1996 JTR(SC) 1416
1997 AIR(SC) 442 ; 1996 AIR(SCW) 3826 ; 1997 1 AllMR(SC) 234 ; 1997 BankJ 1 ; 1996 4 CLT(SC) 24 ; 1996 87 CompCas 539 ; 1997 1 ICC 177 ; 1996 8 JT 99 ; 1996 6 Scale 414 ; 1997 9 SCC 123 ; 1996 3 SCJ 224 ; 1996 10 SCL 64 ; 1997 KHC 1136 ; 1996 6 Supreme 697
1996(6) Supreme 697
SUPREME COURT OF INDIA
S.P. Bharucha and K. Venkataswami, JJ.
Tejkumar Balakrishna Ruia -Appellant
versus
A.K. Menon & Anr. -Respondents
Civil Appeal Nos. 7143-7144 of 1996
Decided on 9-9-1996
Counsel for the Parties :
For the Appellant : S.D. Parekh, Sr. Advocate, N.H. Seervai, S.V. Mehta, B.V. Desai and P.J. Mehta, Advocates.
For the Respondents : A. Subba Rao, Advocate.
IMPORTANT POINT
Income generated by a notified person by dint of his own labour falls outside the net of Section 3(3) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
Act Referred :SPECIAL COURT TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES ACT : S.3(3)
A) The Special Court was constituted under the Special Court (Trial of Offences Relating to Transactions In Securities) Act, 1992, with jurisdiction to try offences and attach property linked to securities transactions between 1 April 1991 and 6 June 1992. Section 3(3) of the Act operated as the operative provision, automatically attaching all property, movable or immovable, belonging to a person notified as a concerned party from the date of notification, without any further order. This attachment extended to any property acquired by the notified person after the notification, including gifts, inheritances, or income, unless it was income earned through personal labour. The scope of "property" was interpreted widely to include present and future assets, while the phrase "on and from the date of notification" clearly marked the attachment as taking effect immediately upon notification. The Act further empowered the Custodian to dispose of attached property as directed by the Special Court and provided that the income or usufruct of attached property remained attached, though legitimate earnings from personal effort fell outside its purview. Section 11(1) and Section 12 outlined the powers and order of discharge of liabilities, while Section 13 ensured the Acts overriding effect over other laws.
B) Key legal principles include that attachment under Section 3(3) is automatic and retrospective from the notification date, covers both existing and future property broadly defined, and does not require separate orders for each asset. However, it does not attach income genuinely earned through personal labour, which remains outside its scope. Constitutional validity was considered, and interpretations were required to avoid rendering the provision unconstitutional by depriving a person of all livelihood.
Facts of the case:
The appellant became a notified person under Section 3(2) of the Act on 2 July 1992 and was appointed as an advisor by Killick Nixon Ltd. from 8 October 1994, drawing a monthly consultancy fee of Rs. 5,000. In August 1995, he sought to open a current bank account, which was referred to the banks head office and subsequently to the Custodian under the Act. The Special Court dismissed his petition to allow the account and restrain attachment of his consultancy income, holding that the income was earned from genuine services and fell outside Section 3(3). The court clarified that only income from personal labour was exempt, while property, including future acquisitions, stood attached from the notification date.
Findings of Court:
The Special Court found that the appellant was genuinely earning income through services and that interpreting Section 3(3) to attach all future income would be constitutionally perilous and reduce the person to beggary. It held that income from personal labour lies outside the attachment net, whereas property, gifts, or inheritance acquired post-notification would automatically attach. The court also noted that the Custodian could inspect the bank account for any improperly deposited assets.
Issues:
Whether income earned by a notified person through personal services is subject to attachment under Section 3(3) of the Act, and whether the phrase "on and from the date of notification" extends to future-acquired property and income.
Ratio Decidendi:
Section 3(3) attaches all property belonging to a notified person from the notification date, including future property broadly defined, but does not attach income genuinely earned through personal labour. The interpretation must preserve constitutional validity and distinguish between property and personal income to avoid reducing the person to beggary.
Result:
The appeals were allowed, the impugned judgment was set aside, and the appellant was entitled to open a bank account for depositing income earned through personal services, subject to inspection by the Custodian.
A) The Special Court was constituted under the Special Court (Trial of Offences Relating to Transactions In Securities) Act, 1992, with jurisdiction to try offences and attach property linked to securities transactions between 1 April 1991 and 6 June 1992. Section 3(3) of the Act operated as the operative provision, automatically attaching all property, movable or immovable, belonging to a person notified as a concerned party from the date of notification, without any further order. This attachment extended to any property acquired by the notified person after the notification, including gifts, inheritances, or income, unless it was income earned through personal labour. The scope of "property" was interpreted widely to include present and future assets, while the phrase "on and from the date of notification" clearly marked the attachment as taking effect immediately upon notification. The Act further empowered the Custodian to dispose of attached property as directed by the Special Court and provided that the income or usufruct of attached property remained attached, though legitimate earnings from personal effort fell outside its purview. Section 11(1) and Section 12 outlined the powers and order of discharge of liabilities, while Section 13 ensured the Acts overriding effect over other laws.
B) Key legal principles include that attachment under Section 3(3) is automatic and retrospective from the notification date, covers both existing and future property broadly defined, and does not require separate orders for each asset. However, it does not attach income genuinely earned through personal labour, which remains outside its scope. Constitutional validity was considered, and interpretations were required to avoid rendering the provision unconstitutional by depriving a person of all livelihood.
Facts of the case:
The appellant became a notified person under Section 3(2) of the Act on 2 July 1992 and was appointed as an advisor by Killick Nixon Ltd. from 8 October 1994, drawing a monthly consultancy fee of Rs. 5,000. In August 1995, he sought to open a current bank account, which was referred to the banks head office and subsequently to the Custodian under the Act. The Special Court dismissed his petition to allow the account and restrain attachment of his consultancy income, holding that the income was earned from genuine services and fell outside Section 3(3). The court clarified that only income from personal labour was exempt, while property, including future acquisitions, stood attached from the notification date.
Findings of Court:
The Special Court found that the appellant was genuinely earning income through services and that interpreting Section 3(3) to attach all future income would be constitutionally perilous and reduce the person to beggary. It held that income from personal labour lies outside the attachment net, whereas property, gifts, or inheritance acquired post-notification would automatically attach. The court also noted that the Custodian could inspect the bank account for any improperly deposited assets.
Issues:
Whether income earned by a notified person through personal services is subject to attachment under Section 3(3) of the Act, and whether the phrase "on and from the date of notification" extends to future-acquired property and income.
Ratio Decidendi:
Section 3(3) attaches all property belonging to a notified person from the notification date, including future property broadly defined, but does not attach income genuinely earned through personal labour. The interpretation must preserve constitutional validity and distinguish between property and personal income to avoid reducing the person to beggary.
Result:
The appeals were allowed, the impugned judgment was set aside, and the appellant was entitled to open a bank account for depositing income earned through personal services, subject to inspection by the Custodian.
JUDGMENT
Bharucha, J.-These are appeals against the judgment and orders of the Special Court constituted under the provisions of the Special Court (Trial of Offences Relating to Transactions In Securities) Act, 1992, ("the Act"), and they relate to the sweep of Section 3(3) thereof. The principle judgment and order gave the appellant liberty to file an application for a subsistence allowance. When the appellant declined to avail of the liberty the final order was passed.
2. The appellant became a notified person under the provisions of Section 3(2) of the Act on 2nd July, 1992. On 9th October, 1994, he was appointed an advisor by Killick Nixon Ltd. with effect from 8th October, 1994. By reason of such appointment he is entitled to be paid consultancy fees in the sum of Rs. 5,000/- per month by the said company. By a letter dated 7th August, 1995, to the Manager, Dena Bank, the appellant applied to open a new Current Account in his name to be operated by him. On 6th September, 1995, the appellant s advocates were informed that the matter had been referred to the Head Office of the bank and by a letter dated 27th October, 1995, that the matter had been referred to the Custodian appointed under the Act. The petitioner filed a petition on 23rd November, 1995, in the Special Court and sought a declaration that the income "earned by way of the aforesaid employment is not liable for attachment" and permission "to open a new bank account and operate the same in the normal course".
3. The petition was dismissed by the order under appeal. The Special Court proceeded upon the basis that the appellant was "genuinely seeking release of an income which he is earning from his services". However, the Special Court said that if the interpretation which the appellant wanted it to give was accepted, it could result in a very clever method of siphoning off assets which could and must stand attached. The Special Court noted that even after 3 years monies which has been siphoned off had not been traced. It was thus evident that the notified parties or some of them had monies or assets which were lying in some undisclosed place. One of the simplest methods to bring such moneys into the open and start using them was to ostensibly render services to somebody else who then paid the notified party the purported income or for somebody to give to the notified party a gift or for a notified party to suddenly inherit some assets. This would become a method to defeat the object of the Act and could not be permitted. The Special Court then dealt with the provisions of Section 3(3) and held that the words therein "on and from the date of the Notification" meant that all assets which were available on the date of the Notification and all assets which became available from and after that date stood attached. The term "property" had a wide connotation and included present and future property. Thus, if some notified party inherited or was gifted some property or earned some income subsequent to being notified, such property or income would stand attached and be available for distribution under the Act.
4. The Act was preceded by an Ordinance which established the Special Court for trial of offences relating to transactions in securities that had been entered into between 1st April, 1991 and 6th June, 1992. Section 3, sub-section, (1) empowered the Central Government to appoint one or more Custodians under the Act. By reason of sub-section (2), the Custodian could, on being satisfied on information received that any person had been involved in any offence relating to transactions in securities between the stated dates, notify the name of such person in the Official Gazette. Sub-section (3) reads thus :
"(3) Notwithstanding anything contained in the code and any other law for the time being in force, on and from the date of notification under sub-section (2), any property, movable or immovable, or both, belonging of any person notified under that sub-section shall stand attached simultaneously with the issue of the notification."
The Custodian could, by reason of sub-section (4), deal with property attached under sub-section (3) in such manner as the Special Court directed. Section 4(1) empowered the Custodian, if he was satisfied, after such inquiry as he thought fit, that any contract or agreement entered into at any time between the stated dates in relation to any property of the notified person had been entered into fraudulently or to defeat the provisions of the Act, to cancel such contract or agreement, whereupon such property stood attached under the Act. Sections 7, 8 and 9 deal with the jurisdiction of the Special Court in Criminal Proceedings. Section 9A deal with the jurisdiction of the Special Court in civil proceedings relating to property that stands attached and arising out of transactions in securities between the stated dates in which a notified person was involved as a party, broker, intermediary or in any other manner. Section 11 deals with the discharge of liabilities and sub-section (1) states that the Special Court may make such order as it may deem fit directing the Custodian in the matter of disposal of attached properties; sub-section (2) sets out the order in which liabilities are to be paid or discharged. Section 13 states that the Act has effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law or in any decree or order of any court, tribunal or other authority.
5. In our view, the terms of sub-section (3) of Section 3 are clear. By reason thereof, the property that belongs to a notified person stands attached simultaneously with the issue of the notification that makes him a notified party. The words "on and from the date of notification" indicate the point of time at which the attachment takes effect; this is reiterated by the words "shall stand attached simultaneously with the issue of the notification". This also indicates that no separate notification or order in regard to the attachment is necessary.
6. Neither the words "on and from the date of notification" nor the word "property" lead to the conclusion that what is attached is not only that property which the notified person owned or was possessed of on the date of the notification but also all such property as he might acquire at any time thereafter. The intention to attach property which did not belong to the notified person on the date of the notification but which he might acquire later would, had it been there, have been clearly expressed and sub-section (3) would have stated that such property would stand attached the moment it was acquired by the notified person. The Act would also have made provision for a subsistence allowance or the like for the notified person.
7. It seems to us that to give to Section 3(3) the wide meaning that has been asrcribed to it in the judgment and order under appeal would render it perilously close to being held unconstitutional, for it would deprive the notified person, so long as he remained a notified person, from earning a livelihood. Even to say that such interpretation would reduce a notified person to beggary would not be accurate because the alms that he received, being his property, would stand attached.
8. The apprehension expressed by the Special Court does not appear to be well founded : if what a gift or inheritance is really his own money, such money would, upon establishment of the fact, stand attached automatically under the provisions of Section 3(3). In any event, it is for Parliament to enact a law that meets all contingencies. The courts must interpret the law as it reads. While a purposive interpretation is permissible where two interpretations are possible, the purposive interpretation must be such as preserves the constitutionality of the provision.
9. It is perhaps necessary to make clear that the income or usufruct of attached property is also attached property. Thus, if the property be shares, dividends and bonus and rights shares thereon would also be attached property. It is only income generated by a notified person by dint of his own labour which falls outside the net of Section 3(3). In respect of such income, the attachment under Section 3(3) does not operate.
10. We must, therefore, hold, particularly since the Special Court has proceeded upon the basis that the appellant is "genuinely seeking release of an income which he is earning from his services", that the same is not subject to attachment under Section 3(3) and that he is entitled to open a bank account for the purpose of depositing such income (and such income alone). The Custodian shall be entitled to inspect this bank account and take action in such manner as he deems fit against the appellant if it be found that other monies have been deposited in the bank account.
11. The appellant may now draw the arrears of his remuneration from the company.
12. It was sought to be argued on behalf of the appellant that the provisions of Section 3(3) attached only such property as had a nexus to transactions in securities between the stated dates. For the purposes of this appeal, we have found it unnecessary to entertain the argument.
13. The appeals are allowed. The judgment and orders under appeal are set aside. The petition filed by the appellant in the Special Court is allowed to the extent aforestated.
There shall be no order as to costs.
Appeals allowed.
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