Very important point
The Special Court under Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 is not prohibited u/s 20 of Contempt of Courts Act, 1971 to initiate proceedings of contempt of its proceeding on custodian s application u/s 2(b) of Contempt of Courts Act, 1971 in view of application of Section 17 of Limitation Act, 1963 relating to fraud committed in the facts of the case.

Headnote:Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992—Sections 5 and 11A—Contempt of Courts Act, 1971—Sections 2(b) r/w 20 r/w 22—Limitation u/s 20 of one year to initiate proceedings for contempt—Constitution of India—Articles 119 and 215—Appellant giving wrong affidavits of his assets in execution of decree before Special Court—Order of attachment in terms of affidavit passed on 24.8.94—During Income Tax Raid on 11.11.97 Benami Properties held by appellant revealed—Contempt application moved by custodian on 14.6.96—Before Special Court based on fraud in affidavit—Whether in view of the provisions of Section 20 of the Contempt of Courts Act, 1971, the Special Court was prohibited from taking any action being barred by limitation of one year? Rival contentions—Case law —Constitutional provisions—Interpretation of "no Court shall initiate any proceeding for contempt......" according to Section 20 of Contempt of Courts Act, 1971—Limitation Act, 1963—Section 17—Limitation in case of fraud—Whether would apply ? (Yes)—Application and initiation not time barred—Appeal dismissed.
       Held : Learned counsel for the parties have drawn our attention to various decisions of this Court in support of their respective contentions. While the effort of both Mr. Venugopal and Mr. Bobde on behalf of the Appellant was that even in exercise of the power under Article 215 of the Constitution the provisions of Section 20 of the Contempt of Courts Act, 1971 prohibited any action being taken for contempt if a period of one year had elapsed, as was contended in the present case, Mr. Rustomjee submitted that the constitutional power contained under Article 215 could not in any way be stultified or curtailed by any Act of Parliament including Section 20 of the 1971 Act. (Para 16)
       There can be no doubt that both this Court and High Courts are Courts of Record and the Constitution has given them the powers to punish for contempt. The decisions of this Court clearly show that this power cannot be abrogated or stultified. But if the power under Article 129 and Article 215 is absolute can there be any legislation indicating the manner and to the extent that the power can be exercised? If there is any provision of the law which stultifies or abrogates the power under Article 129 and/or Article 215 there can be little doubt that such law would not be regarded as having been validly enacted. It, however, appears to us that providing for the quantum of punishment or what may or may not be regarded as acts of contempt or even providing for a period of limitation for initiating proceedings for contempt cannot be taken to be a provision which abrogates or stultifies the contempt jurisdiction under Article 129 or Article 215 of the Constitution. This Court has always frowned upon the grant or existence of absolute or unbridled power. Just as power or jurisdiction under Article 226 has to be exercised in accordance with law, if any, enacted by the legislature it would stand to reason that the power under Article 129 and/or Article 215 should be exercised in consonance with the provisions of a validly enacted law. In case of apparent or likelihood of conflict the provisions should be construed harmoniously. The Contempt of Courts Act, 1971 inter alia provides for what is not to be regarded as contempt; it specifies in Section 12 the maximum punishment which can be imposed; procedure to be followed where contempt is in the face of the Supreme Court or in the High Court or cognizance of criminal contempt in other cases is provided by Sections 14 and 15; the procedure to be followed after taking cognizance is provided by Section 17; Section 18 provides that in every case of criminal contempt under Section 15 the same shall be heard and determined by a Bench of not less than two Judges; Section 19 gives the right of appeal from any order or decision of High Court in the exercise of its jurisdiction to punish for contempt. There is no challenge to the validity of any of the provisions of the Contempt of Courts Act as being violative or in conflict with any provisions of the Constitution. Barring observations of this Court in the Supreme Court Bar Association’s case (supra), where it did not express any opinion on the question whether maximum punishment fixed by the 1971 Act was binding on the Court, no doubt has been expressed about the validity of any provision of the 1971 Act. In exercise of its constitutional power this Court has, on the other hand, applied the provisions of the Act while exercising jurisdiction under Article 129 or 125 of the Constitution. In Sukhdev Singh Sodhi’s case (supra) it recognised that the 1926 Act placed a limitation on the amount of punishment which could be imposed. Baradakanta Mishra’s case was decided on the interpretation of Section 19 of the 1971 Act, namely, there was no right of appeal if the Court did not take action or initiate contempt proceedings. In the case of Firm Ganpat Ram Rajkumar’s case (supra) the Court did not hold that Section 20 of the 1971 Act was inapplicable. It came to the conclusion that the application for initiating contempt proceedings (was within time and limitation had to be calculated) as for the purpose of limitation date of filing was relevant and furthermore that was a case of continuing wrong. In Kartick Chandra Das case (supra) the provisions of the Limitation Act were held to be applicable in dealing with application under Section 5 in connection with an appeal filed under Section 19 of the Limitation Act. A three-Judge Bench in Dr. L.P. Misra’s case (supra) observed that the procedure provided by the Contempt of Courts Act, 1971 had to be followed even in exercise of the jurisdiction under Article 215 of the Constitution. It would, therefore, follow that if Section 20 is so interpreted that it does not stultify the powers under Article 129 or Article 215 then, like other provisions of the Contempt of Courts Act relating to the extent of punishment which can be imposed, a reasonable period of limitation can also be provided. The question which squarely arises is as to what is the meaning to be given to the expression "no court shall initiate any proceedings for contempt..." occurring in Section 20 of the 1971 Act. Section 20 deals not only with criminal contempt but also with civil contempt. It applies not only to the contempt committed in the face of the High Court or the Supreme Court but would also be applicable in the case of contempt of the subordinate court. The procedure which is to be followed in each of these cases is different. (Paras 30, 31, 32 & 33)
       The question that arise as to how or when are the proceedings for contempt initiated. (Para 34)
       Held further : Action for contempt is divisible into two categories, namely, that initiated suo moto by the Court and that instituted otherwise than on the Court’s own motion. The mode of initiation in each case would necessarily be different. While in the case of suo moto proceedings, it is the Court itself which must initiate by issuing a notice. In other cases initiation can only be by a party filing an application. In our opinion, therefore, the proper construction to be placed on Section 20 must be that action must be initiated, either by filing of an application or by the Court issuing notice suo moto, within a period of one year from the date on which the contempt is alleged to have been committed. It was submitted on behalf of the Appellant that even if the provisions of Section 20 do not bar the High Court from taking action if proceedings are initiated by the filing of an application within a period of one year of the contempt having been committed, in the present case the period of limitation must be regarded as having expired long before the filing of the application by the Custodian and, therefore, no action on such an application could be taken by the Court. The record discloses that the Custodian received information of the Appellant having committed contempt by taking over benami concerns transferring funds to these concerns and operating their accounts clandestinely only from a letter dated 5th May, 1998 from the Income Tax Authorities. It is soon thereafter that on 18th June, 1998 a petition was filed for initiating action in contempt and notice of issue by Special Court on 9th April, 1999. Section 29(2) of the Limitation Act, 1963 provides where any special or local law prescribes for any suit, appeal or application a period of limitation, different from the period prescribed by the Schedule, the provisions of Section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 (inclusive) shall apply insofar as, and to the extent to which, they are not expressly excluded by such special or local law. This Court in the case of Kartick Chandra Das and Others has held that by virtue of Section 29(2) read with Section 3 of the Limitation Act, limitation stands prescribed as a special law under Section 19 of the Contempt of Courts Act, 1971 and in consequence thereof the provisions of Sections 4 to 24 of the Limitation Act stand attracted. Section 17 of the Limitation Act, inter alia, provides that where, in the case of any suit or application for which a period of limitation is prescribed by the Act, the knowledge of the right or title on which a suit or application is founded is concealed by the fraud of the defendant or his agent (Section 17(1)(b)) or where any document necessary to establish the right of the Plaintiff or Applicant has been fraudulently concealed from him (Section 17(1)(d)), the period of limitation shall not begin to run until the Plaintiff or Applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it; or in the case of a concealed document, until the Plaintiff or the Applicant first had the means of producing the concealed document or compelling its production. These provisions embody fundamental principles of justice and equity, viz., that a party should not be penalised for failing to adopt legal proceedings when the facts or material necessary for him to do so have been wilfully concealed from him and also that a party who has acted fraudulently should not gain the benefit of limitation running in his favour by virtue of such fraud. (Paras 44, 45, 46, and 47)
       Held consequently : The provisions of Section 17 of the Limitation Act are applicable in the present case. The fraud perpetuated by the Appellant was unearthed only on the Custodian receiving information from the Income Tax Department, vide their letter of 5th May, 1998. On becoming aware of the fraud application for initiating contempt proceedings was filed on 18th June, 1998, well within the period of limitation prescribed by Section 20. It is on this application that the Special Court by it s order of 9th April, 1999 directed the application to be treated as a show cause notice to the Appellant to punish him for contempt. In view of the abovestated facts and in the light of the discussion regarding the correct interpretation of Section 20 of the Contempt of Courts Act it follows that the action taken by the Special Court to punish the Appellant for contempt was valid. The Special Court has only faulted in being unduly lenient in awarding the sentence. We do not think it is necessary, under the circumstances to examine the finding of the Special Court that this was a continuing wrong or contempt and, therefore, action for contempt was not barred by Section 20. (Para 48)
       Held finally : For the aforesaid reasons, these appeals are dismissed and the impugned judgment of the Special Court is affirmed. The Appellant will, within a week, surrender and serve out the sentence awarded to him by the Special Court. (Para 49)

Judgement Key Points

The legal document discusses the interpretation and application of Section 20 of the Contempt of Courts Act, 1971, particularly concerning the limitation period for initiating contempt proceedings. The key issue is whether the power of courts, especially High Courts and the Special Court, to initiate contempt proceedings is barred if such proceedings are commenced after one year from the date the contempt was alleged to have been committed.

The court emphasizes that the power to punish for contempt is inherent in courts of record, and this power cannot be taken away or limited by legislation in a manner that undermines the constitutional authority under Articles 129 and 215 of the Constitution. The provisions of the Contempt of Courts Act, 1971, including Section 20, are intended to define and limit the procedural aspects of contempt proceedings, not to extinguish the courts' inherent jurisdiction.

The interpretation of "initiate proceedings" is critical. It is clarified that proceedings are considered initiated when the court forms a prima facie opinion that contempt has been committed and takes steps such as issuing a notice or receiving an application. The mere filing of an application or receipt of a reference does not constitute initiation unless the court has applied its mind and begun formal proceedings within the limitation period.

Furthermore, the document underscores that the limitation period begins from the date the contempt is alleged to have been committed, but this can be extended in cases involving concealment or fraud, where the knowledge of the right or the facts was concealed. Such concealment or fraud can justify the extension of the limitation period, provided the proceedings are initiated within the period after the fraud is uncovered.

In the specific case discussed, the proceedings were initiated within the limitation period after the concealment was discovered, and the court upheld the validity of the contempt action. The document also highlights that procedural rules across courts support the view that initiation of contempt proceedings involves the filing of applications or notices, and that the limitation period is to be observed from the point of formal initiation, not merely from the alleged date of contempt.

Overall, the interpretation favors a harmonized approach, recognizing both the courts' inherent powers and the statutory limitations, and underscores that procedural safeguards, such as limitation periods, are compatible with the courts' constitutional authority to punish contempt, provided they are properly understood and applied.

JUDGMENT

Kirpal, J.—These appeals by special leave are against the judgment of the Special Court constituted under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (herein referred to as ‘the Special Court Act’) whereby the Appellant has been held to have committed civil contempt as defined under Section 2(b) of the Contempt of Courts Act, 1971 and sentenced to undergo simple imprisonment for a period of one month and a fine of Rs. 2,000/-.

2. M/s. Fairgrowth Financial Services Limited was notified on 2nd July, 1992 under the provisions of the Special Court Act. As a result thereof, all properties belonging to the said notified party stood automatically attached.

3. The Custodian appointed under the Special Court Act filed Misc. Application. No. 193 of 1993 and sought a decree for Rs. 50 crores on behalf of the notified party against Pallav Sheth, the Appellant herein. On 24th February, 1994 the Appellant submitted to a Consent Decree for a sum of Rs. 51.49 crores which was to be paid in instalments. Rs. 2.00 crores were paid but thereafter the Appellant defaulted in the payment of further instalments.

4. The Custodian then moved an Execution Application No. 343 of 1994 and the Special Court there upon required the Appellant to disclose all his assets and at the same time by an interim order restrained him from alienating, encumbering, selling off or parting with possession or transferring in any manner whatsoever any of his assets movable and immovable including the Bank accounts. On an affidavit being filed by the Appellant declaring his assets, the Special Court on 24th August, 1994 passed further interim order of attachment of some of the assets mentioned therein.

5. On 11th November, 1997 the Income Tax Department conducted raids on Pallav Sheth. The newspaper reports indicated detection of assets belonging to Pallav Sheth by the Income Tax Department whereupon the Special Court directed the Custodian to ascertain from the Income Tax Department complete details of all the assets of Pallav Sheth. In response to a letter written by the Custodian, the Commissioner of Income Tax vide its letter of 5th May, 1998 informed that during the search operations, the Income Tax Department detected that Pallav Sheth was the de facto owner of five companies, namely, Anzug Plastics (P) Ltd., Magan Hotels (P) Limited, Klar Chemicals (P) Limited, Malika Foods (P) Limited and Jainam Securities (P) Limited. Pallav Sheth is further reported to have admitted in the statements before the Income Tax Department by him and his wife that several cash deposits amounting to Rs. 2.81 crores made in the bank accounts of the aforesaid five companies were his undisclosed income. According to the Commissioner of Income Tax, the assets of these five companies belong to Pallav Sheth and these companies were to receive substantial amounts from other companies/individuals.

6. It was also stated by the Income Tax Department that Pallav Sheth had admitted that profits were earned from the activities of these companies in buying and selling of shares and bogus transactions of bill discountings were entered into to show loss, in order to offset the profits, and these monies were actually returned by cash and found their way into the bank accounts.

7. The Custodian then on 18th June, 1998 filed Misc. Application No. 276 of 1998 before the Special Court with a prayer that Pallav Sheth should be punished for committing contempt of the Special Court s order dated 24th August, 1994 as despite the said order he had set up benami companies and had transferred and/or alienated his property including cash inter alia with a view to defeat the decree passed against him. Though Pallav Sheth in his reply denied that the said five companies were his benami companies the Special Court directed issuance of the show cause notice to punish Pallav Sheth for contempt. It appears that Pallav Sheth filed an affidavit on 23rd July, 1999 to the effect tha

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2001 Supreme(SC) 1073

Cases Referred (12)