MANJIT SINGH SODHI versus THE CUSTODIAN & ORS. on 4 August 2022

1. Leave granted.

2. The appeal arises from a judgment dated 6 March 2020 of theBSpecial Court constituted under the Special Court (Trial of OffencesRelating to Transactions in Securities) Act 1992[1]. The decision of theSpecial Court arises out of an execution application filed by the Custodian,the first respondent, being Execution Application No 1 of 2019.

3. Fairgrowth Financial Services Ltd[2], the second respondent, is aCcompany registered under the provisions of the Companies Act 1956.Raviraj Housing Corporation, the third respondent, had availed a shortterm loan of Rupees Twenty five lakhs from FFSL and agreed to repayit after 180 days with interest at the rate of 20 percent per annum. Thefirst respondent is the custodian appointed by the Central Governmentunder the provisions of the Act of 1992. The custodian notified the secondDrespondent as a “notified person” under the provisions of Section 3(2) ofthe Act of 1992.[3] The assets of FFSL stood attached with effect from 2July 1992. The case of FFSL was that the third respondent had executeda promissory note on 14 October 1991 for the repayment of the loan anda letter of undertaking-cum-indemnity reiterating its commitment to repayERupees twenty five lakhs. FFSL instituted Miscellaneous Petition No 15of 2000 against the third respondent for the recovery of an amount ofRupees twenty five lakhs, together with interest at the rate of twentyper cent. On 28 March 2003, the Special Court directed the thirdrespondent to pay to FFSL a sum of Rs 63.86 lakhs, together with interestat twenty per cent on the principal sum of Rupees twenty five lakhsFfrom the date of the institution of the petition till payment and/or realization.

4. On 28 April 2003, a notice was issued by FFSL to the thirdrespondent for the payment of the decretal amount. This was followedby a notice dated 16 December 2011 by the first respondent. On 22February 2018, the appellant addressed a communication to the firstGrespondent stating that the erstwhile trustee of Raviraj Housing 1 “Act of 1992"

2 “FFSL”

3 Section 3(2) “The custodian many, on being satisfied on information received that anyperson has been involved in any offence relating to transactions in securities after the1[st] day of April 1991 and on and before the 6[th] June, 1992, notify the name of suchHperson in the Official Gazette.”

Corporation, who was looking after its affairs, died in 2004 and that theappellant became a trustee after his death. By the said communication,the appellant offered to pay the principal amount of Rupees twenty fivelakhs and sought a waiver of the interest. By a communication dated 10July 2018 the first respondent stated that the decision on waiver of intereston the decretal sum rests with the Special Court under the Act of 1992.The Custodian stated that pending the filing of an application before theSpecial Court seeking a waiver of interest, the principal amount be sentto FFSL expeditiously. Pursuant to his offer, the appellant admittedlypaid an amount of Rupees one lakh. However, the advocate for RavirajHousing Corporation sent another communication on 19 October 2018stating that since the appellant became a trustee only in 2005 after thedeath of Mr. LV Whabhi who used to conduct the affairs of theCorporation, he is not liable to pay the dues of the third respondent. Itwas also stated that the third respondent trust does not have any income.A copy of a nil annual income tax return for the year 2002-2003 wasfurnished to substantiate the claims.

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5. The first respondent moved an execution application[4] beforethe Special Court. The Execution Application was contested by theappellant on the ground that it was barred by limitation. The appellantsubmitted that though the decree was made in 2003, the first demand bythe custodian was made sixteen years later on 16 December 2011 andthe delay has not been explained. On 14 June 2019, the Special Courtpassed an ad-interim order directing the disclosure of assets of theappellant and the third respondent. The Special Court, by its judgmentdated 6 March 2020 observed that the appellant has been attempting todelay the proceedings. The Special Court held that the claim of the firstrespondent is not barred by the law of limitation because:

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(i) The appellant in the letters addressed to the Custodian on22 February 2018 and 11 August 2018 acknowledged theliability to pay the dues and sought a waiver of interest.The appellant also remitted a sum of Rs 1,00,000 by demanddraft drawn from the bank account of Raviraj HousingGCorporation in which the balance is alleged to only be in theamount of Rs. 15,036. The Bank account has beenselectively used to show minimal balances but funds are 4 Execution application no. 1 of 2019

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Amade available for issuing Demand Drafts. Thus, theappellant clearly acknowledged liability; and

(ii) Even otherwise, the execution application has been filed bythe Custodian who is entitled and liable to recover theamounts in accordance with the Act of 1992.

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6. Appearing on behalf of the appellant, Mr Huzefa A Ahmadi,learned senior counsel, submitted that:

(i) The appellant was not part of the trust when the decreewas passed, since he had become a trustee only in 2005and that, in any event, the personal properties of the appellantCcannot be attached in satisfaction of the decree;

(ii) The appellant’s letter dated 22 February 2018 does notacknowledge liability, but, in substance, is only a ‘withoutprejudice’ offer to pay; and

(iii) In any event, the acknowledgement which was issued on22 February 2018 is beyond the period of limitation sincethe decree is of 2003 and the limitation which is prescribedby Article 136 of the Schedule to the Limitation Act 1963[5]would be applicable.

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7. On the other hand, Mr Arvind Kumar Tewari, learned counselEappearing on behalf of the first respondent has relied on a decision of athree-Judge Bench of this Court in L S Synthetics Ltd v. FairgrowthFinancial Services Ltd and Another[6] in which it has been held thatthe provisions of the Act of 1963 would apply only when a suit is filed ora proceeding is initiated for recovery of an amount. The judgment holdsFthat the Act of 1963 would have no application towards claims pendingbefore the Special Court for the purpose of the discharge of liabilities ofa notified person in terms of Section 11 of the Act of 1992.

8. Responding to this submission, Mr Ahmadi has urged that thedecision in L S Synthetics (supra) has been explained by a two-judgeGbench in Fairgrowth Investments Ltd v. Custodian[7], where theobservations in the earlier decision have been limited to the provisions of 5 “Act of 1963"6 (2004) 11 SCC 456H7 (2004) 11 SCC 472

Section 11 of the Act of 1992 and to the proceedings by the SpecialCourt under that provision.

9. At this stage, it would be material to note that Mr Tewariappearing on behalf of the first respondent has sought to challenge themaintainability of the appeal on the ground that Section 10 of the Act of1992 excludes an appeal to this Court against an interlocutory order.Section 10 is extracted below:

“10. Appeal - (1) Notwithstanding anything in the Code (or theCode of Civil Procedure 1908 or the Arbitration Act 1940, anappeal shall lie from any judgment [decree] sentence or order, notbeing interlocutory order, of the Special Court in the SupremeCourt both on facts and law.”

10. Responding to the preliminary objection to the maintainabilityof the appeal, it has been urged on behalf of the appellant that the SpecialCourt has, in the present case, concluded the aspect of limitation byholding that there was an acknowledgement of liability by the appellanton 22 February 2018. Learned senior counsel submitted that since theissue of limitation has been concluded against the appellant, the decisionof the Special Court cannot, in substance, be regarded as interlocutoryin nature.

11. The order which has been passed by the Special Court is forthe disclosure of assets. For convenience of reference, the operativepart of the directions of the Special Court is extracted below:

“(i).Respondent nos. 1 and 2 are directed to disclose their assets.Respondent no. 2 is directed to disclose all personal assets,shares held in jointly and with others as also stocks of limitedcompanies bonds, Mutual Funds, National SavingsCertificates, Post Office Savings and other securities all ofwhich will be disclosed in affidavit to be filed within a periodof two weeks from today.

(ii) Meanwhile respondent no. 2 shall also disclose hisPermanent Account number as registered with the IncomeTax Authorities within two weeks from today. If suchdisclosure is not forthcoming the concerned Commissionerof Income Tax shall provide the Custodian with the PANbased on which Custodian is directed to make all necessary A

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172SUPREME COURT REPORTS

Ainquires and seek disclosure of assets from the aforesaidparties.

(iii) The Custodian shall address letters to NSDL and CDSLcalling upon them to furnish copies of statement of accountsof all transactions in shares and stocks and bonds and MutualBfunds that may be held in the name of respondent no. 2 inhis own name and jointly with any third party, respondentno. 1 and 2 jointly and separately or with any third party,respondent no. 2. The NSDL and CDSL are directed tocomply with the request of the Custodian within a period ofone week of receipt of such demand along withCauthenticated copy of this order for further directions.

(iv) In the meantime there will be an ad-interim order in termsof prayer clause( c) which reads as follows :

(c) that pending the final hearing and disposal of the presentDApplication, the Respondent No. 1 and Respondent No. 2and /or his agents, attorneys be injuncted by an order ofthis Hon’ble Special Court from selling or transferring oralienating or in any manner dealing with or disposing orencumbering or parting with possession or creating any thirdparty rights in respect of all or such of his properties andEother movable and immovable assets as are sufficient tosatisfy the decretal amount.

(v) List on 20th March, 2020 for compliance.”

12. A Constitution bench of this Court in Mohan Lal Magan LalFThacker v. State of Gujarat[8] differentiated between a ‘final order’and ‘interlocutory order’ as follows:

“4. The question as to whether a judgment or an order is finalor not has been the subject-matter of a number of decisions; yetno single general test for finality has so far been laid down. Thereason probably is that a judgment or order may be final for oneGpurpose and interlocutory for another or final as to part andinterlocutory as to part. The meaning of the two words “final”and “interlocutory” has, therefore, to be considered separately inrelation to the particular purpose for which it is required. However,

generally speaking, a judgment or order which determines theprincipal matter in question is termed final. It may be final althoughit directs enquiries or is made on an interlocutory application orreserves liberty to apply [Halsbury’s Laws of England (3rd Edn.)Vol. 22, 742-43]. In some of the English decisions where thisquestion arose, one or the other of the following four tests wasapplied.

1. Was the order made upon an application such that a decisionin favour of either party would determine the main dispute?

2. Was it made upon an application upon which the main disputecould have been decided?

3. Does the order as made determine the dispute?

4. If the order in question is reversed, would the action have togo on?”

13. An “interlocutory order” denotes an interim or temporary orderwhich does not decide the important rights or liabilities of the parties.[9]The Special Court in its order dated 6 March 2020 has conclusively heldthat the execution petition is not barred by limitation. The determinationof the issue of limitation affects the rights and liabilities of the parties.Thus, the argument of the first appellant that the appeal is not maintainablein view of Section 10 of the Act of 1992 is rejected.

14. The Special Judge has specifically held against the appellanton the ground that there was an acknowledgement of liability within themeaning of Section 18 of the Act of 1963. The finding that there was anacknowledgement of liability within the meaning of Section 18 is premisedon the hypothesis that the Act of 1963 would stand attracted. However,it has also been held in the judgment of the Special Court that in anyevent the Custodian is entitled and liable to recover the amount underthe Act of 1992 in view of the decision of this Court in L S SyntheticsLtd (supra).

15. In L S Synthetics Ltd (supra), the appellant had obtainedshort term loans from a notified party. The Custodian had called uponthe appellant to furnish details of the loan. The notified party initiatedproceedings before the Special Court seeking a direction to the appellantto pay the Custodian on his behalf. The contention of the appellant was 9 Amar Nath v. State of Haryana, (1977) 4 SCC 137

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Athat the claim was barred by limitation since he had furnished the fulldetails of the amount in question to the Custodian in 1993. On the questionof whether the claim of the notified party is barred by limitation, thethree-Judge Bench of this Court held that provisions of the LimitationAct have no application, “in so far as directions required to be issued bythe Special Court relating to the disposal of the attached property areBconcerned”. The relevant extract of the judgment reads as follows:

“37. We may, however, add that the attachment of the propertiesof the notified party being for specific purposes, i.e., for the purposeof discharging his liabilities, the Special Court is bound to passappropriate orders in relation thereto. A property once attachedCshall remain under attachment till an appropriate order is passed.It is, therefore, idle to contend that even in respect thereof theprovisions of the Limitation Actwould apply. The Court whileissuing directions to the Custodian in relation to the attachedproperty for the purpose of discharge of the liability of the notifiedDperson must pass an appropriate order. So long the claims orother proceedings initiated before the Special Court asregard discharge of liability of the notified person continue,the attachment remains in force. A proceeding before theSpecial Court is not a suit for recovery of an amount. Theproceedings before the Special Court are extraordinary in nature.EDistribution of the assets of a notified person may take a longtime but it would bear repetition to state because all the claimsfiled before the Special Court are disposed of, the property of thenotified person stands attached. In other words, the provisions ofthe Limitation Act would inter alia apply only when a suit is filed D

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or a proceeding is initiated for recovery of an amount and notwhere a property is required to be applied towards the claimspending before the tribunal for the purpose of discharge of theliabilities of the notified person in terms of Section 11 of the saidAct.

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41 […] We are, therefore, of the opinion that the provisions of theLimitation Act have no application, so far as directions required tobe issued by the Special Court relating to the disposal of theattached property, are concerned.”

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(emphasis supplied)

Section 29(2) of the Limitation Act stipulates that where a speciallaw prescribes a period of limitation for an application different from theperiod prescribed in the Schedule of Act of 1963, then Section 3 of theAct of 1963 shall apply as if such period was prescribed by the schedule,and the provisions of Sections 4 to 24 shall apply to the extent that it isnot expressly excluded by the special Law. The three-Judge Bench in LS Synthetics Ltd (supra) observed that Section 29(2) of the LimitationAct is not applicable to the Act of 1992 since in ‘terms of the provisionsof the Act, no period of limitation is prescribed’.

16. In Fairgrowth Investments Ltd (supra), the issue beforethis Court was whether the Special Court constituted under the Act of1992 has the power to condone the delay in filing a petition under Section4(2) of the Act. In that case, on 23 November 2001, the appellant wasnotified under Section 3(2) of the Act of 1992. On 8 October 2002, theappellant filed a petition of objection to the notification under Section4(2) of the Act of 1992. The Special Court rejected the application onthe ground that it was filed beyond the period of limitation prescribed bySection 4(2). Section 4(2) provides that any person aggrieved by anotification issued under Section 3(2), may file an objection within thirtydays of such notification. This Court rejected the contention of theappellant that the limitation prescribed under Section 4(2) is directoryand not mandatory and held that Section 4(2) is unequivocal andunqualified and there is no scope to read in a power of the Court todispense with the time limit. Consequently, in Fairgrowth InvestmentsLtd (supra), this Court concurred with the final conclusion in L SSynthetics Ltd (supra) to the extent that the provisions of the Act of1963 have no application in relation to a petition under Section 4(2) ofthe Act of 1992. It was observed that the decision of this Court in LSSynthetics (supra), was limited to a consideration of Section 11 of theAct of 1992:

“23. The decision by a larger bench in L.S Synthetics Ltd. holdingthat the provisions of the Limitation Act, 1963 do not apply to theAct may not have, by itself, concluded the question formulated byus at the outset. That case was, as has been rightly contended bylearned counsel appearing on behalf of the appellant, limited to aconsideration of Section11 of the Act and the proceedings by theSpecial Court thereunder. It was in that context that the Courthad said that the Act had not provided for any period of limitation.

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But for the reasons already stated by us we concur in the finalconclusion reached by the Court in L.S Synthetics to the extentthat the provisions of the Limitation Act 1963 have not applicationin relation to a petition under Section 4(2) of the Act.

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24. Finally, Section 29(2) of the Limitation Act speaks of applicationBof the provisions contained in Sections 4 to 24 “only insofar as,and to the extent to which, they are not expressly excluded bysuch special or local law”. This language, together with our earlierreasoning, particularly with regard to L.S. Synthetics [(2004) 11SCC 456: (2004) 7 Scale 427] would answer the further questionraised by the appellant, namely, whether the question of exclusionCof the provisions of the Limitation Act must be separatelyconsidered with reference to different provisions of a special/local Act or in connection with the provisions of the special/localAct, as a whole, by affirmation of the first alternative. We aretherefore not called upon to decide whether claims either preferredDfor the first time before the Special Court or transferred to theSpecial Court under Section 9-A(2) would attract the provisionsof Sections 4 to 24 of the Limitation Act. It is enough for thepurpose of this appeal to hold that Section 29(2) of the LimitationAct, 1963 does not apply to proceedings under Section 4(2) of theSpecial Court (Trial of Offences Relating to Transactions inESecurities) Act, 1992. Since the appellant’s petition of objectionhad been filed much beyond the period prescribed under thatsection, the Special Court was right in rejecting the petition inlimine. The appeal is accordingly dismissed but without any orderas to costs.

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17. At this juncture, Section 18 of the Act of 1963 also needs to benoted. Section 18 of the Act of 1963 stipulates that if an acknowledgmentof liability in writing is made before the expiration of the prescribedperiod for a suit or application in respect of any right, a fresh period oflimitation shall be computed from the time when the acknowledgmentGwas signed. Explanation (c) to Section 18 states that an application forthe execution of a decree or order shall not be deemed to be an applicationin respect of any property or right.

18. In the present case, the Special Court has proceeded on thebasis that there was an acknowledgement of liability by the letter of theHappellant dated 22 February 2018. That finding is sought to be assailed by the appellant by urging that the acknowledgement of liability underSection 18 of the Act of 1963 has to be within the period of limitation andin the present case this test is not satisfied. On the other hand, as wehave already noted, it has been urged on behalf of the first respondentthat the premise of the judgment of the Special Court that the Act of1963 would stand attracted would run contrary to the decision of thisCourt in L S Synthetics Ltd (supra).

19. Based on the decision of this Court in L S Synthetics Ltd(supra), the ultimate directions which have been issued by the SpecialCourt cannot be interfered with. The observations contained in theimpugned order were for the purpose of issuing the directions for adisclosure of assets and would not preclude the Custodian from urgingthat the Act of 1963 had no application to the Execution Applicationwhich was filed for enforcement of the decree dated 28 February 2003.The directions for the disclosure of assets and other consequentialdirections which have been issued are not interfered with in this appeal.

20. The appellant is granted four weeks to file his disclosure ofassets subject to his right to urge his submissions in the executionapplication. In the meantime, the Court has been apprised of the factthat an application has been filed for the arrest of the appellant.Conditional on the appellant making the disclosure of assets within fourweeks as directed above, the application for arrest shall not be pursueduntil the Execution Application is decided. We request the Special Judgeto dispose of the Execution Application preferably within a period of twomonths of the date of receipt of a certified copy of this order.

21. The appeal is disposed of in the above terms.

22. Pending application, if any, stands disposed of.

Ankit Gyan

Appeal disposed of.

(Assisted by : Rahul Rathi, LCRA)

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