Killick Nixon Ltd vs Custodian & Ors

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2724 OF 2006

KILLICK NIXON LTD. ... APPELLANT

VERSUS

THE CUSTODIAN AND OTHERS ... RESPONDENTS

WITH

CIVIL APPEAL NOS. 4802-4803 OF 2008

LODESTAR SLOTTED ANGLES LTD. ... APPELLANTS ETC.

VERSUS

THE CUSTODIAN AND OTHERS ... RESPONDENTS

AND

CIVIL APPEAL NOS. 4806-4818 OF 2008

KILLICK NIXON LTD. & ORS. ETC. ... APPELLANTS

VERSUS

THE CUSTODIAN AND OTHERS ETC. ... RESPONDENTS

J U D G M E N T

B. SUDERSHAN REDDY, J.

1. These appeals are directed against the orders of

interlocutory nature passed by the Special Court constituted 2

under the provisions of the Special Courts (Trial of Offences

Relating to Transactions in Securities) Act, 1992 (hereinafter

referred to as `the Act'). They are being disposed of by this

common order since the question that arises for our

consideration is one and the same.

2. M/s. Dhanraj Mills Private Limited in its ordinary

course of business had advanced interest free loans to the

appellant M/s. Killick Nixon Limited and its group of companies.

In the year 1992, the Special Court found that M/s. Dhanraj

Mills Private Limited, its Directors and their close associates

indulged in fraudulent securities transactions resulting in

siphoning of huge funds of various banks. The banks had gone

into liquidation as a result of those fraudulent securities

transactions. The Special Court also held that the end

beneficiaries of the siphoned funds were the Directors of M/s.

Dhanraj Mills Private Limited and Director of Bank of Karad

which bank was used as a conduit for the fraudulent

transactions.

3. M/s. Dhanraj Mills Private Limited was accordingly

notified under the provisions of the said Act. On and from the

date of notification, the properties, movable or immovable, or

both belonging to any person notified under sub-section (2) of

Section 3 of the said Act shall stand attached, simultaneously

with the issue of the notification. Be it noted that M/s.

Dhanraj Mills Private Limited itself owned 33% of M/s. Killick 3

Nixon Limited and the person in ultimate control, ownership and

management of M/s. Killick Nixon Limited is one T.B. Ruia (who

at all relevant points of time was Managing Director of M/s.

Dhanraj Mills Private Limited) who was also notified under the

Act.

4. The Custodian, on behalf of M/s Dhanraj Mills

Private Limited, proceeded against the appellant M/s. Killick

Nixon Ltd. and its group Companies for recovery of loans

totaling Rs.20,81,67,031/-. The amounts due to M/s. Dhanraj

Mills Private Limited also stood attached with the issue of

notification.

5. In the year 1995, the appellant M/s. Killick Nixon

Limited and its group Companies filed separate applications

before Special Court for ascertaining their individual

liabilities with a request to grant time for recompense.

Simultaneously, the Custodian also filed applications for

fixation of liability and demanding interest @ 24% per annum. In

the year 1997, the Special Court passed decrees against the

appellant and its group Companies which are consent decrees qua

invitum the Custodian, whereby individually ascertained amounts

were to be paid in installments with the interest @ 15% per

annum. Similar consent decree was passed against 13th group

Company also.

6. M/s Dhanraj Mills Private Limited, in the

meanwhile, made an application before the Special Judge 4

contending that the amounts recovered from the group Companies

cannot be attached towards the debt payable by M/s Dhanraj Mills

Private Limited to the Custodian, since there was no nexus

between loans advanced to original judgment-debtors and the

transactions with the banks. The prayer in the said application

was that the amount so recovered was to be freed from attachment

until to be paid back to M/s Dhanraj Mills Private Limited, by

the Custodian. The Special Court dismissed the claim so made on

the ground that the Directors of M/s Dhanraj Mills Private

Limited and its close associates were involved in fraudulent

deals and have siphoned off funds belonging to banks. The

Special Court found overwhelming evidence that M/s Dhanraj Mills

Private Limited is liable to make payment and all its assets

fall within the purview of the Act. It is in this order the

Special Court specifically held that this is a fit case "for the

corporate veil to be torn off" as M/s Dhanraj Mills Private

Limited had no explanation whatsoever for how such large amounts

of "loans" could have been advanced to the appellant and its

group Companies when M/s Dhanraj Mills Private Limited itself

had been defunct for many years without any commercial activity

of its own.

7. In the year 1999, The Special Court having

considered the request of the original judgment debtors, granted

extension of time and directed the Custodian not to proceed with

execution of the decrees, subject to payment of defaulted 5

installments. As usually, the appellant and its group Companies

defaulted in payment of the said amounts once again. Left with

no alternative, the Custodian filed execution applications

against the judgment debtors for recovery of dues from M/s

Dhanraj Mills Private Limited. It is not necessary to refer the

facts, the subsequent events in detail and various objections

raised from time to time as to the sale of properties in the

process of realizing the decretal amounts. However, one

important fact that may be required to state is that the Special

Court by its earlier order dated 30th November, 2001 required the

judgment debtors to pay Rs.16 crores payable towards all decrees

for considering the prayer for extension of time to which all of

them agreed to do so. This singular fact establishes that even

judgment debtors were treating the separate decrees passed

against each one of them as a consolidated common decree. The

Custodian, at all points of time treated them as a group to

which no objections were raised at any point of time. The sale

proceeds were accordingly appropriated against dues of the

entire group of M/s Killick Nixon Ltd.

8. The dispute now raised by the appellants is that

the sale proceeds or the properties of M/s. Killick Nixon group

companies ought to be apportioned individually decree wise. This

is contrary to its earlier stand. The material available on

record also reveals that these group companies have always 6

referred to the aggregate principal amount of alleged loan given

by M/s. Dhanraj Mills Private Limited.

9. The appellants submitted before the Special Court

that the liabilities of the judgment debtors under separate

decrees were not joint liabilities inasmuch as each judgment

debtor is a separate entity in law having their separate

properties and assets. It was the case of the appellants that

merely because the judgment debtors are group companies the

amount of decree passed against them cannot be consolidated. It

was their case that the Custodian cannot be permitted to

appropriate the amounts paid by the judgment debtors as also the

sale proceeds realized from the sale of properties towards a

consolidated decree. It is not necessary to refer in detail the

stand taken by the Custodian opposing the plea of the

appellants. Various instances were pointed out by the Custodian

as to how the appellants themselves were treating the decrees as

a consolidated one.

10. It was specifically demonstrated by the Custodian that

the appellants not only treated them as one group but have

themselves proceeded and agreed to have appropriation of the

sale proceeds of the properties sold on group basis. The

averment in the petition filed in the Special Court contained

figures relating to the aggregate dues of the group, the

aggregate amounts received from the sale of properties and the

aggregate balance amount.

7

11. The Special Court after a detailed consideration came to

the conclusion that M/s. Killick Nixon Limited and others are

group companies and they are all controlled by M/s. Dhanraj

Mills Private Limited - notified party and the amounts that are

being recovered in execution of the decrees are really public

funds which were siphoned off by the Directors of M/s Dhanraj

Mills Private Limited, and parked in the companies controlled by

them. The Special Court accordingly held that the appropriation

of sale proceeds made by the Custodian is proper and accordingly

the Custodian should proceed further to recover the amount that

remained in balance.

12. In these appeals, the singular submission made by Shri

Dhruv Mehta, learned senior counsel for the appellants, is that

the appropriation of sale proceeds ought to have been carried

out individually against each of the decree and not as done by

the Custodian treating all the decrees as a consolidated decree.

13. Having heard learned counsel for the appellants and

respondent, we are satisfied that an interference with the

impugned order passed by the Special Court, which is purely

interlocutory and does not decide any rights of any party, is

unwarranted. The Special Court did not decide any rights of the

parties but merely passed orders from time to time including the

one under the appeals for the realization of the amounts under

the decrees passed which attained their finality. The procedure

adopted for realization of the amounts under the decrees and the 8

manner of appropriation, in our considered opinion, by itself

does not amount to deciding any lis as such between the parties.

Under Section 10 of the Act that an appeal shall lie to this

Court from any judgment, sentence or order of the Special Court

but not against the interlocutory orders. Appeals against

interlocutory orders are specially excluded under the said

provision.

14. There cannot be any iota of doubt that M/s Killick Nixon

and other companies were always treated as one group and there

is a clear finding in this regard by the Special Court that the

said group of companies are nothing but front companies of M/s.

Dhanraj Mills Private Limited.

15. The orders impugned in these appeals are purely

interlocutory in nature against which no appeal lies to this

court under Section 10 of the Act. We are fortified in that

view of ours by a decision of this court in CIFCO Properties (P)

Ltd. and Others vs. Custodian and Others1. Even on merits, we

find that the Special Court having meticulously analyzed the

facts, arrived at a proper conclusion and rightly treated the

decrees as a consolidated one.

16. We find no merit in these appeals and they are

accordingly dismissed without any order as to costs.

--------------------------J. 1 [ (2005) 3 SCC 708 ] 9

[B.SUDERSHAN REDDY]

--------------------------J. [SURINDER SINGH NIJJAR]

New Delhi, April 27, 2010.