2008 (5) TMI 417 - SC - Companies Law

Special Courts Act, 1992: Exclusive Jurisdiction on Properties of Notified Persons Upheld

The Supreme Court upheld the decision of the Division Bench of the Bombay High Court, confirming that the Special Courts Act, 1992, as amended in 1994, ... Jurisdiction of the Special Court in civil matters - attachment of property upon notification - powers and duties of the Custodian - priority of liabilities on disposal of attached property - overriding effect of a statute - non obstante clause - later special enactment prevailing over earlier general or special enactment - harmonious construction of competing statutesAttachment of property upon notification - jurisdiction of the Special Court in civil matters - non obstante clause - overriding effect of a statute - Whether the Special Court under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 (as amended by insertion of section 9A in 1994) has exclusive jurisdiction over properties of a person notified under section 3(2)/(3), notwithstanding proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. - HELD THAT: - The Court held that upon notification under section 3(2)/(3) of the Act of 1992 the notified person's movable and immovable properties stand attached immediately and are to be dealt with by the Custodian as directed by the Special Court. Section 9A (inserted by the 1994 amendment) vests exclusive civil jurisdiction in the Special Court in respect of matters relating to property standing attached under section 3(3) and contains a non obstante provision declaring that no other Court shall have such jurisdiction. Though the Act of 1993 also contains an overriding provision, section 9A of the Act of 1992 came into force after the Act of 1993; being a subsequent provision dealing specifically with the properties attached in relation to securities transactions between 1-4-1991 and 6-6-1992, it must be given effect to. The Court emphasised the special and focused purpose of the Act of 1992 (to deal with fraudulent securities transactions in that period) and concluded that the amended Act of 1992 prevails over the Act of 1993 insofar as jurisdiction over the attached properties is concerned. [Paras 5, 6, 8]Properties of a person notified under section 3(2)/(3) of the Act of 1992 are subject to the exclusive jurisdiction of the Special Court under section 9A (as amended in 1994), and the Act of 1992 (as amended) prevails over the Act of 1993 for such properties.Priority of liabilities on disposal of attached property - harmonious construction of competing statutes - powers and duties of the Custodian - Whether the bank may claim its dues in respect of a notified person's attached property and the appropriate forum or procedure for such claim. - HELD THAT: - The Court observed that the Act of 1992 provides an internal mechanism for discharge of liabilities out of attached property: section 11 directs the Custodian to dispose of attached property as the Special Court may order and prescribes the order of priority for payment of liabilities, expressly including amounts due to banks and financial institutions. Consequently, the bank's remedy is to apply to the Special Court under the scheme of the Act of 1992 (not to the Debts Recovery Tribunal) for discharge of its claims from the attached properties. The Court further held that the two Acts can be read harmoniously by permitting banks to seek recovery under section 11(2)(b) of the Act of 1992 in respect of attached properties. [Paras 6, 9]The bank must seek recovery of its dues in respect of properties attached under the Act of 1992 by applying to the Special Court (section 11(2)(b)); the Acts are capable of harmonious construction with the Act of 1992 governing attached-property claims.Final Conclusion: The Division Bench of the Bombay High Court was correct in holding that the Special Court under the Act of 1992 (as amended by section 9A in 1994) has exclusive jurisdiction over properties attached on notification under section 3, and the bank's claims in respect of such attached properties must be pursued before the Special Court under the mechanism provided in the Act of 1992; the appeal is dismissed. Issues Involved:1. Jurisdiction of Debts Recovery Tribunal (DRT) versus Special Court under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992.2. Overriding effect of the Special Courts Act, 1992 versus the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.3. Priority of claims under the Special Courts Act, 1992.Detailed Analysis:1. Jurisdiction of Debts Recovery Tribunal (DRT) versus Special Court under the Special Courts Act, 1992The primary issue was whether the Debts Recovery Tribunal (DRT) had jurisdiction to grant a declaration regarding the properties of a notified person under the Special Courts Act, 1992, or whether such matters fell exclusively within the jurisdiction of the Special Court. The respondent was declared a notified party under the Special Courts Act, 1992, on 6-10-2001, leading to the attachment of all his properties. The Division Bench of the Bombay High Court held that since the respondent was a notified party, all properties stood attached under Section 3 of the Special Courts Act, 1992, and the Special Court had exclusive jurisdiction under Section 9A of the same Act. Consequently, the DRT had no jurisdiction.2. Overriding effect of the Special Courts Act, 1992 versus the Recovery of Debts Due to Banks and Financial Institutions Act, 1993The appellant argued that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, being a subsequent legislation, should override the Special Courts Act, 1992. However, the court noted that Section 9A of the Special Courts Act, 1992, was introduced by an amendment in 1994, which postdates the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Therefore, the court held that the Special Courts Act, 1992, as amended in 1994, would have an overriding effect over the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The court emphasized that the Special Courts Act was enacted to deal with specific fraudulent transactions in securities during a defined period, thus having a special purpose.3. Priority of claims under the Special Courts Act, 1992The court analyzed Section 11 of the Special Courts Act, 1992, which outlines the order of priority for discharging liabilities from the attached properties of a notified person. The first priority is given to revenues, taxes, cesses, and rates due to the government, followed by amounts due to banks or financial institutions, and lastly, any other liabilities as specified by the Special Court. The court highlighted that Section 13 of the Special Courts Act, 1992, provides it with an overriding effect over any other law, including the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.ConclusionThe Supreme Court upheld the decision of the Division Bench of the Bombay High Court, affirming that the Special Courts Act, 1992, as amended in 1994, has an overriding effect and exclusive jurisdiction over matters involving the properties of a notified person. The appeal was dismissed, and the court confirmed that the Special Court alone has the authority to deal with the attached properties of the notified person, including the discharge of liabilities to banks and financial institutions.