2015 (4) TMI 413 - HC - Companies Law

Court quashes Recovery Officer's orders, citing 'illegal and arbitrary' detention. Procedural lapses noted.

Vinod Hinigorani Versus Securities & Exchange Board of India, Mumbai

The court quashed the orders of the Recovery Officer, declaring the detention and arrest of the petitioner as 'patently illegal and arbitrary.' It found ... Recovery proceedings against the erstwhile non executive director of a company - Attachment of bank accounts / Demat accounts - Notice under Rule III and Part I of second Schedule to the Income Tax Act 1961 r/w Section 28A of the Securities and Exchange Board of India, 1992 - Alternate remedy - writ jurisdiction - power to arrested - Held that:- It is well settled that the alternative remedy does not serve as an absolute bar for exercising writ jurisdiction. The writ Court can, depending on the facts and circumstances of the particular case, entertain the writ petition notwithstanding availability of alternative remedy. In the case of Gujarat Ambuja Cement Ltd.[2005 (7) TMI 353 - SUPREME COURT OF INDIA],the Apex court has reiterated the parameters for exercise of such discretion. It can be said that despite an alternative remedy, the writ petition can be entertained in appropriate cases where there is violation of principles of natural justice, or procedure required for decision has not been adopted or there is an allegation of infringement of fundamental rights, or where the orders or proceedings are wholly without jurisdiction or the virus of an Act is challenged or when it is shown that it would be a case of palpable injustice to the petitioner to force him to adopt remedies provided by the statute. Refered case 2005 (7) TMI 353 - SUPREME COURT OF INDIA In the present case, the petitioner has claimed that he has been detained in a summary and arbitrary manner. The petitioner has claimed that his arrest is illegal and is in contravention of principles of natural justice. The petitioner, in short, has made an allegation of infringement of fundamental rights. In the light of such challenge, this Court is not precluded from examining the legality and propriety of the impugned order notwithstanding availability of alternative remedy. In the instant case, the Tax Recovery Officer had not recorded his satisfaction with reasons in writing, as regards the existence of two situations, which are specified in Clause (a) of Rule 73(1). The Tax Recovery Officer has not detained and arrested the petitioner on the ground that he had transferred, concealed or removed any pat of his property. The respondent had stated in the affidavit that upon issuance of the attachment orders, none of the banks have reported any accounts in the name of the petitioner, except Punjab National Bank at Mira Road (E) branch and only an amount of ₹ 5160.82 was recovered by the respondent Board. By these averments, the respondent has sought to justify the arrest. Needless to state that having failed to record the reasons as regards existence of the situation in clause (a), the respondent cannot rectify the lacuna by stating the reasons in the reply. As stated earlier, the arrest and detention of the petitioner is illegal, hence, he is entitled to be released forthwith. The apprehension of the respondent that the petitioner may go abroad if released, can be alleviated by imposing appropriate conditions and or securing an undertaking that he will not leave the country during the pendency of the proceedings. Learned Counsel representing the petitioner has also stated that the passport of the petitioner is already attached by the E.O.W. Crime Branch, Mumbai and there is no possibility of the petitioner leaving the country. - Writ petition allowed. Issues Involved:1. Validity of the orders dated 18.12.2014 and 29.12.2014 passed by the Recovery Officer.2. Petitioner's claim of non-involvement in the management of the companies.3. Legality of the recovery proceedings and attachment of the petitioner's bank and DEMAT accounts.4. Petitioner's claim of being denied a fair hearing and representation by a lawyer.5. Compliance with the procedural requirements under Rule 73 of the Second Schedule to the Income Tax Act.6. Maintainability of the petition under Article 226 of the Constitution of India despite the availability of alternative remedies.Issue-wise Detailed Analysis:1. Validity of the Orders Dated 18.12.2014 and 29.12.2014:The petitioner challenged the orders of the Recovery Officer committing him to civil prison. The court found that the Recovery Officer had not recorded the necessary satisfaction in writing as required under Rule 73(1) of the Second Schedule to the Income Tax Act. The officer failed to establish that the petitioner had either dishonestly transferred property or had means to pay but refused or neglected to do so. Consequently, the court held that the detention and arrest were 'patently illegal and arbitrary' and quashed the impugned orders.2. Petitioner's Claim of Non-involvement in the Management of the Companies:The petitioner claimed he was a non-existing Chairman of Adan Camsof Ltd. and Kolar Biotech Ltd., with no role in their management. He stated that he signed documents under instructions from the main promoter, Rajkumar Basantani, and did not benefit from any transactions. However, the court focused on procedural lapses rather than the merits of this claim.3. Legality of the Recovery Proceedings and Attachment of Bank and DEMAT Accounts:The respondent initiated recovery proceedings and attached the petitioner's bank and DEMAT accounts due to unpaid penalties aggregating Rs. 1,64,81,411/-. The petitioner argued he had no access to funds to satisfy the dues. The court noted procedural lapses in the recovery process but did not delve deeply into the validity of the attachment itself.4. Petitioner's Claim of Being Denied a Fair Hearing and Representation by a Lawyer:The petitioner alleged that his request to be represented by a lawyer was arbitrarily rejected and that he was not given a fair hearing. The court found that the Recovery Officer had detained the petitioner on the same day as the hearing without conducting a proper inquiry, thereby violating principles of natural justice. This contributed to the court's decision to quash the detention order.5. Compliance with Procedural Requirements Under Rule 73 of the Second Schedule to the Income Tax Act:The court emphasized that Rule 73(1) requires the Tax Recovery Officer to record satisfaction in writing that the defaulter either transferred property to obstruct execution or had means to pay but refused or neglected to do so. The Recovery Officer failed to record such satisfaction, rendering the arrest and detention illegal. The court highlighted that mere non-payment of dues or failure to provide a repayment proposal does not justify detention.6. Maintainability of the Petition Under Article 226 of the Constitution of India:Despite the availability of an alternative remedy of appeal before the Securities Appellate Tribunal, the court entertained the writ petition under Article 226. The court cited precedents allowing writ jurisdiction in cases of violation of natural justice, procedural lapses, or infringement of fundamental rights. Given the petitioner's claims of arbitrary detention and denial of a fair hearing, the court found it appropriate to exercise its writ jurisdiction.Conclusion:The court allowed the writ petition, quashed the impugned orders, and ordered the petitioner's release from civil prison. The matter was remitted to the Tax Recovery Officer for a fresh decision in accordance with the law. The petitioner was also restricted from leaving the country during the proceedings, and the Economic Offences Wing (EOW) was directed not to return his passport.