Premanand R. Shenoy vs Custodian & Ors

Premanand R. Shenoy .....Appellant

Versus

Custodian & Ors. ....Respondents

JUDGMENT

Dr. Mukundakam Sharma, J.

1. By filing the present appeal the appellant has challenged the

judgment and order dated 5.3.2004 passed by the Special Court

established under sub-section (1) of Section 5 of the Special

Court (Trial of Offences Relating to Transactions in Securities)

Act, 1992 (hereinafter referred to as `the Act') whereby and

whereunder the Special Court allowed the application filed by the

Custodian (respondent No. 1 herein) thereby directing the

appellant to pay to the Custodian an amount of Rs. 2,83,192/-

with interest at the rate of 18% per annum from 22.7.1991 to

29.2.1992 which amount the Custodian would receive for and on

behalf of respondent No. 2.

Page 1 of 12

2. Shri B. Ratnakar, the father of the appellant was the Chairman

and Managing Director of M/s. Fair Growth Financial Services

Limited (for short the `Company) which is respondent No. 2

herein. There is no dispute with regard to the fact that the

father of appellant was the Chairman and also In-charge of the

aforesaid Company. He died on 2nd February, 1992. The

appellant became the Director of the aforesaid Company

immediately after the demise of his father. An order was placed

for purchase of a Mahindra Jeep by making payment of a cheque

dated 22.7.1991 for Rs. 2,83,192/-. The said order

was placed with M/s. Tirupati Balaji Motors, New Delhi. As per

the original delivery receipt and letter addressed to the

appellant, the vehicle was delivered to the appellant on

15.4.1992. In this connection, reference may be made to the

letter dated 12.4.1992 (Annexure R-5 in the paper book) which

is addressed to the appellant herein. The subject of the said

letter was with respect to the delivery of his vehicle. By the said

letter M/s. Tirupati Balaji Motors, New Delhi informed the

appellant that despite repeated reminders for the last five

months regarding delivery of the aforesaid vehicle, the delivery

was not taken. As per the order placed, the said jeep was lying

ready for the last five months and was duly registered

temporarily in the name of the appellant. Copy of the temporary

Page 2 of 12 registration and the bill of the receipt were also enclosed with

the said letter.

3. Before dwelling further, it would be relevant here to mention that

the Reserve Bank of India, in the course of its investigation,

found large scale irregularities and malpractices in the

transactions in both the Government and other securities

indulged in by some brokers in collusion with the employees of

the various banks and financial institutions. The said

irregularities and malpractices led to the diversion of funds from

banks and financial institutions to the individual accounts of

certain brokers. To deal with the aforesaid situation and, in

particular, to ensure speedy recovery of the huge amount

involved, to punish the guilty and restore confidence in, and

maintain the basic integrity and credibility of the banks and

financial institutions, the Special Court was constituted for trial of

offences relating to transactions in securities and in that regard

an Act was enacted called "the Special Court (Trial of Offences

Relating to Transactions in Securities) Act, 1992". Section 3 of

the said Act reads as follows

"3. Appointment and functions of Custodian - (1) The Central Government may appoint one or more Custodian as it may deem fit for the purposes of this Act.

(2) The Custodian may, on being satisfied on information received that any person has been involved in any offence relating to transactions in securities after the 1st day of April, 1991 and on and before 6th June, 1992, notify the name of such person in the Official Gazette.

Page 3 of 12 (3) Notwithstanding anything contained in the Code and may other law for the time being in force, on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging to any person notified under that sub-section shall stand attached simultaneously with the issue of the notification.

(4) The property attached under sub-section (3) shall be dealt with by the Custodian in such manner as the Special Court may direct.

(5) The Custodian may take assistance of any person while exercising his powers or for discharging his duties under this section and Sec.4."

4. In terms of the aforesaid provision, M/s. Fair Growth Financial

Services Limited was declared as a notified person. Sub-section

3 of Section 3 empowers the Custodian to attach any property

which could be either movable or immovable, or both, belonging

to the notified person. The said property which is attached

under sub-section 3 could be dealt with by the Custodian in such

a manner as the Special Court direct in that regard. In order to

comply with the statutory provisions, the Custodian (respondent

No. 1 herein) issued a public notice dated 10.9.1992 calling upon

all the persons who had dealings with M/s. Fair Growth Financial

Services Limited to inform him about the same. The appellant,

however, after a long period, for the first time, by his letter

dated 4.8.1998 informed the Custodian that one Mahindra Jeep

belonging to respondent No. 2 was parked at S-25, Panchasheel

Park, New Delhi-110001, at the residence of one Mr. Vijay

Sachadev. It was also informed by the appellant in that letter

that the said vehicle was supposedly under a hire purchase/lease

Page 4 of 12 agreement. The appellant also enclosed with the aforesaid letter

dated 4.8.1998 five original letters pertaining to the said vehicle

which are of the following nature :

1. Letter dated 11.1.1992 from respondent No. 2 to

M/s. Tirupati Balaji Motors, New Delhi.

2. Original invoice for Rs. 2,90,200/- in the name of the

appellant.

3. Original C.M. Form dated 3.3.1992.

4. Original letter dated 12.4.1992 addressed to respondent

No. 1.

5. Original delivery receipt dated 15.4.1992.

5. All the aforesaid letters and documents are addressed to the

appellant. After receipt of the aforesaid documents alongwith

the letters annexed therewith and after making necessary

enquiries, the Custodian came to the conclusion that respondent

no. 2 had financed the purchase of the said vehicle for the

appellant. According to the respondent No. 1 (the Custodian),

respondent No. 2 had placed an order for the said vehicle on

behalf of the appellant to M/s. Tirupati Balaji Motors, New Delhi

by issuing a cheque for Rs. 2,83,192/- dated 22.7.1991. It was

also found that respondent No. 2, thereafter by letter dated

10.3.1992, informed the said Ms/. Tirupati Balaji

Motors, New Delhi that they were constrained to cancel the order

Page 5 of 12 of the said vehicle due to non-delivery thereof and demanded

back the amount of Rs. 2,83,192/- along with interest at the rate

of 22% per annum for the period from 22.7.1991 to 29.2.1992.

It transpires from the original delivery receipt that the said

vehicle was delivered to respondent No. 2 on behalf of the

appellant on 15.4.1992 and, therefore, it was concluded that

there was an agreement between respondent No. 2 and the

appellant to enter into a hire purchase agreement in respect to

the said vehicle. On enquiry made, the Custodian found the said

vehicle to be in a dilapidated and rusty condition parked at S-25,

Panchasheel Park, New Delhi-110001. On further enquiry being

made by the Custodian, it was found that the registration

number found on the body of the vehicle was a fake one and, in

fact, the same belonged to a Maruti Van registered.

6. Consequent thereto and pursuant to the statutory responsibility

placed on the Custodian under the Act, the Custodian filed an

application before the Special Judge. The appellant was served.

The Special Court thereafter considered the said application. In

the light of the submissions made on behalf of both the parties

and on consideration of the records, it was found that the entire

transaction was authorised by the appellant and that he was all

along aware of the aforesaid transaction. Consequently, the

application filed by the Custodian was allowed and the appellant

Page 6 of 12 was directed to pay to the Custodian the amount of Rs.

2,83,192/- with interest at the rate of 18% per annum from

22.7.1991. The amount of Rs. 10,00,000/- was also deposited

by the appellant during the course of hearing of the aforesaid

application and the amount was directed to adjusted from the

said deposit.

7. Being aggrieved by the aforesaid order passed by the Special

Court, the present appeal is filed.

8. We have heard the learned counsel appearing for the appellant

as also the learned counsel appearing for the respondents. We

have also perused the documents placed on the records.

9. The father of the appellant, who was the Chairman of the notified

party, expired on 2.2.1992. Order for purchase of the aforesaid

vehicle was placed on 22.7.1991. Office note of the said debt of

M/s. Fair Growth Financial Services Limited is annexed as

Annexure R-2 with paper book and relevant portion thereof reads

as follows :

"1.0 Chairman has verbally sanctioned H.P. Finance for Mr. Premanand R. Shenoy Ms. Fairgrowth Agencies Ltd. for a Mahindra Jeep. The cost of the said good is RS.2,83,192, to be supplied by M/s Tirupati Balaji Motors.

2.0 The payment for the vehicle is to be made to day (prior to the announcement of the Budget on 24.7.91). hence after taking approval from Mr. Rajagopalan, Vice

Page 7 of 12 President, on phone a cheque for the said amount is being released today."

10. The aforesaid office note clearly indicates that the hire purchase

finance was made available to the appellant by respondent No. 2

and the said amount for purchase of the said Mahindra Jeep

vehicle was sanctioned by the Chairman verbally as stated in

paragraph 1.0 of the office note mentioned hereinabove. The

cost of the said vehicle is Rs. 2,83,192/-. It is also mentioned in

that note that payment for the said vehicle was to be made on

22.7.1991 and, therefore, after taking approval of Mr.

Rajagopalan, Vice President, a cheque for the said amount was

released. There is another letter available on record annexed as

Annexure R-3 which is dated 11.1.1992. The said letter refers to

the subject of the Mahindra Jeep to be sold to Mr. Premanand R.

Shenoy, the appellant herein. In the said letter, respondent No.

2 has made reference to proforma invoice No. 791 dated

22.7.1991 intimating further that the cheque dated 22.7.1991

for Rs. 2,83,192/- was sent for supply of the jeep which was

subject to a hire purchase agreement between respondent No. 2

and the appellant. Reference is already made to letter dated

12.4.1992 which again relates to the delivery of the aforesaid

vehicle. The said letter is also addressed to the appellant at the

address of respondent No. 2 intimating that the aforesaid jeep is

Page 8 of 12 lying ready for the last five months and is also duly registered

temporarily in the name of the appellant.

11. It is an admitted position that subsequent thereto the jeep was

delivered along with Temporary Registration No. HRU 4413 AT

which is annexed as Annexure R-4. The name of the appellant

appears against the name of the registered owner. In fact, the

aforesaid documents were sent by the appellant himself to

respondent No. 1 (the Custodian) under his letter dated 4.8.1998

informing the Custodian that one Mahindra Jeep is parked at S-

25, Panchasheel Park, New Delhi-110001. The appellant, in that

letter, had also stated that the ex-officials of M/s. Fair Growth

Financial Services Limited informed him that the vehicle was

supposed to be under hire purchase/lease agreement.

12. On appreciation of the aforesaid documents, the Custodian has

come to a finding and conclusion that the appellant, being a

Director of the M/s. Fair Growth Financial Services Limited of

which his father was Chairman and Managing Director, was

aware that the jeep had been purchased in his name for which

consideration was paid by the M/s. Fair Growth Financial Services

Limited. The premises S-25, Panchasheel Park, New Delhi-

110001 was previously occupied by the father of the appellant.

Having found all those facts against the appellant, it was

concluded that the vehicle in question was purchased by the

Page 9 of 12 appellant through respondent No. 2 on hire purchase agreement

and, therefore, the amount was paid by respondent No. 2.

Therefore, the vehicle was registered in the name of the

appellant. When the temporary registration of the vehicle was

taken on 3.3.1992, the delivery of the vehicle was taken by the

notified party. The appellant was the Director of the notified

party. Consequent thereto, a categorical finding was recorded

that the aforesaid transaction was known and authorised by the

appellant who was aware that the vehicle was ordered by his

father on his behalf for which consideration was paid by the

notified party. In that view of the matter, the direction was

issued for payment of the amount in accordance with the

provisions of the aforesaid Act.

13. Learned Counsel appearing for the appellant, however,

submitted that the aforesaid conclusions arrived at by the

Special Court are perverse for when the order was placed for

purchase of the vehicle and when the payment was made, that

is, on 22.7.1991, he was nowhere connected with the business of

respondent No. 2. Therefore, the appellant had no knowledge of

the aforesaid transaction. This submission, however, in our

considered opinion, is misplaced in view of the findings and

conclusions recorded hereinbefore on the basis of the documents

on record.

Page 10 of 12

14. All those documents which were sent by the appellant himself to

the Custodian clearly indicate that the vehicle was ordered in the

name of the appellant. Order for purchase of the vehicle was

placed in the name of the appellant. Respondent No. 2 has also

sanctioned hire purchase finance for the appellant who is the

Chairman of M/s. Fair Growth Financial Services Limited for a

Mahindra Jeep. The name of the appellant was also registered

as a registered owner in the temporary registration. Therefore,

despite the dispute raised by the appellant, it is clear that the

appellant was the owner of the vehicle in question and that it

was purchased on hire purchase and that it was financed by

respondent No. 2 after the amount was sanctioned by the father

of the appellant who was the Chairman towards hire purchase

finance for the appellant. The vehicle was delivered on

15.4.1992 when he was the Director and In-charge of

respondent No. 2 which is quite evident from the delivery note

referred to hereinbefore. Therefore, the nexus between the

purchase of the vehicle and the involvement of the appellant in

the deal is clearly established.

15. In view of the aforesaid discussion, we find no infirmity in the

order passed by the Special Court. We uphold the said order but

in the peculiar facts and circumstances of the case and taking

into consideration the fact that the appellant himself informed

Page 11 of 12 the Custodian about the aforesaid vehicle we modify the order

for payment of interest at the rate of 18% per annum by

directing that interest on the aforesaid amount of Rs. 2,83,192/-

shall be paid at the rate of 9% per annum from 22.7.1991 to

29.2.1992. An amount of Rs. 10,00,000/- is already lying

deposited in terms of order passed which was deposited by

respondent No. 1. The amount payable by the appellant,

therefore, shall now be calculated in terms of this order and the

said amount shall be adjusted out of the amount lying deposited.

So far paragraph No. 21 of the judgment and order of the

Special Court is concerned, we find no infirmity in the same and,

therefore, the same is upheld.

16.In terms of the aforesaid order, this appeal is disposed of with

modification with regard to the interest payable.

..........................................J. [Dr. Mukundakam Sharma]

........................................J. [Dr. B.S. Chauhan]

New Delhi, May 26, 2009

Page 12 of 12