* Author
[2024] 3 S.C.R. 294 : 2024 INSC 170
Suman L. Shah
v.
The Custodian & Ors.
(Civil Appeal No(s). 4577 of 2011)
05 March 2024
[Pamidighantam Sri Narasimha and Sandeep Mehta,* JJ.]
Issue for Consideration
There were questionable transactions between the appellants
and respondent Nos. 6, 7 and 8, the alleged benami companies
of respondent No. 2 (notified party). Whether the Special Court
committed manifest error in facts as well as in law in holding that
the appellants herein were the garnishees of respondent No. 2.
Whether the conclusions and findings passed by the Special Court,
that the appellant herein failed to prove the fact that amounts
had been repaid to the benami companies of the notified personrespondent No.2, can be sustained.
Headnotes
Special Court (Trial of Offences relating to Transactions in
Securities) Act, 1992 – The miscellaneous applications were
filed by the respondent-Custodian in the year 2008 seeking to
recover the amounts of Rs.50 lakhs from appellant-S towards
the dues of respondent Nos. 6 and 7 and amount of Rs.25 lakhs
from appellant-L towards the dues of respondent No.8 – The
Income Tax Department, vide letter dated 05.05.1998 informed
the Custodian about respondent No. 2 being the benami owner
of the companies (respondent Nos. 4 to 8 herein) – Special
Court in its separate judgments directed appellants to pay
the respective amounts due to the respondent Nos. 6, 7 and
8, being benami companies of respondent No. 2 – Propriety:
Held: Respondent No. 2 was notified under the Act of 1992 on
06.10.2001 and thus, by virtue of s.3(3) of the Act of 1992, all
properties belonging to him stood automatically attached from the
date of such notification – The appellants herein had borrowed the
amounts in question from respondent Nos. 6, 7 and 8, way back in
the years 1996-1997 – By that date, there could not have existed
any justifiable reason for the appellants herein to have entertained
[2024] 3 S.C.R. 295
Suman L. Shah v. The Custodian & Ors.
a belief that these were the benami companies of respondent No.
2 or that there was any breach of the provisions of the Act of 1992
by respondent no.2 or the respondent companies – The foundation
behind the assertion made by the Custodian that the appellants herein
were garnishees of respondent No. 2 through respondent Nos. 6,
7 and 8 is based entirely on a communication dated 05.05.1998
purportedly issued by the Income Tax Department – No witness from
the Income Tax Department was examined in evidence before the
Special Court in miscellaneous applications for recovery – Even the
communication forwarded by the Income Tax Department and relied
upon by the Custodian was not proved by proper evidence – Also, a
bare perusal of ss.3 and 9A, it would become clear that the properties
of the person notified u/s. 3(2) would stand attached automatically
with effect from the date of notification by virtue of s.3(3) – Since
respondent No.2 was notified (as being a debtor of the originally
notified company FFSL) with effect from 06.10.2001, a fortiori, his
properties would be deemed to be attached with effect from that date
and not prior thereto – The applications for recovery having been
filed by the Custodian with the allegation that the appellants herein
were the debtors of the benami companies of the notified person,
the primary onus of proving this assertion would be on the Custodian
by virtue of s.101 of Evidence Act – It is only after the Custodian
discharged this primary burden and established the existence of
the debt, then by virtue of s.102 of the Evidence Act, perhaps, the
onus could be shifted on to the appellants to rebut the same – The
appellants herein took a categoric stand in their depositions that
they had returned the amounts borrowed from respondent Nos. 6,
7 and 8, but the books of accounts were not available because of
lapse of time – It was neither a requirement in law nor could it be
expected from the appellants herein to retain the books of accounts
after more than a decade of the alleged suspicious transactions –
Therefore, the conclusions drawn and the findings recorded in the
impugned judgments passed by the Special Court that the appellants
herein failed to prove the fact that the amounts had been repaid to
the benami companies of the notified person-respondent no.2 do
not stand to scrutiny and cannot be sustained as being contrary to
facts and law. [Paras 32-39]
List of Acts
Special Court (Trial of Offences relating to Transactions in
Securities) Act, 1992; Evidence Act, 1872.
296 [2024] 3 S.C.R.
Digital Supreme Court Reports
List of Keywords
Recovery of money; Benami; Benami owner of companies;
Attachment of property; Garnishee; Debtors of the benami
companies; Primary burden of proof; Shift of burden of proof;
Books of account; Lapse of time.
Case Arising From
CIVIL APPELLATE JURISDICTION : Civil Appeal No.4577 of 2011
From the Judgment and Order dated 11.03.2011 of the Special Court
Constituted under the Provisions of Special Court (Trial of Offences
Relating to Transaction in Securities), Act, 1992 in Miscellaneous
Application Nos.162 of 2008, 343 of 1994 and 193 of 1993
With
Civil Appeal No.4583 of 2011
Appearances for Parties
Anirudh Joshi, Mahesh Agarwal, Rishi Agrawala, Ankur Saigal, Ms.
S. Lakshmi Iyer, Ms. Sukriti Bhatnagar, Ms. Chitra Agarwal, Ms.
Manavi Agarwal, Ms. Divya Singh, Sunil, E. C. Agrawala, Advs. for
the Appellant.
Arvind Kumar Tewari, Ms. Yosha Dutt, Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Mehta, J.
1. The factual and legal issues involved in these appeals are common
and hence the same have been heard together and are being decided
by this common judgment.
2. The instant appeals under Section 10 of the Special Court (Trial of
Offences relating to transactions in Securities) Act, 1992 (hereinafter
being referred to as the ‘Act of 1992’) arise out of the final judgments
passed by the Special Court, Bombay constituted under the Act of
1992 of even date i.e. 11th March, 2011, in MA Nos. 162 and 184 of
2008 in MA No.343 of 1994 in MA No. 193 of 1993.
3. Before proceeding to consider the appeals on merits, it would be
apposite to consider the broad scheme of the Act of 1992.
[2024] 3 S.C.R. 297
Suman L. Shah v. The Custodian & Ors.
4. The Act was promulgated as large-scale irregularities committed
by some share brokers in collusion with the employees of Banks
and Financial Institutions(in short ‘FIs’) came to light in relation to
transaction in Government/other securities leading to diversion of
funds from the banks/FIs to the individual accounts of certain brokers.
5. The Act provided a mechanism to deal with the above situations
and in particular, to ensure speedy recovery of the huge amounts
illegally diverted, punish the guilty and restore the confidence of
public at large in the security transactions and also to uphold and
maintain the basic integrity and credibility of banks and FIs. The
period of transactions in securities under the purview was from
1st April, 1991 to 6th June, 1992. A Special Court headed by a
sitting Judge of the High Court was established for speedy trial
of offences relating to transactions in securities and disposal of
properties attached. The Act also provided for appointment of one
or more custodians under Section 3 so as to attach the property/
properties of the offenders with a view to preventing diversion of
such properties by the offenders.
6. Section 3(2) stipulates that the Custodian may, on being satisfied
on information received that any person has been found involved in
any offence relating to transactions in securities after 1st April, 1991
and on or before 6th June, 1992, notify the name of such person
in Official Gazette.
7. Section 3(3) provides that any property, movable or immovable
or both, belonging to the notified persons would stand attached
simultaneously with the date of issuance of the notification.
8. Section 3(4) mandates the Custodian to deal with the attached
properties in such manner as the Special Court may direct.
9. Section 11(1) empowers the Special Court to pass appropriate
order(s) directing the Custodian for disposal of the attached property.
10. Under Section 11(2), liabilities of notified persons are required to
be paid or discharged in full by distributing monies so realized after
disposal of the attached assets.
11. Having taken into account the relevant provisions of the statute, the
brief facts arising for consideration in the present appeals may be
noted as below:-
298 [2024] 3 S.C.R.
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(i) On 2nd July, 1992, Fairgrowth Financial Services Limited
(hereinafter being referred to as the ‘FFSL’) was notified under
Section 3(2) of the Act and all its properties stood attached. In
1993, the Custodian filed Miscellaneous Application No. 193
of 93 in the Special Court for the recovery of various sums of
money belonging to FFSL from respondent No. 2-Pallav Sheth.
(ii) The Special Court passed a consent decree on 24th February,
1994 directing respondent No. 2-Pallav Sheth to pay a sum
of Rs.51,49,07,417.92/- to the Custodian on behalf of FFSL.
Respondent No. 2-Pallav Sheth committed default and as a
consequence, the Custodian initiated attachment of his assets
to recover the decretal amount.
(iii) During the years 1996-1997, the appellant-Suman L. Shah
had borrowed a sum of Rs.50 lakhs from respondent No.
6-Klar Chemicals(P) Ltd. and a sum of Rs. 25 lakhs from
respondent No. 7-Malika Foods (P) Ltd. (original respondent
Nos. 5 and 6 before the Special Court) whereas appellantLaxmichand Shah had borrowed Rs.45 lakhs from respondent
No. 8-Jainam Securities(P) Ltd. (original respondent No.7
before the Special Court). As per the case set up by the
Custodian before the Special Court, these were the benami
companies of respondent No. 2-Pallav Sheth who had illegally
parked the tainted money received from FFSL, the notified
company in these benami companies (respondent Nos.6, 7
and 8) created by himself.
(iv) The Custodian notified respondent No.2-Pallav Sheth under
Section 3(2) of the Act on 6th October, 2001. He was declared
insolvent on 5th November, 2003 and as a consequence, all
his assets and properties got vested in the Official Assignee i.e.
respondent No.9 herein. As respondent No. 2-Pallav Sheth failed
to pay the decretal amount, the Custodian sought information
from respondent No. 3- Income Tax Department regarding the
assets of respondent No. 2-Pallav Sheth. In turn, the Income
Tax Department, vide letter dated 5th May, 1998 informed the
Custodian about respondent No. 2-Pallav Sheth being the
benami owner of the companies (respondent Nos. 4 to 8 herein).
(v) The Special Court, by an order passed in miscellaneous
application registered for initiating contempt proceedings
[2024] 3 S.C.R. 299
Suman L. Shah v. The Custodian & Ors.
against respondent No. 2-Pallav Sheth observed that
respondent Nos. 4 to 8 were benami companies of respondent
No.2-Pallav Sheth.
12. The Custodian claims to have acquired knowledge/information that
the appellant Suman L. Shah had received an amount of Rs. 50
lakhs from respondent No. 6(out of which Rs. 25 lakhs were repaid
by cheque and the entry dated 5th May, 1997 is available in the
passbook) and Rs. 25 lakhs from respondent No.7 and that the
appellant-Laxmichand Shah had received an amount of Rs.25 lakhs
from respondent No.8.
13. Accordingly, Miscellaneous Application Nos. 162 of 2008 and 184
of 2008 were filed by the Custodian before the Special Court for
recovery of Rs. Rs. 50 lakhs from the appellant Suman L. Shah (Civil
Appeal No.4577 of 2011) and for recovery of Rs. 25 lakhs from the
appellant/Laxmichand Shah (Civil Appeal No. 4583 of 2011), both
being garnishees of respondent No. 2-Pallav Sheth i.e. the owner
of the benami companies (respondent Nos.4 to 8).
14. The Special Court, vide judgment dated 11th March, 2011 passed
in Miscellaneous Application No. 162 of 2008 directed the appellant
Suman L. Shah to pay a sum of Rs. 50 lakhs(Rs. 25 lakhs each due
to respondent Nos. 6 and 7) being benami companies of respondent
No. 2-Pallav Sheth, to the Custodian with interest @ 12% per annum
from 1st April, 1997 till realisation of the amount.
15. Vide another judgment of even date passed in Miscellaneous
Application No. 184 of 2008, the Special Court directed appellantLaxmichand Shah to pay a sum of Rs. 25 lakhs due to respondent
No. 8, benami company of respondent No. 2-Pallav Sheth, to the
Custodian with interest @ 12% per annum from 1st April, 1997 till
realisation of the amount.
16. The Special Court further directed that the appellants shall deposit
the amounts with the Custodian within a period of two months from
the date of the judgment failing which the Custodian would be free
to execute the orders as decrees of the Civil Court. Upon recovery,
the amounts were directed to be paid to respondent No. 9-Official
Assignee whereafter the appellants would stand discharged of their
liabilities towards the benami companies of respondent No.2 Pallav
Sheth.
300 [2024] 3 S.C.R.
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17. Aggrieved by the judgments dated 11th March, 2011, Suman L.
Shah and Laxmichand Shah have instituted Civil Appeal Nos. 4577
of 2011 and 4583 of 2011 before this Court.
18. While entertaining the appeals, vide order dated 13th May, 2011, this
Court directed appellant-Suman L. Shah to deposit Rs.50 lakhs and
appellant-Laxmichand Shah to deposit Rs. 25 lakhs with the Officer
on Special Duty attached with the Special Court and to furnish a
bank guarantee to the Custodian towards the balance amount, i.e.,
interest.
19. Both the appeals were dismissed by this Court vide order dated
23rd April, 2012 on account of non-compliance of the order dated
13th May, 2011.
20. The IAs seeking restoration of these Civil Appeals were accepted
vide order dated 14th March, 2014, subject to deposit of a total sum
to the tune of Rs. 2.20 crores by the appellants with the Officer on
Special Duty, Special Court. The amount has been deposited and
accordingly the appeals were taken on board.
21. Learned counsel representing the appellants contended that the
Special Court committed manifest error in facts as well as in law in
holding that the appellants herein were the garnishees of respondent
No. 2-Pallav Sheth. It was contended that the questionable
transactions between the appellants and respondent Nos. 6, 7 and
8, the alleged benami companies of respondent No. 2-Pallav Sheth
(notified party) and judgment debtor of FFSL(notified party) were
13-14 years old and as no documentary proof relating to these
transactions was provided by the Custodian on the record of the
proceedings before the Special Court, the statement of appellants
that the entire amounts of loan taken from respondent Nos. 6, 7 and
8 were repaid ought not to have been brushed aside.
22. It was contended that the appellants herein had taken the loans
from respondent Nos. 6, 7 and 8 in the years 1996-1997, i.e., long
before respondent No. 2-Pallav Sheth came to be notified under
Section 3(2) of the Act of 1992, i.e., 6th October, 2001 and thus, the
burden of proof regarding the existence of liability could not have
been shifted on to the appellants and the onus essentially lay upon
the Custodian to prove that these amounts had not been repaid and
were still recoverable.
[2024] 3 S.C.R. 301
Suman L. Shah v. The Custodian & Ors.
23. It was contended that the specific assertion made by the appellants
in their deposition affidavits that the amounts in question borrowed
from respondent Nos. 6, 7 and 8 had been repaid partly by cheque
and partly by material supplied to these respondents could not
be unsettled by the Custodian in crossexamination. Only a bald
suggestion was given to the appellants in cross-examination that
they did not have any document in the form of vouchers, receipts,
invoices or entries in the book accounts to show the adjustment of
the remaining amount.
24. It was urged that the letter dated 5th May, 1998 issued by respondent
No. 3-Income Tax Department was referred to in the cross-examination
of the appellants. However, the said letter was not proved by exhibiting
the same in the proceeding before the Special Court. Learned
counsel urged that the since the Custodian failed to bring the letter
of the Income Tax Department on record, either by summoning the
income tax officials or by producing any other admissible evidence,
the Special Court committed a grave error on placing implicit reliance
on such communication.
25. It was contended that the appellants herein being respondent Nos.
8 before the Special Court were not cross-examined either by
respondent No. 2-Pallav Sheth or on behalf of the benami companies
i.e. respondent Nos. 6, 7 and 8 and thus it could not be said with
any degree of certainty that the amounts borrowed remained unpaid.
26. The pertinent assertion of learned counsel for the appellants was
that since the appellants were never notified under the Act of 1992,
the burden of proof could not have been shifted upon them so as
to require them to disprove the case set up by the Custodian in
the applications for recovery. In this regard, learned counsel for the
appellants referred to the following observations made by the Special
Court in the impugned order:-
“7. It is true that oral evidence cannot be ignored, but at
the same time, it has to be borne in mind that the Official
Assignee - respondent No.9 has to recover the properties
and assets of respondent No.1 for satisfaction of the decree
against him. For the reasons best known to respondent
No.1 or respondent Nos. 5 and 6, neither they filed any
reply nor cross-examined respondent No.8. At the same
time, it cannot be forgotten that the respondent No.8 is a
302 [2024] 3 S.C.R.
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businessman and he was expected to maintain accounts
of his business. It is impossible to believe that he would
not have maintained accounts of his business. According to
him, he had partly repaid these amounts to respondent Nos.
5 and 6 by cheques and partly the amounts were adjusted
against the purchases made by respondent Nos. 5 and 6
from Shree Jalaram Timber Depot Pvt. Ltd. He has shown
payment of Rs.25 lakh by cheque to respondent No.5 and
that is reflected in his passbook. Whenever any payment is
made by cheque and the cheque is encashed, naturally the
debit entry is taken in the account of the person, who has
issued the cheque. For a moment, if it is believed that other
documents were not available, at least respondent No.8
could produce the passbook of his account showing the
debit entries indicating payment by cheque to respondent
Nos. 5 and 6. However, respondent No.8 did not produce
any such passbook to show that certain payments were
made by cheque and those cheques were encashed
and the amounts were debited in his account. If Shree
Jalaram Timber Depot Pvt. Ltd belonging to respondent
No.8 had supplied certain material to respondents Nos.
5 and 6 and that amount was adjusted against the dues
payable to respondents Nos. 5 and 6, there must have
been some documents in the form of bill books, vouchers,
receipts, entries in the account books. However, no such
document was produced. It is true that respondent No.8
was not crossexamined by respondent No.1 or respondent
Nos.5 and 6. Still, it is to be noted that best evidence in
the form of documentary evidence was available with the
respondent No.8, but he chose not to produce the best
evidence and relied only on his oral testimony. Even though
respondent No.8 contended that the documents are not
traceable he has nowhere stated that the records were
lost or destroyed. There is no satisfactory clarification
as to why the records are not traceable. When the best
evidence, which is expected to be available with him, has
not been produced, the Court may draw an inference that
if such record would be produced, it would go against his
claim. Therefore, his contention that the amount of Rs.25
lakh each payable to respondent Nos. 5 and 6 has been
[2024] 3 S.C.R. 303
Suman L. Shah v. The Custodian & Ors.
actually repaid partly by cheque and partly by adjustment of
the price of material supplied to them cannot be accepted.
Therefore, I hold that the respondent No.8 is liable to pay
amount of Rs.25 lakh to respondent No.5 and Rs.25 lakh
to respondent No.6.
27. It was fervently contended by learned counsel for the appellants
that the impugned judgments do not stand to scrutiny inasmuch as
the onus of proof has been shifted on to the appellants without any
justification and contrary to the principles enshrined in the Indian
Evidence Act, 1872(hereinafter being referred to as the ‘Evidence
Act’). He thus, implored the Court to accept the appeals and set
aside the judgments passed by the Special Court.
28. Per contra, learned counsel for the respondents submitted that the
bald statements of the appellants herein in their affidavits that the
amount borrowed from respondent Nos. 6, 7 and 8 i.e. the benami
companies of the notified person i.e. respondent No.2- Pallav Sheth
had been returned by way of adjustment towards material supplied
was rightly discarded by the Special Court because such statements
were not supported by any tangible proof, either oral or documentary.
He urged that the appellants claim to be reputed businessmen and
thus, it is wholly unbelievable that accounts of business had not been
maintained by them so as to substantiate the plea of repayment
being made to respondent Nos. 6, 7 and 8 by way of adjustment of
material supplied. He thus, implored the Court to affirm the impugned
judgments and dismiss the instant appeals.
29. We have given our anxious consideration to the submissions
advanced at the bar and have perused the material available on
record.
30. For adjudicating the issues raised in these appeals, few admitted
facts need to be noted. The miscellaneous applications were filed
by the respondent-Custodian in the year 2008 seeking to recover
the amounts of Rs.50 lakhs from appellant Suman L. Shah towards
the dues of respondent Nos. 6 and 7 and amount of Rs.25 lakhs
from appellant Laxmichand Shah towards the dues of respondent
No.8. The respondent Nos.6, 7 and 8 are alleged to be the benami
companies of the respondent No. 2-Pallav Sheth.
31. Respondent No. 2-Pallav Sheth is the judgment debtor of FFSL which
was a company notified under the provisions of the Act of 1992.
304 [2024] 3 S.C.R.
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Respondent No. 2-Pallav Sheth was notified under the Act of 1992
on 6th October, 2001 and thus, by virtue of Section 3(3) of the Act of
1992, all properties belonging to him stood automatically attached
from the date of such notification. The appellants herein had borrowed
the amounts in question from respondent Nos. 6, 7 and 8, way back
in the years 1996-1997. By that date, there could not have existed
any justifiable reason for the appellants herein to have entertained
a belief that these were the benami companies of respondent No.
2-Pallav Sheth or that there was any breach of the provisions of the
Act of 1992 by Pallav Sheth or the respondent companies.
32. Even if it is assumed for the sake of arguments that respondent
Nos. 4 to 8 were the benami companies of respondent No. 2-Pallav
Sheth, he not having been notified under the Act of 1992 by the time
the amounts were borrowed, the appellants could not be expected
to entertain any doubt regarding the operation of the Act of 1992
either against these companies or even against respondent No.
2-Pallav Sheth or that the companies were the benami companies
of Pallav Sheth.
33. The foundation behind the assertion made by the Custodian that
the appellants herein were garnishees of respondent No. 2- Pallav
Sheth through respondent Nos. 6, 7 and 8 is based entirely on a
communication dated 5th May, 1998 purportedly issued by the Income
Tax Department. An affidavit was filed on behalf of the Department in
the proceedings before the Special Court but in such affidavit, there
is no reference whatsoever to the outstanding dues of respondent
Nos. 6, 7 and 8 or that the appellants were its debtors. Furthermore,
there is no reference whatsoever in this affidavit with regard to letter
dated 5th May, 1998 which was annexed with the affidavit filed on
behalf of the Custodian and was heavily relied upon by the Special
Court. No witness from the Income Tax Department was examined
in evidence before the Special Court in miscellaneous applications
for recovery.
34. While initiating recoveries, the Custodian relied upon the provisions
of Sections 3 and 9A of the Act of 1992 which are reproduced
hereinbelow:-
“3. Appointment and functions of Custodian. —
(1) The Central Government may appoint one or more
Custodians as it may deem fit for the purposes of this Act.
[2024] 3 S.C.R. 305
Suman L. Shah v. The Custodian & Ors.
(2) The Custodian may, on being satisfied on information
received that any person has been involved in any offence
relating to transactions insecurities after the 1st day of
April, 1991 and on and before the 6th June, 1992, notify
the name of such person in the Official Gazette.
(3) Notwithstanding anything contained in the Code and any
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 subsection 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 section 4.
9A. Jurisdiction, powers, authority and procedure of Special
Court in civil matters. —
(1) On and from the commencement of the Special Court
(Trial of Offences Relating to Transactions in Securities)
Amendment Act, 1994 (24 of 1994) the Special Court shall
exercise all such jurisdiction, powers and authority as were
exercisable, immediately before such commencement, by
any civil court in relation to any matter or claim—
(a) relating to any property standing attached under
sub-section (3) of section 3;
(b) arising out of transactions in securities entered
into after the 1st day of April, 1991, and on or
before the 6th day of June, 1992, in which a
person notified under subsection (2) of section
3 is involved as a party, broker, intermediary or
in any other manner.
(2) Every suit, claim or other legal proceeding (other than
an appeal) pending before any court immediately
before the commencement of the Special Court (Trial
306 [2024] 3 S.C.R.
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of Offences Relating to Transactions in Securities)
Amendment Act, 1994 (24 of 1994), being a suit, claim
or proceeding, the cause of action whereon it is based is
such that it would have been, if it had arisen after such
commencement, within the jurisdiction of the Special
Court under sub-section (1), shall stand transferred on
such commencement to the Special Court and the Special
Court may, on receipt of the records of such suit, claim
or other legal proceeding, proceed to deal with it, so far
as may be, in the same manner as a suit, claim or legal
proceeding from the stage which was reached before
such transfer or from any earlier stage or de novo as the
Special Court may deem fit.
(3) On and from the commencement of the Special Court
(Trial of Offences Relating to Transactions in Securities)
Amendment Act, 1994 (24 of 1994), no court other than
the Special Court shall have, or be entitled to exercise,
any jurisdiction, power or authority in relation to any matter
or claim referred to in sub-section (1).
(4) While dealing with cases relating to any matter or claim
under this section, the Special Court shall not be bound by
the procedure laid down by the Code of Civil Procedure,
1908 (5 of 1908), but shall be guided by the principles of
natural justice, and subject to the other provisions of this
Act and of any rules, the Special Court shall have power
to regulate its own procedure.
(5) Without prejudice to the other powers conferred under
this Act, the Special Court shall have, for the purposes
of discharging its functions under this section, the same
powers as are vested in a civil court under the Code of
Civil Procedure, 1908 (5 of 1908), while trying a suit, in
respect of the following matters, namely: —
(a) summoning and enforcing the attendance of any
person and examining him on oath;
(b) requiring the discovery and production of
documents;
(c) receiving evidence on affidavits;
[2024] 3 S.C.R. 307
Suman L. Shah v. The Custodian & Ors.
(d) subject to the provisions of sections 123 and 124
of the Indian Evidence Act, 1872 (1 of 1872),
requisitioning any public record or document or
copy of such record or document from any office;
(e) issuing commissions for the examination of
witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a case for default or deciding it ex
parte;
(h) setting aside any order of dismissal of any case
for default or any order passed by it ex parte; and
(i) any other matter which may be prescribed by
the Central Government under sub-section (1)
of section 14.”
35. From a bare perusal of these provisions, it would become clear
that the properties of the person notified under Section 3(2) would
stand attached automatically with effect from the date of notification
by virtue of Section 3(3). Since respondent No.2- Pallav Sheth was
notified (as being a debtor of the originally notified company FFSL)
with effect from 6th October, 2001, a fortiori, his properties would be
deemed to be attached with effect from that date and not prior thereto.
36. The appellants herein took a pertinent plea before the Special Court
that the dues towards respondent Nos. 6, 7 and 8, generated from
borrowings made in the years 1996-1997 stood repaid and closed
because the amounts had been repaid by cheque(s) and by way
of adjustments towards materials supplied. The applications for
recovery having been filed by the Custodian with the allegation that
the appellants herein were the debtors of the benami companies
of the notified person, the primary onus of proving this assertion
would be on the Custodian by virtue of Section 101 of Evidence
Act. It is only after the Custodian discharged this primary burden
and established the existence of the debt, then by virtue of Section
102 of the Evidence Act, perhaps, the onus could be shifted on to
the appellants to rebut the same.
37. The entire case of the Custodian regarding subsisting debts of
the appellant towards respondent Nos. 6, 7 and 8 was based on
308 [2024] 3 S.C.R.
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a communication received from the Income Tax Department. The
appropriate witness to prove such communication would be the
official concerned from the Income Tax Department. However, as has
been mentioned above, no witness from the Income Tax Department
was examined in support of the recovery application. Even the
communication forwarded by the Income Tax Department and relied
upon by the Custodian was not proved by proper evidence.
38. The appellants herein took a categoric stand in their depositions that
they had returned the amounts borrowed from respondent Nos. 6, 7
and 8, but the books of accounts were not available because of lapse
of time. The said plea of the appellants herein could not be treated
as unnatural or an afterthought because once the transactions were
completed and the loans were repaid, there was no reason for the
appellants to have entertained a belief that after a period of about 13
years, they would be required to present the account books pertaining
to transactions. It was neither a requirement in law nor could it be
expected from the appellants herein to retain the books of accounts
after more than a decade of the alleged suspicious transactions.
39. Resultantly, the conclusions drawn and the findings recorded in the
impugned judgments passed by the Special Court that the appellants
herein failed to prove the fact that the amounts had been repaid to
the benami companies of the notified person, namely, Pallav Sheth
do not stand to scrutiny and cannot be sustained as being contrary
to facts and law.
40. As an upshot of the above discussion, the impugned judgments are
hereby quashed and set aside.
41. The appeals are allowed accordingly.
42. The amounts deposited by the appellants in furtherance of the order
dated 14th March, 2014 shall be reimbursed to them forthwith.
43. Pending application(s), if any, shall stand disposed of.
Headnotes prepared by: Ankit Gyan Result of the case:
Appeals allowed.
