the sale of commercial properties, and many had already been sold, creating third-party rights. The court upheld the sale of commercial properties, noting that the creation of third-party interests was not in dispute.Issue 5: Release of Residential PropertiesThe residential flats were sold in auction subject to the appeal's outcome. The court directed the Special Court to reconsider the confirmation of these sales after reassessing individual liabilities and assets. The court emphasized the need for detailed analysis and proper consideration of the Appellants' contentions.Conclusion:1. The Appellants' properties were correctly attached under the Act despite their non-involvement in securities offences.2. The Special Court must reassess individual liabilities and assets, considering whether they should be treated as part of the Harshad Mehta Group.3. Tax liabilities should be reconsidered in light of appellate orders and reassessments.4. The sale of commercial properties is upheld, with the Special Court directed to confirm these sales.5. The Special Court must reconsider the sale of residential properties, taking into account individual liabilities and assets.The appeals were allowed, the impugned judgments set aside, and the matter remitted to the Special Court for fresh consideration. The court provided detailed procedural directions to ensure a thorough and fair reassessment.