KILLICK NIXON LTD.versusTHE CUSTODIAN AND ORS.

                   [2010) 5 S.C.R. 275


                   KILLICK NIXON LTD.                         A
                             v.
              THE CUSTODIAN AND ORS.
             (Civil Appeal No. 2724 of 2006)
                     APRIL 27, 2010
                                                              B
  [B. SUDERSHAN REDDY AND SURINDER SINGH
                 NIJJAR, JJ.)

     . Special Courts (Trial of Offences Relating to
Transactions in Securities) Act, 1992 - ss. 3 and 10 -Appeal C
against interlocutory order of Special Court - Maintainability
of - Fraudulent securities transactions - Siphoning of huge
funds of various banks - Special Court passed decrees
against appellant and its group Companies - Realization of
amounts under the decrees - Sale of properties in the D
process - Plea of appellant that the appropriation of sale
proceeds ought to have been carried out individually against
each of the decrees and not as done by Custodian treating
all the decrees as a consolidated decree - Plea negated by
Special Court - On appeal, held: The order passed by E
Special Court was purely interlocutory and did not amount to
deciding any /is as such between the parties - Since appeals
against interlocutory orders are specially excluded u!s.10,
interference with the impugned order is unwarranted - Even
on merits, interference not warranted, since the Special Court F
meticulously analyzed the facts, arrived at a proper
conclusion and rightly treated the decrees as a consolidated
one.

    'D' advanced interest free loans to appellant and its
group companies. The Special Court constituted under          G
the Special Court~ (Trial of Offences Relating to
Transactions in Securities) Act, 1992 found that 'D', its
Directors and their close associates indulged in
fraudulent securities transactions resulting in siphoning
                           275                                H
    276    SUPREME COURT REPORTS             (2010) 5 S.C.R.


A of huge funds of various banks. 'D' was accordingly
  notified under the provisions of the Act.

       The Custodian, on behalf of 'D', proceeded against
  the appellant and its group Companies for recovery of
  loans. Appellant and its group Companies filed
8 applicatior:1s before the Special Court for ascertaining
  their individual liabilities. The Special Court passed
  decrees against the appellant and its group Companies.

       'D', in the meanwhile, filed application before the
C Special Judge praying that the amounts recovered from
   the group Companies could not be attachedI towards the
   debt payable by 'D' to the Custodian, since there was no
   nexus between loans advanced to original judgment-
   debtors and the transactions with the banks. The Special
Ct Court dismissed the prayer so made.
         Properties were sold in the process of realizing the
    decretal amounts. Sale proceeds were appropriated
    a!Plinst dues of the entire group of appellant.

E     The appellants sabmitted before the Special Court
  that the sale proceeds of the properties of their group
  companies ought to be apportioned individually decree
  wise and that the Custodian cannot be permitted to
  appropriate the amounts paid by the judgment debtors
F as also the sale proceeds realized from the sale of
  prope~ties towards a consolidated decree. The Special
  Court held that the appellant and its group companies
  were all controlled by 'D' the notified party and the
  amounts that were being rec.overed in execution of the
G decrees were really public finds which were siphoned off
  by the Directors of '0', and parked in the companies .
  controlled by them. The Special Court accordingly held
  that the appropriation of sale proceeds made by the
  Custodian was proper and accordingly permitted the
H Custodian to further proceed to recover the remaining
   KILLICK NIXON LTD. v. CUSTODIAN AND ORS.              277


balance. Hence the present appeals.                             A

    Dismissing the appeals, the Court

     HELD: 1.1. An interference with the impugned order
passed by the Special Court, which is purely interlocutory
and does not decide any rights of any party, is                 8
unwarranted. The Special Court did not decide any rights
of the parties but merely passed orders from time to time
including the one under the appeals for the realization of
the amounts under the decrees passed which attained
their finality. The procedure adopted for realization of the    C
amounts under the decrees and the manner of
appropriation by itself does not amount to deciding any
/is as such between the parties. Under s.10 of the Special
Courts (Trial of Offences Relating to Transactions in
Securities) Act, 1992, an appeal shall lie to this Court from   D
any judgment, sentence or order of the Special Court but
not against the interlocutory orders. Appeals against
interlocutory orders are specially excluded under the said
provision. The impugned orders are purely interlocutory
in nature against which no appeal lies to this Court under      E
s.10 of the Act. [Paras 13, 15] [282-F-H; 283-A, C-D]

     1.2. There cannot be any iota of doubt that appellant
and other companies were always treated as one group
and there is a clear finding in this regard by the Special      F
Court that the said group of companies are nothing but
front companies of M/s 'D', the notified party. Even on
merits, the Special Court meticulously analyzed the facts,
arrived at a proper conclusion and rightly treated the
decrees as a consolidated one. [Paras 14, 15] [283-B-D]
                                                                G
    CIFCO Properties (P) Ltd. and Others v. Custodian and
Others (2005) 3 sec 708, relied on



                                                                H
    278      SUPREME COURT REPORTS                 (2010) 5 S.C.R.


A                         Case Law Reference:
          (2005) 3 sec   1oa       relied on             Para 15
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    2724 of 2006.
B
         From the Judgment & Order dated 2.05.2006 of the
    Special Bombay in Execution Application No. 98-105 of 2001
    in Misc. Petition No. 189 of 1995.

                                 WITI-1
c
    C.A. No. 4802-4803, 4806-4818 of 2008.

         Dhruv Mehta, Alok K. Agarwal, Sangita, Naveen Chawla
    and T. Mahipal, Subramonium Prasad, Rana Mukherjee,
0   Siddharth Gautam and Goodwill lndeever for the appearing
    parties.

          The Judgment of the Court was delivered by

       B. SUDERSHAN REDDY, J. 1. These appeals care
E directed against the orders of interlocutory nature passed by
  the Special Court constituted under the provisions of the
  Special Courts (Trial of Offences Relating to Transactions in
  Securities) Act, 1992 (hereinafter referred to as 'the Act'). They
  are being disposed of by this common order since the question
F that arises for our consideration is one and the same.

       2. M/s. Dhanraj Mills Private Limited in its ordinary course
  of business had advanced interest free loans to the appellant
  Mis. Killick Nixon Limited and its group of companies. In the
  year 1992, the Special Court found that M/s. Dhanraj Mills
G Private Limited, its Directors and their close associates
  indulged in fraudulent securities transactions resulting in
  siphoning of huge funds of various banks. The banks had gone
  into liquidation as a result of those fraudulent securities
  transactions. The Special Court also held that the end
H
   KILLICK NIXON LTD. v. CUSTODIAN AND ORS.                  279
            [B. SUDERSHAN REDDY, J.]
beneficiaries of the siphoned funds were the Directors of Mis.       A
Dhanraj Mills Private Limited and Director of Bank of Karad
which bank was used as a conduit for the fraudulent
transactions.

      3. Mis. Dhanraj Mills Private Limited was accordingly          B
notified under the provisions of the said Act. On and from the
date of notification, the properties, movable or immovable, or
both belonging to any person notified under sub-section (2) of
Section 3 of the said Act shall stand attached, simultaneously
with the issue of the notification. Be it noted that Mis. Dhanraj    C
Mills Private Limited itself owned 33% of Mis. Killick Nixon
Limited and the person in ultimate control, ownership and
management of Mis. Killick Nixon Limited is one T.B. Ruia (who
at all relevant points of time was Managing Director of Mis.
Dhanraj Mills Private Limited) who was also notified under the
M.                                                                   D
      4. The Custodian, on behalf of Mis Dhanraj Mills Private
Limited, proceeded against the appellant Mis. Killick Nixon Ltd.
and its group Companies for recovery of loans totaling
Rs.20,81,67,0311-. The amounts due to Mis. Dhanraj Mills             E
Private Limited also stood attached with the issue of
notification.

    5. In the year 1995, the appellant Mis. Killick Nixon Limited
and its group Companies filed separate applications before
Special Court for ascertaining their individual liabilities with a   F
request to grant time for recompense. Simultaneously, the
Custodian also filed applications for fixation of liability and
demanding interest@ 24% per annum. In the year 1997, the
Special Court passed decrees against the appellant and its
group Companies which are consent decrees qua invitum the            G
Custodian, whereby individually ascertained amounts were to
be paid in installments with the interest @ 15% per annum.
Similar consent decree was passed against 13th group
Company also,.
                                                                     H
    280      SUPREME COURT REPORTS                   [2010] 5 S.C.R.


A        6. M/s Dhanraj Mills Private Limited, in the meanwhile,
  made an application before the Special Judge contending that
  the amounts recovered from the group Companies cannot be
  attached towards the debt payable by Mis Dhanraj Mills Private
  Limited to the Custodian, since there was no nexus between
B loans advanced to original judgment-debtors and the
  transactions with the banks. The prayer in the said application
  was that the amount so recovered was to be freed from
  attachment until to be paid back to M/s Dhanraj Mills Private
  Limited, by the Custodian. The Special Court dismissed the
c claim so made on the ground that the Directors of Mis Dhanraj
  Mills Private Limited and its close associates were involved in
  fraudulent deals and have siphoned off funds belonging to
  banks. The Special Court found overwhelming evidence that M/
  s Dhanraj Mills Private Limited is liable to make payment and
  all its assets fall within the purview of the Act. It is in this order
0
  the Special Court specifically held that this is a fit case "for the
  corporate veil to be torn off' as M/s Dhanraj Mills Private
  Limited had no explanation wh<dsoever for how such large
  amounts of "loans" could have been advanced to the appellant
  and its group Companies when Mis Dhanraj Mills Private
E Limited ·itself had been defunct for many years without any
  commercial activity of its own.

       7. In the year 1999, The Special Court having considered
  the request of the original judgment debtors, granted extension
F of time and directed the Custodicrn not to proceed with
  execution of the decrees, subject to payment of defaulted
  installments. As usually, the appellant and its group Companies
  defaulted in payment of the said amounts once again. Left with
  no alternativ~. the Custodian filed execution applications
G against the judgment debtors for recovery of dues from Mis
  Dhanraj Mills Private Limited. It is not necessary to refer the
  facts, the subsequent events in detail and various objections
  raised from time to time as to the sale of properties in the
  process of realizing the decretal amounts. However, one
H important fact that may be required to state is that the Special
   KILLICK NIXON LTD. v. CUSTODIAN AND ORS.                  281
            [B. SUDERSHAN REDDY, J.]
Court by its earlier order dated 30th November, 2001 required       A
the judgment debtors to pay Rs.16 crores payable towards all
decrees for considering the prayer for extension of time to which
all of them agreed to do so. This singular fact establishes that
even judgment debtors were treating the separate decrees
passed against each one of them as a consolidated common            B
decree. The Custodian, at all points of time treated them as a
group to which no objections were raised at any point of time.
The sale proceeds were accordingly appropriated against dues
of the entire group of Mis Killick Nixon Ltd.

     8. The dispute now raised by the appellants is that the sale
                                                                    c
proceeds or the properties of M/s. Killick Nixon group
companies ought to be apportioned individually decree wise.
This is contrary to its earlier stand. The material available on
record also reveals that these group companies have always
referred to the aggregate principal amount of alleged loan given    D
by M/s. Dhanraj Mills Private Limited.

     9. The appellants submitted before the Special Court that
the liabilities of the judgment debtors under separate decrees
were not joint liabilities inasmuch as each judgment debtor is      E
a separate entity in law having their separate properties and
assets. It was the case of the appellants that merely because
the judgment debtors are group companies the amount of
decree passed against them cannot be consolidated. It was
their case that the Custodian cannot be permitted to                F
appropriate the amounts paid by the judgment debtors as also
the sale proceeds realized from the sale of properties towards
a consolidated decree. It is not necessary to refer in detail the
stand taken by the Custodian opposing the plea of the
appellants. Various instances were pointed out by the               G
Custodian as to how the appellants themselves were treating
the decrees as a consolidated one.

    10. It was specifically demonstrated by the Custodian that
the appellants not only treated them as one group but have
themselves proceeded and agreed to have appropriation of the        H
    282     SUPREME COURT REPORTS                 [2010] 5 S.C.R.


A   sale proceeds of the properties sold on group basis. The
    averment in the petition filed in the Special Court contained
    figures relating to the aggregate dues of the group, the
    aggregate amounts received from the sale of properties and
    the aggregate balance amount.
B
       11. The Special Court after a detailed consideration came
  to the conclusion that Mis. Killick Nixon Limited and others are
  group companies and they are all controlled by M/s. Dhanraj
  Mills Private Limited - notified party and the amounts that are
C being recovered in execution of the decrees are really public
  funds which were siphoned off by the Directors of M/s Dhanraj
  Mills Private Limited, and parked in the companies controlled
  by them. The Special Court accordingly held that the
  appropriation of sale proceeds made by the Custodian is
  proper and accordingly the Custodian should proceed further
D to recover the amount that remained in balance.

       12. In these appeals, the singular submission made by Shri
  Dhruv Mehta, learned senior counsel for the appellants, is that
  the appropriation of sale proceeds ought to have been carried
E out individually against each of the decree and not as done by
  the Custodian treating all the decrees as a consolidated
  decree.

        13. Having heard learned counsel for the appellants.and
  respondent, we are satisfied that an interference with the
F impugned order passed by the Special Court, which is purely
  interlocutory and does not decide any rights of any party, is
  unwarranted. The Special Court did not decide any rights of
  the parties but merely passed orders from time to time
  including the one under the appeals for the realization of the
G amounts under the decrees passed which attained their finality.
  The procedure adopted for realization of the amounts under the
  decrees and the manner of appropriation, in our considered
  opinion, by itself does not amount to deciding any /is as such
  between the parties. Under Section 10 of the Act that an appeal
H shall lie to this Court from any judgment, sentence or order of
     KILLICK NIXON LTD. v. CUSTODIAN AND ORS.                  283
              [B. SUDERSHAN REDDY, J.]
the Special Court but not against the interlocutory orders.           A
Appeals against interlocutory orders are specially excluded
under the said provision.

     14. There cannot be any iota of doubt that Mis Killick Nixon
and other companies were always treated as one group and
                                                                      8
there is a clear finding in this regard by the Special Court that
the said group of companies are nothing but front companies
of Mis. Dhanraj Mills Private Limited.

      15. The orders impugned in these appeals are purely
interlocutory in nature against which no 'appeal lies to this court   C
under Section 10 of the Act. We are fortified in that view of ours
by a decision of this court in C/FCO Properlies (P) Ltd. and
Others vs. Custodian and Others1 • Even on merits, we find that
the Special Court having meticulously analyzed the facts,
arrived at a proper conclusion and rightly treated the decrees        D
as a consolidated one.

    16. We find no merit in these appeals and they are
accordingly dismissed without any order as to costs.

B.B.B                                       Appeals dismissed.        E




1.   c2oos) 3 sec 708.