2019 Supreme(Bom) 344

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
SHALINI PHANSALKAR JOSHI, J.
JYOTI H MEHTA - Appellant
Versus
KISHORE J JANANI - Respondent
Special Case No. 1 of 2017; Notice of Motion No. 1 of 2018
Decided on : 31-01-2019

The provisions of the Limitation Act, 1963, are not applicable to the proceedings for recovery of the assets of the notified entities in the hands of the third-party.

Headnote:

None

Fact of the Case:

Plaintiffs filed a suit for recovery of Rs. 6 Crores from Defendant No.1, a proprietary brokerage firm, for transactions conducted on behalf of the plaintiffs as clients. Defendant No.2 was the banker of Defendant No.1, and Defendant No.3 was the Reserve Bank of India. Defendant No.4 was the custodian appointed under the Special Court Act to manage attached assets of notified persons/entities. Defendant No.5 was the Bombay Stock Exchange, of which Defendant No.1 was a member. The plaintiffs claimed that during the relevant period, they had undertaken various transactions for the purchase and sale of shares through Defendant No.1, and the transactions were duly reflected in their books of accounts. As on 8th June 1992, when the plaintiffs were declared as notified parties, they had a receivable of Rs. 6,51,59,635.30 from Defendant No.1. The plaintiffs alleged that Defendant Nos.1 and 2 failed to comply with a public notice issued by the custodian, and the custodian failed to take further steps. The plaintiffs sought recovery of Rs. 4.07 Crores from Defendant No.2, with interest, and the remaining amount from Defendant No.1, with simple interest. Defendant No.1 admitted to the transactions but claimed that the amount was transferred for various equity shares and forward positions taken by his group in the Valan settlement. He further claimed that he had purchased a pay order of Rs. 3,47,50,000 in the name of Mazda Industrial and Leasing Limited (MILL), which was lost and not encashed during its validity period. Defendant No.2 denied liability to the plaintiffs or the custodian. Defendant No.3 explained the circumstances related to the pay order of Rs. 4.07 Crores. Defendant No.4 denied negligence in taking action for recovery of assets of notified entities. Defendant No.5 submitted that the surplus amount arising out of the auction of Defendant No.1's membership rights was not attachable by third parties in garnishee proceedings. The parties submitted draft issues, and the court finalized the issues for consideration.

Finding of the Court:

1. The court found that the plaintiffs had proved that money was receivable from Defendant No.1, and that the rate of interest was 18% per annum. 2. The court found that the plaintiffs had proved that they were entitled to seek relief against the surplus amounts lying with Defendant No.5, out of the sale proceeds of the membership card of Defendant No.1. 3. The court found that Defendant No.1 had not discharged his onus and obligation to disclose the fact of possession of attached assets belonging to the plaintiffs in terms of Section 3(3) and Section 13 of the TORTS Act, 1992. 4. The court found that the Bombay Stock Exchange was not liable to make good the amount of Rs. 49,45,584/- defrayed by it to the Income Tax Department to meet their claim on Defendant No.1. 5. The court found that the suit was not barred by limitation.

Issues: 1. Whether plaintiffs prove that money is receivable from Defendant No.1? 2. If yes, at what rate of interest? 3. Whether the plaintiffs prove that they are entitled to seek any relief against surplus amounts lying with Defendant No.5, out of sale proceeds of the Membership Card of Defendant No.1? 4. Whether Defendant No.1 has discharged his onus and obligation to disclose the fact of possession of attached assets belonging to the Plaintiffs in terms of Section 3(3) and Section 13 of TORTS Act, 1992? 5. Whether the Bombay Stock Exchange is liable to make good the amount of Rs. 49,45,584/- defrayed by it to Income Tax Department to meet their claim on Defendant No.1? 6. What Order and Decree?

Ratio Decidendi: 1. The court held that the plaintiffs had proved that the money was receivable from Defendant No.1, as the transactions were duly reflected in their books of accounts and Defendant No.1 had admitted to the transactions. 2. The court held that the plaintiffs were entitled to seek relief against the surplus amounts lying with Defendant No.5, as the surplus amount was an asset of the notified parties, lying in the hands of Defendant No.1. 3. The court held that Defendant No.1 had not discharged his onus and obligation to disclose the fact of possession of attached assets belonging to the plaintiffs, as he had failed to provide convincing evidence to support his claim that the amount was utilized for a specific purpose. 4. The court held that the Bombay Stock Exchange was not liable to make good the amount of Rs. 49,45,584/- defrayed by it to the Income Tax Department, as the deduction of the amount from the dues payable to Defendant No.1 was not illegal or incorrect. 5. The court held that the suit was not barred by limitation, as the provisions of the Limitation Act, 1963, were not applicable to the proceedings for recovery of the assets of the notified entities in the hands of the third-party.

Final Decision: The court decreed the suit in favor of the plaintiffs, directing the custodian to recover the amount of Rs. 4 Crores, along with interest, from Defendant Nos.1 and 2, and to utilize the same for distribution amongst the debtors of late Harshad S. Mehta. The court also directed the custodian to recover the amount of Rs. 1.08 Crores and Rs. 1,52,17,000/- from Defendant No.5, with interest, and to utilize the same for distribution amongst the debtors of Late Harshad S. Mehta. The court rejected the plaintiff's claim for recovery of the amount of Rs. 49,45,584/- paid by Defendant No.5 to the Income Tax Department. The court stayed the execution of the judgment and order till the appeal period was over.