2004 Supreme(SC) 1368

2004(8) Supreme 222
SUPREME COURT OF INDIA
(From Special Court (Trial of Offences Relating to Transactions in Securities) at Bombay
R.C. Lahoti, CJI & Ashok Bhan, J.
Asea Brown Boveri Ltd. -Appellant
versus
Industrial Finance Corporation of India & Ors. -Respondents
Civil Appeal No. 3574 of 1998
Decided on 27-10-2004
Counsel for the Parties :
For the Appellant : Uday Umesh Lalit, Sr. Advocate, (A.C.), Rattan K. Singh, Nikhilesh Krishnan, R.K. Choudhary, Sagar Saxena, Jayan Mehta, Ms. Vandana Singh, Kanhaiya Priyadarshi, Advocates.
For the Respondents : Subramonium Prasad and Prasanjit Keswani, Advocates.

IMPORTANT POINT
Under the provisions of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, the custodian remains bound by the obligations incurred by the notified party itself, if not incurred fraudulently or to defeat the provisions of the Act.

Headnote:Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992-Sections 3(2) and (3)-Notified Person-Lease Finance Agreement between appellant company and respondent 3-Appellant had taken lease finance of total 57 cars-Tacit understanding between the parties that the cars were to be transferred to appellant company at the end of initial lease period of 5 years-Respondent 3 became a notified party u/s 3(2) of the Act due to certain illegal transactions-Appointment of IFCI as the Custodian u/s 3(1) of the Act, over the properties belonging to respondent 3-Appellant company made payments to IFCI in place of respondent 3-However, Special Court refused to treat the transaction between appellant and respondent 3 as one of lease finance and instead treated it to be a transaction of lease only i.e. appellant holding cars as lessee of respondent 3-No effort made to scrutinize and interpret the documents evidencing the transaction-Registration of 56 cars stood in the name of appellant-Inspite of having made full payment, direction for delivery of cars to the custodian has caused failure of justice-Impugned order passed by the Special Court is set aside.

       Held : A perusal of the detailed order passed by the Special Court shows that the Special Court refused to treat the transaction between the appellant and Fairgrowth as one of lease finance and instead treated it to be a transaction of lease only i.e. the appellant holding 56 cars as lessee of Fairgrowth. The principal reason which prevailed according to the Special Court is that in its application, the appellant had stated the transaction to be of "lease" and not of "lease finance". Thus the Special Court has rigidly applied the rules of pleadings but a perusal of the order shows that there has been no effort to scrutinize and interpret the documents evidencing the transaction so as to determine the real nature thereof. (Para 8)

       During the course of hearing before this Court, it was conceded at the Bar that so far as the transaction between the respondent No. 3 and the appellant as evidenced by the agreement dated 4.12.1990 is concerned, it is a transaction of lease finance and the rights and obligations of the parties have to be worked out accordingly. (Para 11)

       So far as the Act is concerned, we have to go by the provisions of the Act, keeping in view the real nature of the transaction ascertaining the real intention of the contracting parties in the light of the facts and circumstances of a given case. Once a party has been notified under sub-Section (2) of Section 3 of the Act then under sub-section (3), notwithstanding anything contained in any other law for the time being in force with effect from the date of notification under sub-section (2), any property, movable or immovable or both belonging to notified party stands attached simultaneously with the issue of the notification and becomes liable to be dealt with by the custodian in such manner as the Special Court may direct. (Para 20)

       For the purpose of deciding the controversy before us, it is not necessary for us to examine whether the transaction entered into between the appellant and Fairgrowth, the respondent No. 3, would at all attract the applicability of the provisions of the Act in view of sub-section (2) of Section 3 thereof. The learned counsel for the appellant has taken a very fair stand submitting that the appellant is prepared to pay if anything is still found to be due and payable by it but in any case the 56 cars could not have been held liable and directed to be delivered to the custodian. It was a simple case of accounting. If the appellants have cleared all their payments in accordance with the agreement dated 4.12.1990, initially to Fairgrowth and thereafter to the custodian including payment of terminal fee subject to adjustment for security deposit and the interest accrued thereon, then all that had remained to be done was the transfer of ownership on paper which the custodian should have been directed to do, submitted the learned counsel. But, as we have already noticed, the registration of the cars already stands in the name of the appellant. On a scrutiny of the accounts, if in the opinion of the Special Court, nothing had then remained to be paid by the appellant, then it was only a matter of calculation, the difference between the appellant s statement of account and the one prepared by the Chartered Accountant at the instance of the custodian being bonafide, the appellant could, at best, have been directed to pay the deficit. But in no case submitted the learned counsel for the appellant, the 56 cars could have been directed to be delivered to the custodian. In spite of having made full payment (bonafide error or dispute as to calculation excepted), direction for delivery of cars to the custodian has caused failure of justice. We find ourselves in agreement with the submission so made. (Para 21)