Holding

The Supreme Court upheld the Special Court’s order directing the sale of the attached shares as per the Disposal Committee’s advice and dismissed the appellants’ objections.

Summary

The appellants, relatives of the late Harshad S. Mehta, challenged a Special Court order directing the Custodian to sell shares attached to them under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992. They argued that the sale procedure was flawed – the shares were not divided into groups, the offer period was too short, the timing was inappropriate, and the sale should be on a stock exchange. They also contended that individual liabilities had not been determined, that their assets exceeded liabilities, and that pending denotification applications barred the sale. The Supreme Court held that the Special Court’s order, based on the Disposal Committee’s advice, was valid; the shares must be sold and the appellants could not halt the process. The Court rejected the appellants' objections, affirmed the dichotomy between sale and distribution, and dismissed the appeals.

Issues considered

Whether the shares attached to the notified persons can be sold without dividing them into groups and with the short offer period stipulated in the advertisement.
Whether the timing of the sale was appropriate and whether the shares should be sold on a stock exchange instead of a private auction.
Whether the individual liability of each appellant must be ascertained before the sale of the attached shares.
Whether the appellants' claim that their assets exceed their liabilities precludes the sale of the shares.
Whether the pending denotification applications of the appellants bar the sale of the attached shares.
Whether the appellants can be treated as a single "Harshad Mehta Group" for purposes of liability and sale.
Whether the Special Court complied with the directions of this Court in earlier judgments.

Legislation cited

Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992s. 11, s. 3, s. 5, s. 7, s. 9, s. 9A

Subjects

Special CourtSecurities scamShare saleAttachment of propertyDisposal CommitteeDenotificationGroup liabilityTax liabilityAuctionHarshad Mehta

Judgment

[2008] 8 S.C.R. 1099

"~
SUDHIR S. MEHTA & ORS. A
v.
CUSTODIAN & ANR.
(Civil Appeal Nos. 5690-5697 of 2007)

MAY 16, 2008
B
[S.B. SINHA AND V.S.SIRPURKAR, JJ.]
t
•· Special Courts (Trial of Offences Relating to Transac-
tion in Securities) Act, 1992 Sections 3, 9 and 11:
Jurisdiction of Special Court - Shares and securities - c
Scam case - Special Court directing the custodian for selling
of share held by notified parties, appellants, as per advise of
Disposal Committee by way of auction - Challenged on ground
of non-division of shares in groups, not giving adequate time
>- for making offer, not selling of shares at the Stock Exchange D
• and the'sale was not ordered at .right time- Held: - In tt;rms of
the directions of Special Court, it was certain that shares in
question were not to be sold unless directions so given com-
plied with by the custodian/Disposal Committee - Appellants,
without even waiting for compliance of the direction by Custa- E
<I(' dian/Disposal Committee, preferred to file appeals before Su-
preme Court - Moreover appellants insisting before Supreme
Court for the first time that shtires in question not to be sold at
~ i all - Since scheme of selling of shares in discharge of liability
of the appellants was affirmed by Supreme Court in its earlier F
order, shares were bound to be sold - Since against notifica-
tions for attachment of property belonging to the appellants,
no application for denotification pending, it is not open to them
to say that shares in question should not be sold as their
chances of denotification alive - Notification covers certain
G
properties including shares and securities of notified persons
·~
as comes in the hands of custodian - Under the circumstances
question regarding determination of individual liability of ap-
pellants could not be raised, particularly when liabilities of no-
1099 H
1100 SUPREME COURT REPORTS [2008] 8 s~ C.R.

A tified persons does exceeds assets - No objection to form
and treat the relatives as group was raised before the Special
Court - Unless it is shown that some prejudice would be
caused by treating them as group, such a contention is with-
out any basis - In terms of earlier order ot Supreme Court,
B majority of shares have been sold and only in respect of cer-
tain specified shares present sale was contemplated but ap-
pellants did not prefer to challenge the order - Challenging +
the same at this stage is without any basis- Since, no malafide ·•
alleged against Disposal Committee, stopping of sale of the
c share on apprehension of loss is not justified - Disposal Com-
mittee to suggest about proper time and manner to execute
sale of share in question and Special Court to decide on such
issues and Supreme Court need not go into such questions -
Directions issued.
D After the scam broke out in respect of the shares and
securities, the Central Government enacted the Special
Courts (Trial of Offences Relating to Transactions in Se-
curities) Act. A Special Court was constituted under the
provisions of the Act. A notification in terms of Section 11
E of the Act was issued notifying the appellants and some
other persons and as per the mandatory need of the pro-
vision on and from that date any property movable or im-
movable or both, belonging to the notified persons simul-
taneously and automatically stood attached. The prop-
F erties so attached included vast number of shares held
by one of the economic offender late Sh. Ha rs had S. Mehta
as also his close relatives. Appellants filed Miscellaneous
application. Disposing of the application, the Special
Court directed the custodian under the Act to refer cer-
G tain questions for opinion of the Disposal Committee.
Against the order of the Special Court, appellants filed the +.
present appeals. In the meantime, respondent No.1 issued
an advertisement dated 28.10.2007 for the sale of certain
shares. In terms of the advertisements these shares
would be sold in bulk categories before the specified
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1101
&ANR.

dates. Accordingly, the offers were received by the Cl.is- A
todian and the same were considered by the Disposal
Committee. The Custodian submitted his report for sale
of the shares in favour of the Life Insurance Corporation
of India as it had offered the highest price. The appellant
raised the objections by way of the Miscellaneous Appli- B
cations before the Special Court. The common grievances
as made in these objections were that the time given in
the advertisements for making offers was too short for
the intended investors considering the huge number of
shares and the prevailing market price of the shares; that c
the shares could fetch more price if the Custodian had
divided the shares into appropriate groups and given the
option to the offerers to make offer for the whole lot or
one or more groups; that the time to sell the shares is not
appropriate in view of the prevailing market conditions;
0
and that if the shares were to be sold privately as was
• being done, the Capital gains tax would be required to be
paid and, therefore, the shares should have been sold at
the stock exchange. The Special Court dealt with all the 4
objections. It firstly noted its earlier order dated
17.08.2000, whereby, a scheme was framed for the sale of E
the attached shares and a Committee of experts known
as Disposal Committee was constituted to supervise and
conduct the sale of shares; also took the notice of the
earlier order dated 23.8.2001 passed by this Court regard-
ing sale of shares, wherein, this Court had permitted even F
the private parties to submit their offers for the purchase
of shares and observed that the Custodian should have
sought the opinion of the Disposal Committee; it was also
observed that in the order passed by this Court earlier in
the shares and securities scam case, it was expressed G
that there was no provision for breaking up the bulk
shares into groups and for selling each group separately,
so as to invite the best price, therefore, the Special Court
held that the opinion of the Disposal Committee was
bound to be sought on the question as to "whether if the H
1102 SUPREME COURT REPORTS [2008] 8 S.C.R.
~
A option is given to the buyers to bid for one or more groups ,...,..
'
instead of putting the bids for entire bulk, it would fetch
more price; that it was not for the notified parties to de-
cide as to what would be the appropriate time, nor could
the Court go by the opinion of the notified parties regard-
B ing the appropriate time for sale of the shares; that since,
the Custodian had taken the opinion of the Disposal Com-
mittee on this aspect and since the Disposal Committee +
had opined that it was the right time for selling the shares,
the objection raised regarding the opportune moment
c could not be accepted and that since the Custodian rep-
resented before the Court that the legal and professional
advice regarding the tax liability would have to be ob-
tained, the Special Judge permitted the Custodian to ob-
tain such legal and professional advice. In this view, the
Special Court wanted to know from the LIC of India,
D -(
whether they were willing to keep their offer open till the
opinion of the Disposal Committee was obtained. It was •
noted that the representative of the LIC of India was not
willing to keep their offer open. It was, therefore, decided
not to accept the report of the Disposal Committee rec-
E ommending the sale in favour of the LIC of India and nee-
;....
essary directions were issued.
In these appeals, the appellants raised objections to
the effect that the Custodian has not examined the claim ,. -
F inter se between the entities within the so called group
before effecting the sale of shares; that the assets of the
appellants were appreciating, therefore, it would not be
advisable to effect the sale of the assets; that the Special
Court is acting contrary to the directions issued by this
Court, whereby, it was mandated that Special Court
G
should arrive at a firm conclusion as regards the involve-
ment of the individuals with late Sh. Harshad S. Mehta, an +.
economic offender in Share and Securities Scam; that the
appellants dubbed the impugned order as a step towards
the sale of assets of the appellants without any liabilities
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1103
&ANR.

.., having been established against the appellant!;; that if the A
assets of the appellants are more than the liabilities, there
would absolutely be no reason or warrant for the sale of
appreciating assets of the appellants; that there are ad-
equate liquid balances, which can meet any eventuality
of further liability; and that though 21 months have B
elapsed after the order of this court in Ashwin S. Mehta
and Anr vs. Custodian & Ors. reported in 2006 2 SCC page
.;
385, the Custodian had neither preferred their claim nor
had examined the inter se liability between the so-called
group of individuals (meaning his relatives who are the c
appellants). The appellants objected to the entire group
being considered as one legal entity.
It was contended on behalf of the appellants that the
Custodian and the Special Court have failed to comply
with the directions given by this Court in the case of Ashwin D
)-
Mehta and Anr Vs Custodian & Ors; 2006(2)SCC P 385 and
' more particularly, in paragraphs 41, 42, 46, 47, 51, 52 and
53, the whole arguments turns practical on this very is-
sue; that there was no reason for the Special Court to
have ordered the sale of shares, and the Custodian as E
well as the Special Court have failed to justify the deci-
sion to put the shares on auction and distribute the liabili-
ties; that such decision is arbitrary and the sale of the
shares shall lead to serious loss to the notified persons.
.- i The liabilities were only of late Sh. Harshad S. Mehta, the F
main accused in the earlier case, and not of the other no-
tified parties and since the assets of the notified parties
can meet their liabilities, the sale of the shares by auction
was not justified. This is all the more true in view of the
fact that the Custodian has not yet found the inter se Ii-
G
abilities of the notified parties, when their applications for
• -1 denotification are not decided and pending before the
Special Court; that because of the earlier sale of the
shares, the parties were put to the loss of 6500 crores
and that though the objections for denotifications were
H
1104 SUPREME COURT REPORTS [2008] 8 S.C.R.

A pending before the Special Court, the same have not yet
been disposed of and, therefore, the decision to sell the
shares belonging to the notified parties is wholly incor-
rect; andthat the whole decision to put the shares for sale
by auction is jurisdictionally, procedurally, as well as fi-
B nancially not correct.
Respondent No.1 has submitted that the sale of the
assets as has been decided by the Special Court on vari-
ous grounds and complying with the various provisions
of the Act, as also the earlier orders passed by the Spe-
c cial Court and this Court; that there was no question of
doing anything contrary to the judgments of this Court
nor could it ever be said that the Custodian in any man-
ner failed to do anything that was expected of him; and
that the appellants are trying to wake up the dead issues
D and non-issues without there being any occasion for the
same.
Dismissing the appeals, the Court
HELD: 1.1 The decision to sell the shares was taken
E in the last part of the year 2007, and the notice itself was
issued in the month of October, 2007. That was of course,
on the basis of advice by the Disp~sal Committee. On
the objections having been taken, the Special Court had
given certain directions, but before giving those direc-
F tions, it h(ld practically wiped out the effect of the auc-
tion. In the auction, the LIC of India had made an offer of
Rs.2,701/- per share, which offer was accepted. However,
the Special Court found rightly so by stating that some-
thing more was required to be done procedurally, as well
G as, by way of a policy. In order to comply with the direc-
tions given by the Special Court Judge, it was necessary ·
to put the auction proceedings on hold. However, the LIC
of India was not prepared to keep its offer open and, there-
fore, the Special Court had relieved the LIC of India of its
H obligations on the basis of its offer. (Para - 32) [1137-D-G]
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1105
&ANR.

-.; 1.2 The Special Court rightly felt that since the Cus- A
todian had not consulted the Disposal Committee regard-
ing the appropriate time to be given for submitting the
offers, the Custodian should do that first. As regards the
opportune time, the Special Court, however, held that the
shares in question were being sold at the proper time; 8
and that the Custodian to seek legal and professional
JI advice as regards the tax liability and for that purpose,
• practically wiped out the effect of the auction by directing
the compliance of his directions. Thus, for all the practi-
cal purposes, one thing was certain that the shares were c
not to be sold unless all the directions were complied with.
However, the appellants did not wait and rush to this Court
even before the Disposal Committee had given its opin-
ion on the various issues and even before the Custodian
was able to get the legal and professional opinions re-
D
't garding the tax liability. (Para - 33) [1137-H; 1138-A-B]
•
2.2 The Disposal Committee would now have to
again take a decision whether at this point of time, the
shares should be sold or not. The Disposal Committee
consists of the experts who would know best, whether E
the shares should at all be sold at this point of time. How-
ever, the appellants have come before this Court insist-
ing that the shares should not be sold at all, which stand
..... was conspicuously absent when the matters were argued
firstly before the Special Court or even before the this F
Court, as this Court does not find any trace of the said
contentions in the arguments before the Special Court.
The old theory of not selling the shares at all unless indi-
vidual liabilities were fixed one way or the other was
wreaked up in this appeal and very surprisingly, though
G
the order of the Special Court was completely confirmed
~ i by this Court which also meant that the shares were
bound to be sold. The appellants are giving a go-by to
the judgment of this Court dated 23.8.2001, by which the
judgment of the Special Court was confirmed, by saying
H
1106 SUPREME COURT REPORTS (2008) 8 S.C.R.

A that the shares cannot be sold. This would be impermis-
sible now. (Para 34) [1138-E-H; 1139-A]
,..
Harshad Shanti/al Mehta vs. Custodian and Others
(1998) 5 SCC 1 and L. S. Synthetics Ltd. vs. Fairgrowth Fi-
nancial Services Ltd. in 2004 11 SCC 456 - referred to.
8
3.1 Even on the day, when the matters were being
argued before this Court in Ashwin Mehta's Case, except-
ing two persons, no application for denotification was \l
pending. True it is that permission was given to withdraw
c their applications with a liberty to file fresh petitions after
the criminal trials, if any, are over but no application has
been filed. Thus, the main stay of the arguments on the
part of the appellants is knocked out on the basis of this
fact, and it is not open to the appellants to say that since
there are chances of their denotification, the shares belong-
D
ing to them should not be sold. (Para - 35) [1139-C-E] >(

Ashwin S. Mehta and Anr. vs. Custodian & Ors. (2006) 2 •
sec 385 - referred to.
3.2 When the provisions of the Act are seen in the
E light of conclusions drawn and more particularly, the first
conclusion in Ashwin Mehta's Case by this Court, the prop-
erties of the notified persons like the appellants would
stand automatically attached and any other income from
such attached properties would also stand attached. It is
F obvious that on the day when the said judgment was de-
.... ?

livered, there were no applications pending consideration
before the Special Court nor are any such applications
pending today also. Hence, an objection to the sale, on
that ground is rejected. (Para 36) [1139-F-H]
G
4.1 For the decision of a case, whether any appellant
is referred to as a group or not is not a relevant aspect. r-
The very fact that such appellant is a notified person would
be enough for the attachment of his/her property because
of the Section 3(2) of the Special Courts (Trial of Offences
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1107
&ANR.

Relating to Transaction in Securities Act. There would be A
no necessity to consider the individual liability of any such
appellant being a notified person. Unless any appellant
is denotified, there would be no question of raising of
these defences regarding individual liability. It is obvious,
that the notification covers all the properties including the B
shares and securities of the notified persons and, there-
fore, comes into the hands of the Custodian. There would,
• therefore, be no question of raising the issues that the
individual liability of such a notified person should be ar-
rived at first, since the claim of the notified persons that c
their assets exceeds the liability, is also not correct. (Para
- 37) [1140-A-D]
4.2 The Custodian argues before this Court and not
without any reasons that the tables prepared by the Cus-
todian shows that the liability of the notified persons does D
exceed assets, This Court will not go into that aspect at
this juncture. However, the fact remains that there would
be no question of any individual liability being arrived at
before the shares are sold. The judgment of the Special
Judge for selling the shares having been confirmed by E
this Court, whereby, the decision to sell the shares has
been confirmed by the three Judge Bench of this Court
concluding the issue. The same is binding. Therefore, it
cannot be said at this juncture at least, that on that ac-
count, the sale of the shares should be postponed, till F
such time, as the question of individual liability vis-a-vis
Harshad Mehta is decided upon. (Para - 37) [1140-E-G]
5.1. In paragraph 41 of the of the judgment of Ashwin
Mehta's case, it was stated that it was open to the appel-
lants to show that even if they continued to be notified, G
the Custodian was not right in clubbing all the individual
members of the family as a single entity styled as Harshad
Mehta Group. This Court does not find that there was any
attempt on the part of the appellants to disassociate them-
selves from Harshad Mehta Group. In the light of the judg- H
1108 SUPREME COURT REPORTS [2008] 8 S.C.R.

A ment dated 17.8.2000 passed by the Special Court, it is ..
l"
obvious that the counsel arguing that matter had argii~d
it on behalf ofthe Harsahd Mehta Group. It is for this ;;ur-
pose that this Court has quoted in the argument before
the Special Judge in extenso. It was obvious that at that
B juncture, when the question was as to whether the shares
should be sold or not, the move was objected to by the
appellants formulating themselves as Harshad Mehta
*-
Group. No such objection to form and treat the relatives •
as a group was raised before the Special Court in the year
c erationwhen
2000 the question of sale of shares fell for consid-
for the first time. At any rate, unless it is shown as
to what prejudice would be caused by treating them to be
a group, this contention has no basis. This Court, there-
fore, does not think that the argument in this behalf has
any basis. (Paras - 39 & 40) [1141-B-D,G,H; 1142-A]
D
''(
5.2 The judgment in Ashwin Mehta's Case did not
concern the shares in the name of the appellants/ noti- "
tied parties and the sale thereof which question was al-
ready decided finally by this Court while confirming the
E judgment dated 17.8.2000 passed by the Special Court.
(Para - 42) [1142-H; 1143-A]
Ashwin S. Mehta and Anr. vs. Custodian & Ors. (2006) 2
sec 385 - relied on.
6.1 This Court cannot ignore the fact that in 2005 it-
,.. .
F
self, in pursuance of the judgment dated 17.8.2000 and
the confirming judgment of this Court, the majority of the
shares have already been sold. It is only in respect of the
Reliance Shares that the present sale was contemplated.
It is really surprising that when the major shares were sold
G
way back in 2005, the appellants did not think it proper
either to challenge the same or to raise this argument of " 4

the individual liabilities vis.-a-vis. the group liabilities or
the second argument that unless the denotification ap-

H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1109
&ANR.
• ...
plications were decided upon, there should be no sale of A
shares. It is already pointed out the hollowness of the ar-
gument regarding the denotification applications, which
were claimed to be pending before the Special Court,
which claim is also baseless. Therefore, on both these
counts, there would be no question of finding fault with B
the impugned order of the Special Court. (Para-46) [1145-
.JI
G-H; 1146-A-B]
•
6.2 No mala tides were ever alleged against the Dis-
posal Committee. Under the circumstances, this Court
does not find any reason to accept the argument that the c
earlier sale caused huge loss and, therefore, the shares
should not be sold. In the opinion of this Court, the Spe-
cial Court was right in confirming the advice and accept-
ing the report filed before him on behalf of the Custodian
...,
justifying the sale of shares. However, all that exercise, D
~
this Court is afraid, would have to be repeated again, par-
ticularly, because more than six months have elapsed at-
ter that decision and the sale has yet not taken place. The
Special Court has referred back the matter and has
passed the directions for obtaining the legal and expert E
advice to deal with the taxes. This Court was told at the
Bar that such exercise had already been completed. It
would, therefore, be proper for the Disposal Committee
, 1 to again decide as to whether the shares should be sold
at all and when. That would depend upon the market con- F
ditions and so many other factors which are certain to be
considered by the Disposal Committee. The Custodian
has referred all the happenings during the pendency of
this appeal and has relied on the report dated 27.11.2007.
The question need not be gone into by this Court, since,
G
.. 1 it would be for the Disposal Committee to decide upon
the proper time and the manner in which the sale is to be
executed, and it would be for the Special Court to further
decide on the matter. The appeals lack merits. The sale,
as well as the decision to make the sale at a particular
H
1110 SUPREME COURT REPORTS [2008] 8 S.C.R.

)"~
A time, stand frustrated because of the lapse of time. The
whole procedure for sale of shares will have to be re-
peated now, meaning thereby, that the Disposal Commit-
tee would have to take a fresh decision in the light of the
directions given by the Special Court, which are the cor-
B rect directions. That shall be done at the opportune time.
If the appellants so feel, they would be at liberty to put
their objections subject to what has already been said in \I:_

this judgment. (Paras - 47 & 48) [1146-H; 1147-A-G] •
CIVIL APPEALLATE JURISDICTION : Civil Appeal No.
c 5690-5697 of 2007
From the Judgment and Order dated 2/11/2007 of the
Special Court (Trial of Offences relating to Transactions in Se-
curities) at Bombay in Misc. Application Nos. 272, 273, 274,
275, 276, 277, 278, and 279 of 2007
D '(
Mahesh Jethmalini, Kamini Jaiswal for the Appellants. ~

Arvind Kumar Tewari and Abhishek Tewari for the Respon-
dents.

E The Judgment of the Court was delivered by
V.S. SIRPURKAR, J. 1. These appeals are by way of a
challenge to the order dated 02~11.2007 passed by the Special
f··
Court of Bombay constituted under the Special Courts (Trial of
Offences Relating to Transactions in Securities) Act (hereinaf- r- . .
F ter referred to as 'the Act'). By the impugned common order,
Miscellaneous applications filed by Mr. Sudhir S. Mehta,
Ms. Deepika A. Mehta, Mr. Ashwin B. Mehta, Gromore Research
Assets Management Ltd., Ms. Jyoti S. Mehta and Mr. Hitesh S.
Mehta, as also Ms. Pratima Mehta were disposed of by the
G learned single Judge. In that order, the Special Court directed
the Custodian under the Act to refer two questions for the opin- ~~

ion of Disposal Committee They were:
(i) What would be the appropriate time to be given to
the bidders foJ submitting bids after publication of
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1111
& ANR. [V.S. SIRPURKAR, J.]

the notice inviting bids? A
(ii) Whether it will be admissible to break up the shares
1nto appropriate groups and to give options to the
bidders to bid either for whole lot or for a limited
number of groups?
B
The Custodian was further directed to take legal and pro-
fessional opinion in relation to the liability to pay Capital Gains
Tax. The learned Judge further directed that if the notified par-
ties wanted to make any submission on the above questions,
the same may be submitted to the Custodian within the period c
of 4 days and such submissions would be transmitted by the
Custodian to the Disposal Committee for its consideration, and
after the opinion of the Disposal Committee is given, the Cus-
todian shall take steps in accordance with the said opinion, as
also in accordance with the legal and professional advice. The D
learned Judge further directed that the Custodian would be free
to approach the Court and seek appropriate orders. With these
directions, the learned Judge disposed of the report of the Cus-
todian, as also the applications made by the parties. All the ap-
plicants are the family members of late Sh. Harshad S. Mehta,
while respondent no. 1 herein, is the Custodian appointed un- E
der Section 3(1) of the Act. The respondent no. 2 is the Dis-
posal Committee in all the appeals, which are filed under Sec-
tion 10 of the Act. Each of the individual appellant is in close
relation late Sh. Harshad S. Mehta and have filed 6 appeals,
while Gromore Research Assets Management Ltd. have filed 2 F
appeals. The questions are common and the learned counsel
also apprised us treating all the questions involved, to be com-
mon. Hence, the appeals are being disposed of by this com-
mon Judgment.
G
2. All the common questions have arisen on account of the
advertisements issued by the Custodian dated 28.10.2007 for
the sale of the shares of Reliance Industries Ltd. As many as
24,26,376/- shares belonging to the individual appellants and
1, 75, 316 shares belonging to Fairgrowth Financial Services H
1112 SUPREME COURT REPORTS [2008] 8 S.C.R.

A Ltd. and 5,300/- shares belonging to Mr. N.K. Aggarwal were r _.
covered by these advertisements. It was stated in the adver-
tisements that these shares would be sold in bulk categories
and the offers were to be submitted on or before 1.11.2007.
Accordingly, the offers were received by the Custodian and the
B same were considered by the Disposal Committee, and the
•
'
""
Custodian submitted his report for sale of the shares in favour
of the Life Insurance Corporation of India (UC of India), as the il
UC of India had offered the highest price at the rate of Rs.2, 701/
- per share.
c 3. At this stage, the objections were raised by way of the
Miscellaneous Applications before the Special Cou,rt at the in-
stance of the appellants herein. The common grievances made
in these objections cum applications were:-

D
(i) that the time given in the advertisements for making
offers was too short for the intended investors
considering the huge number of shares and the
~

'
•
prevailing market price of the shares.
(ii) that the shares could fetch more price if the Custodian
E . had divided the shares into appropriate groups and
given the option to the offerers to make offer for the
whole lot or one or more groups.
(iii) that in fact, this was not an appropriate time to sell
the shares considering the prevailing market r- ' "
F conditions.
(iv) that if the shares were to be sold privately as was
being done, the Capital gains tax would be required
to be paid and, therefore, the shares should have
been sold at the stock exchange. ~
G
4. The Special Court dealt with all the 4 objections. It firstly ;.. .
noted its order dated 17.08.2000, whereby, a scheme was
framed for the sale of the attached shares and a Committee of
experts known as Disposal Committee was constituted and the
H sale of shares was conducted under the supervision of that
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1113
& ANR. [V.S. SIRPURKAR, J.]

" ... Committee. The learned Judge also took the stock of the argu- A
ments before him that before issuing advertisements inviting
the offers, the Custodian had not consulted the said Disposal
Committee regarding the appropriate time to be given for sub-
mitting the offers. The learned Judge also took the notice of the
earlier order dated 23.8.2001 passed by this Court regarding B
sale of shares, wherein, this Court had permitted even the pri-
.>. vate parties to submit their offers for the purchase of shares
• and, therefore, the learned Judge observed that the Custodian
should have sought the opinion of the Disposal Committee.
5. Further, the learned Judge also observed that in the or- c
der passed by this Court, it was expressed that there was no
provision for breaking up the bulk shares into groups and for
selling each group separately, so as to invite the best price.
The learned Judge, therefore, held that the opinion of the Dis~
'r posal Committee was bound to be sought on the question as to D
"whether if the option is given to the buyers to bid for one or
_, •
more groups instead of putting the bids for entire bulk, it would
fetch more price?". The learned Judge, further observed that it
was not for the notified parties to decide as to what would be
the appropriate time, nor could the Court go by the opinion of E
the notified parties regarding the appropriate time for sale of
the shares. The learned Judge, therefore, came to the conclu-
sion that since, the Custodian had taken the opinion of the Dis-
_:: '* i posal Committee on this aspect and since the Disposal Com-
mittee had opined that it was the opportune time for selling the F
shares, the objection raised regarding the opportune moment
could not be accepted and that the opinion of the Disposal
Committee on that behalf would be final. In short, the objection
regarding the time of the sale was overruled. Lastly, as regards
the tax liability, since the Custodian represented before the Court
G
#, ' ...,
that the legal and professional advice regarding the tax liability
would have to be obtained, the learned Judge permitted the
Custodian to obtain such legal and professional advice. In this
view, the learned Judge wanted to know from the UC of India,
whether they were willing to keep their offer open till the opinion
H
1114 SUPREME COURT REPORTS [2008] 8 S.C.R.

A of the Disposal Committee was obtained. It was noted that the r"
representative of the UC of India was not willing to keep their
offer open. The learned Judge, therefore, decided not to ac-
cept the report of the Disposal Committee recommending the
sale in favour of the UC of India and issued the directions which
8 we have already mentioned above.
6. It is, therefore, obvious that, firstly, there is no immedi-
ate possibility of the sale of the shares as was intended by the
Custodian unless the directions given by the learned Judge are
complied with. So also, since as many as 6 months have
C elapsed, the whole situation regarding the market has drasti-
cally changed and, therefore, the Disposal Committee would
again be required to decide afresh as to whether the Reliance
Shares should be sold and/or when they should be sold. It is
also an admitted position that the legal opinions regarding the
D tax liability has also not been obtained by the Custodian and,
therefore, the matters have not been crystallized ~rid are still in
a fluid state.
7. However, by these appeals, the basic objection is be-
ing raised to the effect that the Custodian or the Special Court
E have not examined nor given a finding with respect to the in-
volvement of the appellants with late Sh. Harshad S. Mehta, nor
has the Custodian examined the claim inter se between the
entities within the so called group. In short, the appellants have
challenged the very concept of the sale of shares. The further t- -..
F contention raised now is that the assets of the appellants were
appreciating, therefore, it would not be advisable to effect the
sale of the assets. The appellants suggested that in the past
also, the Custodian had sold the shares, the value of which were
appreciating and, therefore, loss of Rs.6,500 Crores was
G caused to the appellants. The further objection raised in the ap-
peal is that the Special Court is acting contrary to the directions ,. • ,
issued by this Court, whereby, it was mandated that Special
Court should arrive at a firm conclusion as regards the involve-
ment of the individuals with late Sh. Harshad S. Mehta. The
H appellants dubbed the impugned order as a step towards the
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1115
& ANR. [V.S. SIRPURKAR, J.]
"-1
sale of assets of the appellants without any liabilities having A
been established against the appellants. It is also said that if
the assets of the appellants are more than the liabilities, there
would absolutely be no reason or warrant for the sale of appre-
dating assets of the appellants. The appellants have also raised
the question mark against the so called illegal and exagger- B
ated demands of revenue and according to them, there are
>
• adequate liquid balances, which can meet any eventuality of
further liability. They further point out that though 2·1 months have
elapsed after the order of this court in Ashwin S. Mehta and
Anr. Vs. Custodian & Ors. reported in 2006 2 SCC page 385, c
the Custodian had neither preferred their claim nor had exam-
ined the inter se liability between the so-called group of indi-
viduals (meaning his relatives who are the appellants). The
appellants objected to the entire group being considered as
'r one legal entity. Lastly, the aforementioned judgment of this Court
D
• in Ashwin Mehta's Case and some observations therein are
heavily relied upon.
8. As against this, the Custodian has justified the sale of
the assets as has been decided by the Special Court on vari-
ous grounds. Our attention has been invited by the Custodian E
to the various provisions of the Act, as also the earlier orders
passed by the Special Court and this Court including the last
judgment in 2006 (cited supra). It is firmly suggested that there
~ 'f
was no question of doing anything contrary to the judgments of
this Court nor could it ever be said that the Custodian in any F
manner failed to do anything that was expected of him. Further,
the Custodian had asserted that the appellants are trying to wake
up the dead issues and non-issues without there being any oc-
casion for the same.

' .. ~
9. Shri Jethmalani appearing for the appellants mainly G
stressed on the judgment of this court in Ashwin's case. Heavy
reliance was placed on paragraphs 36, 41, 42, 46, 47, 50, 51,
52 and 77 and it was expressed that all these directions were
never complied with by the Special Court nor were the individual
liabilities were ever considered as was directed by this Court H

'
1116 SUPREME COURT REPORTS [2008] 8 S.C.R.

A in that judgment.
10. Some basic facts were brought before us.
BASIC FACTS
11. After the huge scam broke out in respect of the shares
8 and securities, which was almost of oceanic proportion, the
Central Government came out with the aforementioned Act.
12. Section 3 of the Act provides for the appointment and
functions of the Custodian. The Custodian, on being satisfied
c that any person is involved in any offence relating to the trans-
actions of securities between the period 1.4.1991 and 6.6.1992,,
can notify the name of such person in the Official Gazette. Sec-
tion 3(3) provides that any property movable or immovable or
both belonging to any person notified under Section 3(2) stands
attached simultaneously with the issue of the notification: and
0
such attached properties would be dealt with by the Custodian '(
in such a manner as the Special Court may direct. Under Sec- '
tion 4(1), the Custodian is empowered to cancel any contract
or agreement entered into between two aforementioned dates
E by the notified person. Section 4(2) provides for hearing as re-
gards the correctness or otherwise of the notification under
Section 3 notifying any person, on an application being made
within 30 days of the issuance of notification. The Special Court
is established under Section 5 and has exclusive jurisdiction
conferred upon it under Section 7 for any prosecution pending
c:
• in any court and such prosecution stands transferred to the Spe-
cial Court under that provision. The ·special Court is also con-
ferred with the jurisdiction in respect to the civil matters, more
particularly, specified in Section 9A. Section 11 is the crux of
this Act, which reads as under:-
G '"
"11. Discharge of liabilities:-(1) Not with standing ~· ~ r
anything contained in the Code and any other law for
the time being in force, the Special Court may make
such order as it may deem fit directing the custodia:1
for the disposal of the property under attachment. (2)
H

J.'
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1117
& ANR. (V.S. SIRPURKAR, J.]

The following liabilities shall be paid or discharged A
in full, as far as may be, in the order as under:
(a} all revenues, taxes, cesses and rates due from
the persons notified by the Custodian under
sub-Section (2) of Section 3 to the Central
Government or any State Government or any 8
local authority;
(b) all amounts due from the person so notified by
the Custodian to any bank or financial institution
or mutual fund; c
(c) any other liability as may be specified by the
Special Court from time to time."
13. Accordingly, on 8.6.1992, a notification was issued
notifying the appellants and some other entities and obviously
0
r- as per the mandatory need of the provision on and from that
• date any property movable or immovable or both, belonging to
the notified persons/entities simultaneously and automatically
stood attached. This property, which stood attached belonging
to the notified persons and entities, included vast number of E
shares held by late Sh. Harshad S. Mehta, as also the other
close relatives of late Sh. Harshad S. Mehta like the appellants,
so also the other entities including the one which is before us
today, i.e. the Fairgrowth Financial Services Ltd. The shares
belonging to late Sh. Harshad Mehta, as also the appellants
herein and the entities were of various companies. On F
20.02.1995, in Misc. Application No. 107 of 1993 and other
similar Misc. Applications, the Special Court formulated certain
questions. On the interpretation of Section ·11 of the Act, more
particularly, in respect of the priorities created under that Sec-
tion, the learned Judge presiding the Special Court directed G
, i the Custodian to move to the Supreme Court and hence, the
appeal being Civil Appeal No. 5525 of 1995 came to be filed
by the Custodian before this Court. In the same appeal all the
notified persons were joined as the parties and they also filed
their say. Not only that, but the notified parties also filed Civil H
1118 SUPREME COURT REPORTS [2008] 8 S.C.R.

A Applications before this Court which were clubbed together and ,.... .....
all these Civil Applications were disposed of by an order dated l!
11.03.1996 passed by this Court. By the said order, this Court
directed a scheme to be drafted in respect of the sale of shares
from time to time. The Custodian was directed to forward the
B scheme to the Union of India for approval and on such approval
being obtained, the said scheme was directed to be placed
..
before this Court again. In compliance of the order dated
11.03.1996, n~ scheme for the sale of attached shares was ~
~
proposed. Civil Appeal No. 5225 of 1995 was heard along with
c the other allied appeils like Civil Appeal No. 5326 of 1995,
5147, 5325, 6080 of'1~95, 12574of1996 and TC. (C) No. 5 of
I
1998 (the transferred writ petition) were disposed of by this Court
by a judgment dated 13.05.1998 in Harshad Shanti/al Mehta
Vs. Custodian and Others in 1998 5 SCC 1. The transfer case
was in respect of constitutional validity of Section 11 of the Act
D
by a writ petition filed before the Delhi High court which was got
i
transferred by this Court itself. In its judgment disposing of all ~

these appeals, this Court considered the 3 questions formu-
lated by the Special Court:-

E "1. Whether the priority created by Section 11 of the
Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 is only in
respect of amounts due prior to the date of notification
and/or whether the priority would also apply to
F amounts due after the date of the notification. t •

2. Whether the phrase 'taxes' as used in Section 11 of
the Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 can only mean
amounts due as and by way of taxes or whether it
G would also include penalties and interest, if any.
3. Whether penalty and/or interest can be levied on or ~ '
charged to notified parties after the date of
notification."

H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1119
& ANR. [VS. SIRPURKAR, J.]
"1 14. This Court then took notice of the whole Act including A
the Statement of Objects and Reasons with special reference
to Section 11. It was observed in paragraph 12 and 13:-
"12. Before the Special Court makes any order under
Section 11 (1 ), the Special Court must be satisfied
that the property which is attached and is being B

> disposed of, is the property belonging to the notified
person. If any person other than the notified person
' has any share, or any right, title or interest in the
attached property on the date of notification under
Section 3, that right of a third party cannot be c
extinguished. There is no provision in the Special
Court Act which extinguishes the right, title and
interest of a third party in any property which is
attached as a consequence of a notification under
r Section 3. The only right which the Custodian has, D
in respect of the rights of third parties ir"l such
properties, is conferred by Section 4 under which, if
the Custodian is satisfied that any contract or
agreement which was entered into by the notified
party within the "statutory period" in relation to an E
~
i attached property, is fraudulent or entered into for
\ the purpose of defeating the provisions of the Special
Court Act, he can cancel such contract or agreement.
' -t There is no other provision under the Special Court
Act which affects the existing rights of a third party F
on the date of attachment, in the property attached.
The attached property also does not vest in the
Custodian. In this regard, the position of a Custodian
is different from that of an official liquidator of a
company in winding up. Had the Act provided for the
G
; 1 extinguishment of any subsisting rights of other
persons in the attached property, the Act could well
have been considered as arbitrary or unconstitutional
(vide C.B. Gautam v. Union of India).
13. The directions, therefore, for disposal under Section H
1120 SUPREME COURT REPORTS [2008] 8 S.C.R.

A 11 (1) can be given only after the Special Court has ,.. ,.
satisfied itself that the property under attachment is
the property which belongs to the notified person.
The directions for disposal can only be in respect of
the right, title and interest of the notified person in the
B attached property. If, therefore, any application is filed
before the Special Court by a third party claiming the
property so attached and/or for releasing the right, ~
title and interest of a third party in the property from •
I attachment, the Special Court will have to decide the )I
c application before proceeding under Section 11."
15. In paragraph 15, this Cour:t took the note of the words
in Section 11 (2) "in order as under" and held that before the
amounts can be paid to banks or financial institutions under
Section 11(2)(b), the liabilities under Section 11(2)(a) are re-
D quired to be discharged. This Court reframed the questions i
framed by the Special Court in paragraph 16, which are:- •
"1. what is meant by revenues, taxes, cesses and rates
due? Does the word "due" refer merely to the liability
to pay such taxes etc., or does it refer to a liability
E which has crystallized into a legally ascertained sum
t
immediately payable? I
)
2. Do the taxes [in clause (a) of Section 11 (2)] refer
only to taxes relating to a specific period or to all ... .
F taxes due from the notified person?
3. At what point of time should the taxes have become
due?
4. Does the Special Court have any discretion relating
to the extent of payments to be made under Section
G
11 (2)(a) from out of the attached funds/property?
,_ '
5. Whether taxes include penalty or interest?
6. Whether the Special Court has the power to absolve
a notified person from payment of penalty or interest
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1121
& ANR. [V.S. SIRPURKAR, J.]

"-1 for a period subsequent to the date of his notification A
under Section 3. In the alternative, is a notified person
liable to payment of penalty or interest arising from
his inability to pay taxes after his notification?"

16. In paragraph 35, this Court observed that the Special
Court can decide how much of the tax liability will be discharged B
}.
out of the funds in the hands of the Custodian. It further ob-
., served, that the payment in full may or may not be made by the
Special Court depending upon various circumstances. For this
purpose, it can examine whether there is any fraud, collusion or
miscarriage of justice in assessment proceedings. It was ob- c
served that where the assessment is based on proper material
and pertains to the "statutory period", the Special Court may not
reduce the tax claimed and pay it out in full. In paragraph 40,
the Court made reference to the order dated 11.3.1996, ·
r- whereby, the Court had directed the Custodian to draft a scheme· D
•
(
in respect of the shares held by the Custodian whereby such
shares can be sold from time to time. The Court further noted
that the Custodian was directed to forward the scheme for the
approval of the Union of India and after the approval, the final
scheme incorporating the modifications by the Union of India E
was filed in this Court. The Court specifically directed that the
Special Court shall consider the scheme and the appropriate
orders may be passed by the Special Court in respect of th~
scheme so submitted. The Court also upheld the constitutional
• + validity of Section 11 read with Section 3(3) of the Act, and that F
is how, the earlier appeals were disposed of.
17. In pursuance of the order, to consider the scheme, the
Special Court came out with an order dated 17 .8.2000. The
learned Judge then considered the whole scheme in extenso.
Arguments were raised challenging the sale of the shares at G
, ~. that point of time. It was noted that the main objection of the
notified parties was that the time for distribution of assets had
not yet arrived and, therefore, the scheme of the sale of shares
should neither be framed nor implemented. The learned Judge
took the note of this scheme and the suggestions made therein H
1122 SUPREME COURT REPORTS [2008] 8 S.C.R.

A on setting up a Disposal Committee. It was also noted that .,._ /-
under the scheme, modality of sale of shares was provided for.
Three questions were framed by the learned Judge, they be-
ing:-

A. Whether the time to frame the Scheme for sale of
B attached shares belonging to the notified parties has
arrived?

B. Challenge to the validity of scheme?
.,
C. Implementation of the scheme?
c
18. It was specifically urged before the learned Judge that
until the date of distribution is imminent, there would be no ques-
tion of selling the attached shares, which though attached, re-
main the property of the notified parties. It was also contended
0 that the sale and distribution were not separate events and, there-
fore, the sale of assets could not take place on a particular day
and the distribution after 5 years. And, therefore, the sale of the
attached assets being solely for the purpose of distribution can
only take place at the time of distribution and after the question
E of nexus of the attached assets with the illegal security transac-
tions is considered on merits. Even the judgment reported in
Harshad Shanti/al Mehta Vs. Custodian and Others reported
in 1998 5 sec 1 (cited supra) was relied upon, more particu-
larly, paragraph 27 thereof, and lastly, it was contended that the
order dated 20.2.1995 related only to Harshad Mehta group
F and Fairgrowth Financial Service Ltd. It was reiterated that in
its order dated 11.3.1996 passed by this Court, which was the
interim order in Civil Appeal No. 5326 of 1995, this Court had
also stated that the time for distribution of assets in possession
of the Custodian was drawing very near, and this was with ref-
G erence to only to 2 notified parties, viz., Harshad Mehta group
and Fairgrowth Financial Services Ltd. It was further contended
that the time for distribution of assets of Dhanraj Mills had still
' '
not arrived. A reference was given to the order dated 20.2.1995
of the Special Court by Hon. Variava, J. (as he then was), which
H according to the learned counsel, ultimately, shows that even
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1123
& ANR. [V.S. SIRPURKAR, J.]

according to the learned Judge, the distribution of assets was A
' -1 required to be made only in respect of Harshad Mehta group
and Fairgrowth Financial Services Ltd. and, therefore, the
scheme should not be applied to Dhanraj Mills. The learned
Judge then observed:-

"The above arguments were adopted by Mr. Jethmalani, B
the learned counsel for Respondent Nos. 3 to 27 (Harshad
j- Mehta Group). The said arguments were also adopted by
f the counsel for other notified parties. However, Mr.
Jethmalani added that in the Order of Variava, J. (as he
then was) dated 20th February 1995, three questions of c
law were settled. In the said ruling the learned Judge has
set out the time for distribution under Section 11 and, it
was on that basis, that the Supreme Court proceeded to
give its interim order for drafting the Scheme of sale of
shares (see Order dated 11th March 1996 being the interim D
r order ir Civil Appeal No. 5326 of 1995). The Supreme
" Court till then had not considered the question as to when
the stage for distribution arises under Section 11. It was
contended that the said issue was settled finally when the
Supreme Court delivered the judgment on 13th May 1998 E
in the case of Harshad Mehta Vs. Custodian reported in
1998 5 SCC pg. 1. Therefore, at the time of delivering the
interim order on 11th March, 1996, the question as to when
the sale and distribution took place, remained unanswered.
• .., However, he contended that in view of the final judgment F
of the Supreme Court in the above case of Harshad
Mehta, this Court should proceed on the basis of the
final judgment of the Supreme Court. The learned counsel
contended that in view of the judgment of the Supreme
Court, the stage for sale and distribution of the assets
G
under Section 11 of the act arise only after completion of
; ~ examination of all civil claims under Section 9A of the
Special Court Act and only after the assessment orders of
the Revenue Department reached finality and only after
they became binding i.e. when the assessee has
H
1124 SUPREME COURT REPORTS [2008] 8 S.C.R.

A exhausted all statutory remedies under the Act and since
the process of examination of claims under Section 9A """ ~
has not commenced, the Scheme is premature. It was
contended that on a proper and legal assessment, the
actual tax liability of Harshad Mehta Group would be
B marginal and a large portion of the amounts would have
to be refunded by the revenue. He contended that in case
of Harshad Mehta Group, the demands made by the -\
Department are based on the best judgment assessments,
which are highly exaggerated. He contend~d that the
'
c assessment orders are ex-parte in nature. He contended
that Harshad Mehta Group is contesting the demands
before the Appellate Authorities. That significant reliefs
have been given by the tax department and, therefore, no
sale should take place so that a reasonable opportunity is
given to Harshad Mehta Group to bring down the demands
D
to realistic levels .......... i
"(Emphasis supplied). •
19. When answering the issue, the learned Judge of the
Special Court Hon. S.H. Kapadia, J. (as he then was), firstly,
E found as a preface that 3 Chartered Accountants Firms were
appointed by the Special Court for preparing the submission of
accounts of 9 notified parties including Harshad Mehta Group
and Dhanraj Mills. A complaint was made by the 3 firms of Char-
tered Accountants that they had not received the relevant docu- t •
F ments from Harshad Mehta Group. The learned Judge deduced
that no progress was made in the matter of accounting, as there
was opposition for the sale of shares. The learned Judge re-
ferred to the large nur;nber of shares ih possession of the Gus-
todian as of date being 6.65 crores, out of which Ha rs had Mehta
G Group only controlled 2.88 crores of shares, apart from the
benami and unregistered shares. The learned Judge then no-
~ '
ticed that there were in all 6.65 crores of shares. The learned
Judge then observed:
"the position which has emerged is that the notified parties
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1125
& ANR. [V.S. SIRPURKAR, J.]
"'~ have not brought before the authorities/accountants A
appointed by the Court the relevant documents. It is for
this reason that even the income-tax department has
ultimately proceeded to assess some of the assessee-
notified parties under best judgment assessment. During
the said period none of the notified parties have come B
before the Court claiming that the assets are more than
>- the liabilities. Their only contention is that the liabilities
f
have not been crystallized. Their only contention is that till
final adjudication is carried out by all the authorities under
the Income-Tax Act by way of appeals, the assessment is c
not final and binding."

20. After noting these preface facts, the learned Judge
examined the judgment of this Court and noted that the only
condition prescribed by the judgment vide paragraph 13 was
r the satisfaction of the Special Court before it gives directions D
+ for disposal to the effect that the attached property belonged to
the notified parties. The learned Judge, therefore, held that there
was a dichotomy between the sale and distribution, which was
accepted by this Court. The learned Judge then noted that the
scheme was not for distribution and it was not under Section E
11(2). The scheme instead was under Section 11(1) for sale
and, therefore, the arguments regarding the sale being prema-
ture, as the distribution point had not arrived at, was liable to be
• "1 rejected. The learned Judge then went on to hold, on the basis
of this Court's judgment, that Section 11 (2) could not be restric- F
tive only to the tax liability during the statutory period and it cov-
ers all assessed taxes due for pre-statutory period and post-
statutory period. Further, the learned Judge observed:
"However, in answering the last contention of the notified
parties that the liability should have been ascertained on G
• -1
the date of distribution, the Supreme Court observed that
the date of distribution arrives when the Special Court
completes the examination of claims under Section 9A
and any tax liability for the statutory period is finally
assessed and the assessment is final and binding, then H
1126 SUPREME COURT REPORTS [2008] 8 S.C.R.
,... ..
A such liability will be considered for payment under Section
11 (2)(a) of the Act. As stated hereinabove, the pre-
condition for sale of the property is that the attached
property belongs to the notified parties whereas, the pre-
condition of distribution is completion of examination of '"
B claims under Section 9A. ..... "

There is no principle of law shown to this Court that sale -\
l '
cannot take place till completion of examination of all
claims under Section 9A of the Act."

c The learned Judge, therefore, recorded his conclusions
as under:
"CONCLUSIONS ON POINT A

i
D (a) That sale is different from distribution. The Scheme
placed before this Court is for sale of shares. The
•
Scheme is not for distribution of assets. Therefore,
Section 11 (1) of the Act applies to the Scheme and
Section 11 (2) which deals with distribution does not
E come into picture at this stage of the matter.
(b) That Sections 11 (2)(a), (b) and (c) cover claims for
pre-statutory period, statutory period and post-
statutory period. t •
F (c) On scalihg down, in appropriate cases as held by
the Supreme Court, the liability of the assessee of
the balance tax would subsist and the taxing
authorities would be entitled to realize the remaining
liabilities including penalty and interest from the
assessee under Section 11(2)(c). Therefore, there
G ~ '
is no merit in the contention that the funds of some
of the notified parties with the Custodian are far in
excess of the tax demand and, therefore. they should
not be brought within the Scheme for sale of shares.
H (d) In view of the provisions of the Special Court Act, it
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1127
& ANR. [VS. SIRPURKAR, J.]

is not necessary for this Court to postpone, in any A
event, the sale of shares till the claims against the
notified parties are finally adjudicated upon. Looking
to the income-tax demands, the decrees passed in
various suits by this Court, it is clear that the liabilities
of the notified parties exceed the attached assets B
and, therefore, one need not wait till all pending claims
are finally adjudicated upon.
f
(e) The words 'taxes due' in Section 11 (2)(a) only refers
to the liability, which is completed in accordance with
the provisions of the income-tax Act. In other words, C
the expression 'taxes due' would mean assessed
tax, which are presently payable. The said expression
does not contemplate taxes as finally payable."
21. By way of a second question, which pertained to the
y 0
challenge of the validity of scheme, the learned Judge held the
scheme to be valid and further considered the objections raised
against the scheme and rejected the same. The objections were
more particularly related to the modality to be adopted for sale
of some shares. The learned Judge then decided the norms in
respect of the bulk shares: (1) Norms for preparation of lots of E
bulk shares; (2) Norms for Sale of bulk shares; (3) Norms for
lot preparation in respect of controlling block of shares; (4)
Norms for sale of controlling block of shares; (5) Norms in re-
I -;
spect of routine shares. The learned Judge also decided upon
procedure to be followed by the Custodian for registration/ F
dematization of shares before implementation of the above
norms.
22. Ultimately, the learned Judge approved the scheme
with the modifications. Undoubtedly, the following points are clear G
, "from the above judgment:
(1) That the existence and the treatment of Sh. Harshad
Mehta and his relatives and some concerns as
Harshad Mehta Group was neither objected to nor
contradicted and the learned Judge was addressed H
1128 SUPREME COURT REPORTS [2008] 8 S.C.R.

A by all those entitites as the Harsahd Mehta Group. ,._ ,•
(2) That a clear dichotomy was there in the matters of
sale of shares and the distribution of assets.
(3) The scheme for the sale of shares which was ordered
B by the interim order of this Court and was finalized in
the 1998 judgment, was approved with some
modifications. ~

(4) That the total liabilities are more than the total assets '
of the notified parties.
c
23. There was an appeal filed against this judgment, which
appeal was disposed vf by this Court by its judgment dated
23.8.2001. The opening words of this judgment are very telling.
They are:
D "In these appeals, the only question relates to the Scheme i
devi~ed by the Special Court for the sale of sh?.res of the
appellant-Apollo Tyres Ltd."
This Court noted that the Special Court had categorized
E the shares into 3 classes. They being: (1) Routine Shares (2)
Bulk Shares (3) Controlling Block of Shares. The Court consti-
tuted a Disposal Committee and had issued directions in re-
spect of those shares. The Court observed:
"The whole emphasis, and in our opinion rightly so, of the +- ,
F Special Court has been to ensure that maximum price is ·
realized from the sale of the said shares. Keeping this in
view, we do not find that the Special Court has erred in
issuing the aforesaid directions. After hearing the counsel
for the parties, we affirm the said directions with minor
G changes."
24. This Court then gave certain directions for the sale ofi.
bulk shares and modified the order dated 17.8.2000, holding
that it would be more appropriate that the offer of the shares be
not restricted only to the institutional buyers, and the non-institu-
H tional buyers including the management of the company may
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1129
&ANR. [V.S. SIRPURKAR, J.]

'~ also be offered the shares of all the appellant-company. It ob- A
served that in that way, the best price would be realized. As
regards the controlling block of shares, the Court directed that
it would be open to the Special Court to decide whether to have
,
' the sale of the controlling block of shares either by inviting bids
for purchase of controlling block as such or by selling the said B
shares according to the norms fixed for the sale of bulk shares
... or by the norms fixed in respect of routine shares. With these
words, the order of the learned Special Judge was totally con-
firmed. It is only on the basis of this order, that ultimately, the
advertisements came to be issued. However, there is one more c
development, which we must refer to.

25. On 26.4.1999, the Custodian had filed an application
being Misc. Application No. 41 of 1999, seeking permission of
-t the Special Court for sale of the residential premises commonly
-\ known as Madhuli of eight notified entities. A miscellaneous D
* application being Misc. App!ication No. 4 of 2001 was filed by
" the Custodian praying for the sale of commercial premises.
Some of the notified persons filed several miscellaneous appli-
cations for lifting of attachment on their residential premises on
the ground that the same had been purchased much prior to E
1.4.1999 and the same had no nexus with any illegal transac-
tions in securities. All these applications were disposed of by
.J
the Special Judge by his judgment dated 17.10.2003, who held
that if an undertaking is given by the adult members of the tam-
i
ily of late Sh. Harshad S. Mehta (by then Sh. S. Harshad Mehta, F
as already expired), in the Special Court within a period of 4
weeks to vacate the flat occupied by them and hand over peace-
'"' ful possession thereof to the Custodian within a period of 4
weeks from the date on which the Custodian sends them com-
munication, the Custodian shall permit the members of family
G
of late Sh. Harshad S. Mehta to occupy the flats during the time
, ... that the process of the sale of the flats goes on. This was chal-
-I lenged before this Court on the following grounds:
"(i) Some of the entities having assets much more than
actual liability, the impugned judgments are H
1
"
·~i
1130 SUPREME COURT REPORTS [2008] 8 S.C.R.

A unsustainable. There was no occasion for the
.. ~

Custodian to club all the notified entities in one block
so as to be termed as Harshand Mehta Group and/
or to club their assets and liabilities jointly. Although 1--
~""
in relation to a body corporate incorporated and
B registered under the Companies Act, the doctrine of
lifting the corporate veil would be applicable, but the
..._
same cannot be applied in case of individuals. '
~~;;·;;·

(ii) Having regard to the fact that only three entities out '
of eight were involved in the offences, the liability of
c Harsahd Mehta could not have been clubbed for the ~r.:;
purpose of directing attachment and consequent sale
of the properties which exclusively belong to them.
(iii) The liabilities of Harshad Mehta, who was a sui
generis, could have been recovered from the
,.
I

D ~

(iv)
properties held and possessed by him or from the
companies floated by him but not from the individual
entities; at least two of whom being medical
practitioners have their income from other sources.
The books of accounts and other documents on the
'
E
basis whereof the auditor's report had been made •
having not been allowed to be inspected by the
appellants herein on the plea that they had the
knowledge thereabout, the same could not have been ..,_
=
~·
F taken into consideration for the purpose of passing
of the impugned order or otherwise. r.:
(v) The appellants having preferred appeals against the
income tax orders of assessment passed by the I
•
~-
authority and the same having been set aside, no '
b
G liability to pay income tax by the appellants as to now
being existing, the residential properties could not .... '
have been sold.
~-
(vi) Drawing our attention to a representative chart
showing the discrepancies in the accounts of Mrs.
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1131
& ANR. [V.S. SIRPURKAR, J.]

•• Deepika A. Mehta as shows in (a) affidavit by the
custodian; (b) books of accounts maintained by the
A

appellants; and (c) auditor's report, it was submitted
that the auditor's report could not have been relied
upon.
(vii) A copy of the auditor's report having only been B
~
supplied during pendency of these appeals, the
learned Special Judge committed a serious error in
~

passing the impugned judgment relying on or on the
• basis thereof.
c
,, 26. On behalf of the respondents, it was pointed out that
all properties belonging to the notified persons, could be ap-
plied for discharge of the joint liabilities of the Harshad Mehta
Group in terms of Section 11 of the Act in view of the ruling
.,, reported in 2004 11sec456. It was secondly, contended that
D
applications for denotification by the appellants were already
withdrawn and, therefore, they could not raise the contention
that they were not liable in terms of the provisions of the Act,
and they could not also file fresh applications for denotification,
as such applications would be barred by time. It was further
contended that the tax liability have become final. It was also E
suggested that the appellants apart from the corporate entities,
had received large loans, advances and credits from the
Harsahd Mehta Group and that there had been intermingling of
'f the assets to the tune of crores of rupees, and as such, they
could not escape their liabilities into the Act and, therefore, Ii- F
abilities exceed the assets. Some other grounds on merits were
also raised. Lastly, it was contended that the sale of commer-
cial property had only been seriously contested by the appel-

.
lants and a contention was raised that if the commercial prop-
erties were sold, there would be no need to sell the residential G
~
properties. They pointed out that even before this Court, the
sale of commercial properties was not questioned. This Court
after analyzing the various provisions of the Act, referred to the
ruling in 1998 5 sec 1 (cited supra) in extenso. It also referred
to the other ruling in L. S. Synthetics Ltd. Vs. Fairgrowth Finan- H
1132 SUPREME COURT REPORTS [2008] 8 S.C.R.

_... ..
A cia/ Services Ltd. in 2004 11 SCC 456. The Court formulated
5 issues:
(i) Whether the appellants being not involved in offences
in transactions in securities could have been
proceeded against in terms of the provisions of the
B Act.
~
(ii). Whether individual liabilities of the appellants ought

c
to have been separately considered by the Special
Court as not a part ofHarshad Mehta Group. -- ~µ;

(iii) Whether the tax liabilities could not have been held In
.r·
to be due as the order of assessments did not
become final and binding.
(iv) Whether the commercial properties could have been
sold in auction.
D
(v) Whether the residential properties should have been "" ·,
••
released from attachment.
27. In paragraph 30 of the judgment, this qourt expressed
that barring Harshad S. Mehta, Ashwin S. Mehta and Sudhir S.
E
Mehta, the denotification applications were filed by individual
and corporate appellants, and by order dated 14. 7.2000, those
applications werepermitted to be withdrawn with the permis-
sion to refile the same. In paragraph 31, the Court expressed /
/

F
that the said applications were pending for consideration be- '"
fore the Special Court and since those applications were to be
decided by the Special Court particularly in respect of the limi'-
tat ion and jurisdiction etc., the Court will refrain itself from ad~
verting to the sa.id question. In paragraph 41, the Court observed
that it was open to the appellants to show that even if they con-
G tinue to be notified, the Custodian was not right in clubbing all ,...'
the individual m~mbers of the family as a single entity styled as
Ha rs had Mehta Group. The Court noted that a property belong-
ing to the mother of Harshad Mehta was released from attach,
,'
ment. The Court then went on to consider the liabilities against
'
H the notified parties as also the valuation of immovable proper-
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1133
& ANR. [VS. SIRPURKAR, J.)
. _. ties. The Court also disapproved the acceptance by the learned A
Judge, of the figures mentioned in the affidavit of the Custodian
and stated that the learned Judge had relied upon the same
without discussing the contentions and arguments raised on
behalf of the appellants. The Court observed that it was neces-
sary to give another opportunity of hearing. In para 51, the Court B
observed that if any notified party had no connection with late
._ Sh. Harshad Mehta, they could not have been proceeded against
for meeting the liabilities of late Sh. Harshad Mehta jointly or
severally and a clear finding was required to be arrived at. The
Court, further, observed: c
"It was, thus, necessary for the learned Special Court to
arrive at a firm conclusion as regards the involvement of
the individuals with Harshad Mehta, if any, and the extent
of his liability as such."
D
28. In paragraph 55, the Court noted the judgment dated
17.8.2000 passed by the Spec;al Court by Hon. Kapadia, J.
(as he then was), as also the fact that the appeal against the
same was dismissed by this Court. The question of sale of com-
mercial properties was considered from paragraphs 67 to 73
and that of the sale of residential properties in subsequent 3 E
paragraphs i.e. paragraph no. 74 to 76. In paragraph 73, how-
ever, it was observed that the Court was not to interfere with
that part of the order, whereby, the auction-sale as regards the
-( commercial property had been directed by the learned Judge.
Lastly, the Court recorded its conclusions with paragraph 77. F
Some of the relevant conclusions are to be found as below:
"(i) The contention of the appellants that they being not
involved in offences in transactions in securities could
not have been proceeded in terms of the provisions
G
of the Act cannot be accepted in view of the fact that
t ""' they have been notified in terms thereof.
(ii) The appellants being notified persons, all their
personal properties stood automatically attached and
any other income from such attached properties H
1134 SUPREME COURT REPORTS [2008) 8 S.C.R.

_.\... ~
A would also stand attached. The question as to
whether the appellants could have been considered
to be part of Harshad Mehta Group by the learned
Special Court need not be determined by us as, at
present advised, in view of the fact that appropriate
8 applications in this behalf are pending consideration
before the learned Special Court. The question as
regards intermingling of accounts by the appellants .
herein with that of the Harshad Mehta Group and/or
any other or further contentions raised by the parties
c hereto before us shall receive due consideration of
the learned Judge, Special Court afresh in the light
of the observations made hereinbefore.
XXXXXXlOOOOOOOO

(vi) We direct the Custodian to permit the appellants to
D ~
have inspection of all the documents in his power or
'
possession in the premises of the Special Court in
the presence of an officer of the court. Such
documents must be placed for inspection for one
week continuosly upon giving due notice therefore to
E the appellants jointly. As the appellants have been
represented in all the proceedings jointly, only one of
them would be nominated by them to have the
inspection thereof. The appellants shall be entitled '

F
to take the help of a chartered or cost accountant ""
any may make notes therefrom for their use in the
pending proceeding.
(vii) The appellants shall file their objections to the said
report, if any, within ten days thereafter. The
Custodian may also take assistance and/or further
G
assistance from a chartered accountant of his choice. ...
A reply and/or rejoinder thereto shall be filed within
one week from the date of the receipt of the copy of
the objection. The parties shall file their respective
documents within one week thereafter. Such
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1135
& ANR. [V.S. SIRPURKAR, J.]

' .... documents should be supported by affidavits. Both A
the parties shall be entitled to inspect such
documents and file their responses thereto within
one week thereafter. The parties shall file the written
submissions filed before this Court together with all
charts before the learned Special Judge, Special B
Court within eight weeks from date.
,,._
(viii) The learned Judge, Special Court shall allow the
• parties to make brief oral submissions with pointed
reference to their written submissions. Such hearing
in the peculiar facts and circumstances of this case c
should continue from day to day.

(ix) The learned Judge, Special Court while hearing the
matter in terms of this order shall also consider as to
whether the auction-sale should be confirmed or not.
D
It will also be open to the learned Judge, Special
Court to pass an interim order or orders, as it may
think fit and proper, in the event any occasion arises
therefor.
(x) We would, however, request the learned Special E
Judge, Special Court to complete the hearings of
the matter, keeping in view the fact that auction sale
in respect of the residential premises is being
considered, as expeditiously as possible and not
later than twelve weeks from the date of the receipt F
of the copy of this order. Save and except for
sufficient or cogent reasons, the learned Judge shall
not grant any adjournment to either of the parties.
(xi) The learned Judge, Special Court shall take up the
matter relating to confirmation of the auction sale in G
t ..._ respect of the commercial properties immediately
and pass an appropriate order thereupon within four
weeks from the date of receipt of copy of this order.
If in the meanwhile the orders of assessment are
passed by the Income Tax Authorities, the Custodian H
1136 SUPREME COURT REPORTS [2008] 8 S.C.R.

.J.. ~
A shall be at liberty to bring the same to the notice of
the learned Special Court which shall also be taken
into consideration by the learned Judge, Special
Court."
29. As has been stated by us in paragraph 9 of this judg-
B ment, the learned counsel for the appellants based his conten-
tions more or less on the observations made in the aforemen- ..,(.
tioned judgment and it is, therefore, that we have dealt with that ~

judgment extensively.

c 30. The contentions raised by Sh. Jethmalani based on
/,.
the aforementioned judgment are:

(1) that the Custodian and the Special Court have faile:d
to comply with the directions given by this Court in
the aforementioned judgment dated 3.1.2006 in Civil
D Appeal No. 667-81 of 2004 (hereinafter calh:!d ~

Ashwin Mehta's Case) and more particularly, in
paragraphs 41, 42, 46, 47, 51, 52 and 53, the whole
arguments turns practical on this very issue.
(2) that there was no reason for the Special Court to
E have ordered the sale of shares, and the Custodian
as well as the Special Court have failed to justify thei ....
decision to put the shares on auction and distribute ~
the liabilities.
'f
F (3) that such decision is arbitrary and the sale of the
shares shall lead to serious loss to the notified
persons_ The liabilities were only of late Sh. Harshad
S. Mehta and not of the other notified parties and
since the assets of the notified parties can meet
their liabilities, the sale of the shares by auction was
G
not justified. This is all the more true in view of the k- \
fact that the Custodian has not yet found the inter !Se
liabilities of the notified parties, when threir
applications for denotification are not decided aind
pending before the Special Court. l'
.,.
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1137
& ANR. [V.S. SIRPURKAR, J.]

'+ (4) it was also submitted by the learned counsel that A
because of the earlier sale of the shares, the parties
were put to the loss of 6500 crores and that though
the objections for denotifications were pending before
the Special Court, the same have not yet been
disposed of and, therefore, the decision to sell the B
shares belonging to the notified parties is wholly
)- incorrect.

(5) that the whole decision to put the shares for sale by
auction is jurisdictionally, procedurally, as well as
financially not correct. c
31. It will be, therefore, our task to test these propositions
on the anvil of the judgment in Ashwin Mehta's case, which is
treated to be the backbone of the arguments of the appellants
herein.
~· D
32. First of all, we must point out even at the cost of repeti-
tion that the decision to sell the shares was taken in the last part
of the year 2007. The notice itself was issued in the month of
October. That was of course, on the basis of advice by the Dis-
posal Committee. On the objections having been taken, the E
learned Judge had given certain directions, but before giving
those directions, the learned Judge has practically wiped out
the effect of the auction. It must be remembered that in that auc-
tion, the LIC of India had made an offer of Rs.2,701/- per share,
which offer was accepted. However, the learned Judge found F
and in our view, rightly stated that something more was required
to be done procedurally, as well as, by way of a policy. We have
extensively quoted the directions given by the learned Judge,
on the basis of the four formulated objections. In order to com-
ply with the directions given by the learned Judge, it was neces-
G
I ..._ sary to put the auction proceedings on hold. However, the LIC
of India was not prepared to keep its offer open and, therefore,
the learned Judge had relieved the LIC of India of its obliga-
tions on the basis of its offer.
33. The learned Judge rightly felt that since the Custodian H
1138 SUPREME COURT REPORTS [2008] 8 S.C.R.

A had not consulted the Disposal Committee regarding the ap-
propriate time to be given for submitting the offers, the Custo-
dian should do that first. The learned Judge, thereafter, held
that that opinion of the Disposal Committee was bound to be
sought for even on the question as to whether if the option is
B given to the buyers to bid for one or more groups instead of
putting the bid for the entire bulk, it could fetch mor.; price. As
regards the opportune time, the learned Judge, however, held
that the shares were being sold at the proper time. Lastly, as
regards the tax liability also, the learned Judge had directed
c the Custodian to seek legal and professional advice, and for
that purpose, practically wiped out the effect of the auction by
directing the compliance of his directions. Thus, for all the prac-
tical purposes, one thing was certain that the shares were not
to be sold unless all the directions were complied with. How-
D ever, the appellants did not wait and rush to this Court even
before the Disposal Committee had given its opinion on the
various issues and even before the Custodian wa& able to get
the legal and professional opinions regarding the tax liability.
34. It is obvious that the Disposal Committee would now
E have to again take a decision whether at this point of time, the
shares should be sold or not. The Disposal Committee con-
sists of the experts who would know best, whether the shares
should at all be sold at this point of time. However, the appel-
lants have come before this Court insisting that the shares should
F not be sold at all, which stand was conspicuously absent when
the matters were argued firstly before the Special Court or even
before the this Court, as we do not find any trace of the said
contentions in the arguments before the Special Court. The old
theory of not selling the shares at all unless individual liabilities
G were fixed one way or the other was wreaked up in this appeal
and very surprisingly, though the order of the learned Special
_., I
Judge was completely confirmed by this Court which also meant
that the shares were bound to be sold. Completely giving a go-
by to the judgment of this Court dated 23.8.2001, by which the
judgment of the Special Court was confirmed, the appellants
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1139
& ANR. [V.S. SIRPURKAR, J.]
..... are now saying that the shares cannot be sold. This would be A
impermissible now.
35. While doing so, some factual incorrect statements have
also been made before us, as they were made before this Court
in Ash win Mehta 's Case, that the applications for denotifications
were pending. In fact, the argument which was pressed in ser- B
vice in the Court was that since the denotification applications
lr
were pending, and had not been finally decided upon, the prop-
erties belonging to the notified persons should not be sold. We
have before us, the current status of such applications from
which it is seen that each and every notified appellant herein c
had already withdrawn his/her denotification application, some
of them in 1997 and rest of them in January, 2000. Thus even
on the day, when the matters were being argued before this
Court in Ashwin Mehta's Case, excepting those by Mrs. Rasila
.... S. Mehta and Mrs. Rina S. Mehta (who are not covered here), D
~
no application for denotification was pending. True it is that per-
mission was given to withdraw their applications with a liberty
to file fresh petitions after the criminal trials, if any, are over but
no application has been filed. Thus, the main stay of the argu-
ments on the part of the appellants is knocked out on the basis E
of this fact, and it is not open to the appellants to say that since
there are chances of their denotification, the shares belonging
to them should not be sold.
.,, 36. When the provisions of the act are seen in the light of
conclusions drawn and more particularly, the first conclusion in F
Ashwin Mehta's Case by this Court, the properties of the noti-
fied persons like the appellants would stand automatically at-
tached and any other income from such attached properties
would also stand attached. It is obvious that on the day when
Ashwin Mehta's Judgment was delivered, there were no appli- G
' ... cations pending consideration before the Special Court nor are
any such applications pending today also. Hence, an objection
to the sale, on that ground, must be rejected. This answers
contention no. 3.
H
1140 SUPREME COURT REPORTS [2008] 8 S.C.R.

A 37. The second aspect, which we would like to consider is
the objection which is now raised to the nomenclature 'Harshad
Mehta Group'; We do not want to go to that aspect, because for
the decision of this case, that is not a relevant aspect whether
any appellant is referred to as a group or not. The very fact that
B such appellant is a notified person would be enough for the at-
tachment of his/her property because of the Section 3(2) of the
Act. In our opinion, there would be no necessity to consider the
individual liability of any such appellant being a notified person.
Unless any appellant is denotified, there would be no question
c of raising of these defences regarding individual liability. It is
obvious, that the notification covers all the properties including
the shares and securities of the notified persons and, there-
fore, comes into the hands of the Custodian. There would, there-
fore, be no question of raising the issues that the individual li-
0 ability of such a notified person should be arrived at first. We
say this, particularly, because the claim of the notified persons
that their assets exceed~ the liability, is also not correct. That is
a clear cut finding given by Hon. Kapadia, J. in his judgment
dated 17 .8.2000, which is later on confirmed by this Court. The
Custodian argues before us and not without any reasons that
E the tables prepared by the Custodian shows that the liability of
the notified persons does exceed assets, we shall not go into
that aspect at this juncture. However, the fact remains that there
would be no question of any individual liability being arrived at
before the shares are sold. The judgment of the learned Spe-
F cial Judge for selling the shares having been confirmed by this
Court, whereby, the decision to sell the shares has been con-
firmed by the three Judge Bench of this Court concluding the
issue. The same is binding. Therefore, it cannot be said at this
juncture at least, that on that account, the sale of the shares
G should be postponed, till such time, as the question of individual
liability viz. a viz. Harshad Mehta is decided upon.
38. We have already shown that there is a clear dichotomy
arrived at by Hon. Kapadia, J. in his aforementioned judgment
dated 17.8.2000, that there is no question of waiting for the dis-
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1141
& ANR. [VS. SIRPURKAR, J.]
'+
tribution and on that account, the sale cannot be stopped. The A
judgment having been confirmed by the three Judge Bench of
this Court, that question will not be opened.

39. This takes us to the aforementioned paragraphs heavily
relied upon by the learned counsel in the judgment of Ashwin
Mehta's case (cited supra). In paragraph 41, it was stated that B
,_ it was open to the appellants to show that even if they continued
to be notified, the Custodian was not right in clubbing all the
individual members of the family as a single entity styled as
Harshad Mehta Group. We do not find that there was any at-
tempt on the part of the appellants to disassociate themselves c
from Harshad Mehta Group. When we see the judgment dated
17.8.2000 passed by the Special Court, it is obvious that the
learned counsel arguing that matter had argued it on behalf of
the Harsahd Mehta Group. It is for this purpose that we have
+ quoted in the argument before the learned Special Judge in D
~
extenso. We will only quote a sentence which forms a part of
the argument:
"it was contended that on a proper and legal assessment,
the actual tax liability of Harshad Mehta Group would be
marginal and a large portion of the amounts would have E
to be refunded by the revenue. He contended that in case
of Harshad Mehta Group, the demands made by the
y Department are based on the best judgment assessments,
which are highly exaggerated. He contended that the
assessment orders are ex-parte in nature. He contended F
that Harshad Mehta Group is contesting the demands
before the Appellate Authorities."
40. It was, therefore, obvious that at that juncture. when the
question was as to whether the shares should be sold or not,
;
G
the move was objected to by the appellants formulating them-
"" · selves as Harshad Mehta Group. No such objection to form and
treat the relatives as a group was raised before the Special
Court in the year 2000 when the question of sale of shares fell
for consideration for the first time. At any rate, unless it is shown
H
1142 SUPREME COURT REPORTS (2008) 8 S.C.R.

A as to what prejudice would be caused by treating them to be a .+ <
group, this contention has no basis. We, therefore, do not think
that the argument in this behalf has any basis.

41. In paragraph 46 and 4 7, this Court has criticized that
the Special Court should have analysed the respective conten-
B ticns of parties in greater details and in particular, in regard to
the assets and liabilities of the separate entities, having regard -i_
to the contentions raised by them that they are not part of Ha rs had
Mehta Group and their individual liabilities can be met from the
assets held and possessed by them separately. We must im-
c mediately point out that these observations did not relate to the
sale of shares. These observations obviously related to the sale
of the immovable properties, regarding which the appeal was
filed. The proceedings in that case emanated out of miscella-
neous application no. 41 of 1999, seeking permission of the
D Special Court for sale of residential premises commonly known +
as Madhuli of eight notified entities, as also for the sale of the '4·

commercial premises and the only objection raised there was
that the attachment should be lifted on the ground that the same
properties had been purchased prior to 1.4.1991 and the same
E had no nexus with any illegal transactions in securities. It was
also objected to on the ground that the asset base was greater
than genuine liabilities, and hence, the residential premises
should be released from attachment. We may, at this juncture,
point out that this Court in the aforementioned judgment has y
F specifically held with respect to commercial properties in para-
graph 73 that the Court was not to interfere with the sale of the
commercial properties and the Special Court was even allowed
to pass appropriate orders regarding the confirmation of the
sale of such properties. It was only in respect of the residential
property that this Court had directed the Special Court to deal
G
with the matter afresh. .,., ..
42. We must repeat at this juncture, that the judgment in
Ashwin Mehta's Case did not concern the shares in the name
of the appellants/ notified parties and the sale thereof which
H question was already decided finally by this Court while con-
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1143
& ANR. [V.S. SIRPURKAR, J.]

.. firming the judgment dated 17.8.2000 passed by the Special A
Court. As regards the observations in paragraph 51 and 52
again these pertains to the subject of the Group. It is expressed
that a question may further arise as to whether the learned Judge
was correct in considering the individual liability of the notified
parties as the liabilities of the Group. It is then expressed B

r "if there were certain individuals, who had no connection
' ~ with Sh. Harshad Mehta, they could not have been
proceeded against for meeting the liabilities of Sh.
Harshad Mehta jointly or severally and a clear finding was
required to be arrived at. Only because there had been c
-· large intermingling and flow of funds from Sh. Harshad
Mehta and inter se within the group, the same by itself
may not justify the conclusion that all of their assets were
required to be sold irrespective of their individual
• involvement and it was, therefore, necessary for the learned D
Special Court to arrive at a firm conclusior as regards the
involvement of the individuals with Sh. Harshad Mehta, if
any, and the extent of his liability as such."
No such argument seems to have been advanced before
the Special Judge at all in respect of the shares and the securi- E
ties in respect of which this Court had finalized the issue .
• 43. Paragraph 52 refers so-called contradictory stand taken
:"!(
y by the Custodian regarding the liabilities which were treated to
be joint liabilities of the Harshad Mehta Group and further, in- F
consistency on the part of the Custodian to treat the liabilities of
the notified entities also as their separate liabilities. Such ques-
tion was not addressed in the Special Court. We have already
shown that the observations would not apply to the sale of shares
as the issue was concluded by this Court on 23.8.2001.
G
> .._ 44. This Court had directed the Custodian in Ashwin
Mehta's Case to permit the appellants to have inspection of all
the documents in his power or possession in the premises of
the Special Court in the presence of an officer of the court. In
compliance thereof, the Custodian argues before us, that such H
1144 SUPREME COURT REPORTS [2008) 8 S.C.R
•
A inspection was to be allowed for one week continuously and all + ~
the documents in possession of the Custodian were laid open
for a period of one week. The Custodian further points out that
the directions in these paragraphs 41, 42, 46, 47, 51, 52 and
53 were dealt with by the Custodian in his affidavits dated
B 1.3.2006 and 22.3.2006 filed in miscellaneous petition no. 49
of 1999, and in these affidavits, the Custodian had taken into
account the assets and liabilities position of each of the noti- -</_
fied entities as on 31.12.2005 and those statements were also ' I
· annexed to those affidavits. It is further pointed out that in each
c case, the liability was more than assets. The Custodian argues
before us that late Sh. Harshad S. Mehta had siphoned off money
from banks and financial institutions and distributed the same
to his family members and various corporate entities by trans-
ferring the money to their accounts by purchasing shares in their
names through 3 brokerage firms: (1) M/s Harshad S. Mehta;
D 4
(2) M/s Jyoti S. Mehta; (3) Mis Ashwin S. Mehta and all the
transact:ons of purchase and sale of 25 notified entities were
debited and credited in their mutual interest. ,.
45. It is the further case of the Custodian that the notified
E parties had shown in their accounts, that these siphoned off
monies were received by them as loan, borrowings and ad-
vances, and also shown that they were paying interest thereon
to Sh. Harshad Mehta with the sole idea to show that they were
running their own business with their own funds and that the
F monies borrowed by them. The Custodian has taken a stand
before us that in the affidavit dated 1.3.2006, efforts have been
,,- ...
made to show clearly as to how much money is transferred in
cash to his relatives and corporate bodies and also how much

G
siphbned off money was utilized for the purchase of shares in
the name of various notified entities including the appellants.
•
The affidavit dated 22.3.2006 is filed before us. It is the stand of
ll ,,.. ~
+
II
the Custodian that he has already worked out the position of
·'f
the assets .and liabilities separately for individual members of
"i~ the family and it is reflected in the affidavit dated 1.3.2006. The
Custodian further submits that these accounts show that for the
H
SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1145
& ANR. [V.S. SIRPURKAR, J.]

~ ..,_ present, all the notified entities of the Harshad Mehta Group A
are in excess of their assets. It is thus, pointed out that all these
materials were already available before the Special Court
passed the orders. The Custodian further argues that these facts
are known to the appellants, and there is an attempt to mislead
the Special Court as well as this Court on the part of the appel- B
lants. It is then submitted that all the accounts, which are au-
fl dited and reviewed by the Chartered Accountants have been
.. prepared by the notified parties themselves and it is, therefore,
that the liabilities shown therein, have been taken as admitted
liabilities. In our opinion, this argument on the part of the Gusto- c
dian must be accepted. It has already been shown in the ear-
lier part of the judgment that all these contentions were only
raised before the Special Court, particularly, when the objec-
tions were raised. We do find some traces of these objections
in the petition, but it is obvious that these questions were never
D
+ pressed into service before the Special Court, perhaps because
the appellants knew the futility thereof. Wf::, therefore, leave the
matters at that, in view of the fin aI order that we propose to pass.
46. This is apart from the fact that before us also, not even
a distant reference was made to these affidavits dated 1.3.2006 E
and 22.3.2006. A bald statement was made that there was no
compliance of this Court's order in Ashwin Mehta's Case. We
are certain that if these arguments had been addressed before
the Special Court, the Special Court would have taken note
l' thereof. The Special Court chose to go-by the judgment of this F
Court confirming the earlier judgment regarding the sale of
shares passed by the Special Court [Hon. Kapadia, J. (as he
then was)] and in our opinion, that was a right approach since
the controversy involved, related to the sale of shares and se-

-, "
'
curities. At this juncture, we cannot ignore the fact that in 2005
itself, in pursuance of the judgment dated 17.8.2000 and the
confirming judgment of this Court, the majority of the shares have
G

already been sold. It is only in respect of the Reliance Shares
that the present sale was contemplated. It is really surprising
that when the. major shares were sold way back in 2005, the
,:
H

'
1146 SUPREME COURT REPORTS [2008] 8 S.C.R.

A appellants did not think it proper either to challenge the same
or to raise this argument of the individual liabilities viz. a viz.,
the group liabilities or the second argument that unless the
denotification applications were decided upon, there should be
no sale of shares. We have already pointed out the hollowness
B of the argument regarding the denotification applications, which
were claimed to be pending before the Special Court, which
claim is also baseless. Therefore, on both these counts, there
would be no question of finding fault with the impugned order of
the Special Court.
C 47. This takes us to another contention raised more par-
ticularly, in point number 2, 4 and 5. Apart from the fact that the
contentions were never raised before the Special Court, it is
pointed out that as in the earlier case of the sale of shares in
2005, the Disposal Committee which was formulated under the
D orders of the Special Court as also this Court, had found that it
wa$ opportune time for the sale of Reliance Shares. The Cus-
todian argues that the instant sale of Reliance Shares was be-
ing carried out strictly in compliance with the procedure laid
· down by the Special Court and this Court in the earlier referred
E judgments. It is pointed out by the Custodian that between
12.12.2000 to 1.11.2007, 12.12 crores shares valued at
Rs.1792.77 crores were sold. Out of these, the shares worth
Rs.1463.96 crores belonged to the various entities of Harshad
Mehta Group including the appellants. The learned counsel very
F surprisingly did not refer to these facts during his arguments,
instead, it was suggested that there was a loss of 6500 crores
of rupees because of the sale. Such figure apart from being
imaginary, has no basis. We cannot ignore that the Special Court
is dealing with the scam which shook the whole financial world
G of India. We again cannot ignore the fact that the decision to
sell the shares in 2005 was taken by the Disposal Committee,
which consisted of the experts of the financial world who were
well-experienced in the sale of shares and securities and who
had a thorough study of the share markets. No ma la tides were
H ever alleged against the Disposal Committee. Under the cir-
---, SUDHIR S. MEHTA & ORS. v. CUSTODIAN 1147
& ANR. [V.S. SIRPURKAR, J.]
• -;
cumstances, we find no reason to accept the argument that the A
earlier sale caused huge loss and, therefore, the shares should
not be sold. In our opinion, the Special Court was right in con-
firming the advice and accepting the report filed before him on
behalf of the Custodian justifying the sale of shares. However,
all that exercise, we are afraid, would have to be repeated again, 8
~-
particularly, because more than six months have elapsed after
~
that decision and the sale has yet not taken place. The Special
Court has referred back the matter and has passed the direc-
tions for obtaining the legal and expert advice to deal with the
taxes. We are told at the Bar that such exercise had already c
been completed. It would, therefore, be proper for the Disposal
Committee to again decide as to whether the shares should be
sold at all and when. That would depend upon the market con-
ditions and so many other factors which are certain to be con-
+ sidered by the Disposal Committee. The Custodian has re-
D
ferred all the happenings during the pendency of this appeal
and has relied on the report dated 27.11.2007. We need not
go into the question, since, it would be for the Disposal Com-
mittee to decide upon the proper time and the manner in which
.-.
.~,
the sale is to be executed, and it would be for the Special Court
to further decide on the matter. E
'

- \
,- y
48. In view of what we have stated above, we are con-
vinced that the appeals have no merits. However, one thing is
certain that the sale, as well as thl decision to make the sale at
a particular time, stand frustrated because of the lapse of time. F
The whole procedure for sale of shares will have to be repeated
now, meaning thereby, that the Disposal Committee would have
to take a fresh decision in the light of the directions given by the
Special Court, which are the correct directions. That shall be
done at the opportune time. If the appellants so feel, they would
G
>- ~ be at liberty to put their objections subject to what has already
been said in this judgment. The appeals are dismissed with the
above obseNations under the circumstances. The cost is quan-
tified at Rs.2 lakhs.
S.K.S. Appeals dismissed. H