Automatic attachment under the Special Courts Act still requires separate scrutiny of liabilities, assets and fair reconsideration before sale confirmation.

Under the Special Courts Act, attachment of a notified person's property is automatic, and proceedings may continue even if the person denies personal involvement in the securities offence. However, the Special Court must still examine each notified person's liabilities and assets separately, and cannot accept a grouped liability approach without adequate scrutiny and a fair hearing. Income-tax demands may be reassessed where earlier assessment orders have been set aside, so the payable amount must be worked out afresh. Sale of commercial properties was left undisturbed for confirmation, while the sale of residential properties and attached assets required reconsideration. The challenged judgment and orders were set aside and the matters remitted for fresh adjudication.

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Issues: (i) Whether persons notified under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 could be proceeded against notwithstanding their contention that they were not personally involved in securities offences; (ii) whether the individual liabilities and assets of the notified persons had to be examined separately instead of treating them as a single group; (iii) whether income-tax liabilities could be treated as due despite the pendency or setting aside of assessment orders; (iv) whether the auction sale of commercial properties could be confirmed; and (v) whether the sale of residential properties and the attached assets required reconsideration.

Issue (i): Whether persons notified under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 could be proceeded against notwithstanding their contention that they were not personally involved in securities offences

Analysis: On notification under section 3 of the Act, all properties of the notified person stand attached automatically. The Act does not require a separate finding that the person was accused of, or individually proved to have committed, the securities offence before attachment and subsequent proceedings can follow. The statutory scheme permits attachment and application of attached property towards liabilities of the notified person.

Conclusion: The contention was rejected. The notified persons could be proceeded against under the Act.

Issue (ii): Whether the individual liabilities and assets of the notified persons had to be examined separately instead of treating them as a single group

Analysis: The Court held that although the attachment is automatic, the Special Court was required to examine whether the liabilities of each notified person were separately met from their own assets and whether they could validly be clubbed as part of a single group. The record showed separate accounts and conflicting materials, but the Special Court had accepted the Custodian's figures without adequately analysing the rival contentions or the individual asset-liability position. Principles of natural justice required a fuller enquiry, especially where some individuals asserted no real nexus with Harshad Mehta's dealings.

Conclusion: The matter required fresh consideration by the Special Court on the individual liabilities and the alleged group liability.

Issue (iii): Whether income-tax liabilities could be treated as due despite the pendency or setting aside of assessment orders

Analysis: The Court reaffirmed that mere filing of appeals does not by itself wipe out tax liability. However, where assessment orders have been set aside, the demand must be worked out afresh on the basis of fresh assessments. The Special Court had not examined the effect of subsequent appellate orders setting aside best judgment assessments, and those later events were relevant to the determination of the amount payable out of attached assets.

Conclusion: The question of tax liability was remitted for fresh determination.

Issue (iv): Whether the auction sale of commercial properties could be confirmed

Analysis: The sale of commercial properties had not been seriously contested, and third-party rights had already been created in several sales. The Court found no reason to interfere with the direction for sale of such properties and held that the Special Court could proceed to deal with confirmation of the sales in accordance with law.

Conclusion: The auction sale of commercial properties was not disturbed and was left for confirmation by the Special Court.

Issue (v): Whether the sale of residential properties and the attached assets required reconsideration

Analysis: The residential flats had been sold subject to the result of the appeals on the basis of the assumed group liabilities. Since the liabilities of the appellants and the propriety of clubbing their assets and liabilities required reconsideration, the confirmation of the residential sales also had to await a fresh decision after a fuller hearing and inspection of documents.

Conclusion: The sale of residential properties required reconsideration by the Special Court.

Final Conclusion: The judgment and orders under challenge were set aside, and the matters were sent back for a fresh and fuller adjudication, while leaving the commercial-property sales undisturbed for appropriate confirmation proceedings.

Ratio Decidendi: Under the Special Courts Act, attachment of a notified person's property is automatic, but the Special Court must still determine the liabilities and available assets with adequate scrutiny and in accordance with natural justice before directing sale or distribution of attached property.

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