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B.C Dalal v. Custodian And Others
Factual and Procedural Background
The appellant is a “notified person” under Section 3(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, whose properties stand attached. There is a substantial outstanding income-tax demand. Assessments were made by the Assessing Officer and confirmed by the Commissioner in appeal; the appellant’s further appeals are pending before the Tribunal (ITAT). By order dated 17-03-2004, the Special Court allowed the Custodian’s application to sell the appellant’s property. In the present proceedings, IA No. 1 sought a stay of the proposed sale of four specified attached properties pending hearing of the appeal, and IA No. 3 sought impleadment by alleged mortgagees claiming interests in the attached properties.
Legal Issues Presented
- Whether the proposed sale of the appellant’s attached properties should be stayed pending disposal of the appellant’s appeals before the ITAT, particularly when there is no interim stay against recovery.
- Whether, as an equitable measure, the appellant’s claimed residential flat (Flat No. 42) should be deferred from sale until other properties are sold and proceeds applied.
- Whether alleged mortgagees (claiming through co-owners) should be impleaded in the proceedings before this Court and have their claims entertained for the first time at this stage.
Arguments of the Parties
Appellant/Applicant's Arguments
- Recovery should not be effected until the appeals pending before the ITAT are decided.
- The sale should not have been directed without an investigation under Section 9-A of the Act (raised as the principal grievance in the appeal).
- Reliance was placed on CWT v. Kantilal Manilal (1985) 2 SCC 343.
Custodian's Arguments
- The request to defer recovery/sale until the ITAT appeals are decided was vehemently opposed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| L.S Synthetics Ltd. v. Fairgrowth Financial Services Ltd. (2004) 11 SCC 456 | This information was not available in the provided opinion. | The Court perused this judgment (noting particular paragraphs) while deciding the stay request. |
| Harshad Shantilal Mehta v. Custodian (1998) 5 SCC 1 | This information was not available in the provided opinion. | The Court perused this judgment (noting para 19) while deciding the stay request. |
| CWT v. Kantilal Manilal (1985) 2 SCC 343 | This information was not available in the provided opinion. | Relied upon by the appellant; the Court held that it did not assist the appellant. |
Court's Reasoning and Analysis
The Court heard both sides and considered prior judgments. It refused to stay the sale because the tax demand remained outstanding and there was no stay on recovery from the ITAT; accordingly, the Court held that the sale could not be postponed merely because the appellant’s appeals were pending before the Tribunal. However, taking into account the appellant’s assertion that Flat No. 42 was the residential house of the appellant and his family, the Court granted equitable relief by directing that the Special Court and Custodian should first proceed to sell the other attached properties, and only if the claims remained unsatisfied could Flat No. 42 be sold. The Court further clarified that the appellant was free to seek a stay from the Tribunal; if a stay were granted, sale for recovery of the stayed amount “may not arise,” while expressly avoiding any opinion on whether the Tribunal would grant such stay. Separately, regarding IA No. 3, the Court noted that alleged mortgagees (claiming through co-owners) raised their claims for the first time before it; without expressing any opinion on merits or locus, it directed them to approach the Special Court and refused their impleadment in this Court.
Holding and Implications
IA No. 1 (Stay): REFUSED, with an equitable direction that sale should initially proceed for properties other than Flat No. 42, and Flat No. 42 may be sold only if proceeds from the other properties are insufficient to satisfy the claims.
IA No. 3 (Impleadment by alleged mortgagees): REFUSED, with liberty to the applicants to move the Special Court; the Court expressed no opinion on their merits or locus.
The immediate effect is that the sale process is allowed to proceed despite pending ITAT appeals, subject to the sequencing protection for Flat No. 42. The appellant may seek a recovery stay from the ITAT, and if granted, sale for recovery of the stayed amount may not be necessary. The order is expressly confined to disposal of the four identified properties, and no broader implications or new legal principle are stated in the opinion.
Order
IA No. 1
1. The appellant herein is a “notified person” within the meaning of Section 3(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. His properties are under attachment. There is huge demand of arrears of income tax. The assessments have been made by the assessing officer and also confirmed in appeal by the Commissioner. Further appeals preferred by the appellant are pending before the Tribunal. Out of the several properties under attachment, the following four are proposed to be sold:
1. Flat No. 42, Chitrakoot,
Chitrakoot Coop. Housing Society,
Altamount Road,
Mumbai-400 026.
2. Flat (1/8th share) No. 91,
9th Floor,
Chitrakoot,
Altamount Road,
Mumbai-400 026
3. Flat (1/8th share) No. 92,
9th Floor,
Chitrakoot,
Altamount Road,
Mumbai-400 026
4. Business Premises No. 1,
2nd Floor,
No. 208, Regent Chambers
Nariman Point,
Mumbai.
2. By order dated 17-3-2004, the Special Court has allowed an application filed by the Custodian to sell the property belonging to the appellant. The principal grievance raised in the appeal is that the property should not have been directed to be sold without undertaking an investigation under Section 9-A of the Act.
3. This IA has been filed seeking stay on the proposed sale of the properties during hearing of this appeal.
4. The learned counsel for the appellant applicant submits that until and unless the appeals pending before ITAT are decided the recovery cannot be effected. The said prayer is vehemently opposed on behalf of the Custodian.
5. We have heard the learned counsel for the parties and perused the judgments of this Court in the cases of L.S Synthetics Ltd. v. Fairgrowth Financial Services Ltd. (2004) 11 SCC 456 in particular paras 25 to 29 and 45(ii) and Harshad Shantilal Mehta v. Custodian (1998) 5 SCC 1 SCC para 19. The learned counsel for the applicant places reliance on CWT v. Kantilal Manilal (1985) 2 SCC 343 which, in our opinion, does not help him.
6. The prayer made in the application is refused. Sale cannot be postponed awaiting decision of the Tribunal as there is no stay on recovery and demand is outstanding. However, Flat No. 42, Chitrakoot, Chitrakoot Coop. Housing Society, Altamount Road, Mumbai is claimed to be the residential house of the appellant applicant and his family members. As a matter of equitable relief, let the Special Court and the Custodian initially proceed with the sale of properties other than Flat No. 42, Chitrakoot. After realising the sale proceeds of other properties, if the claims are not satisfied then Flat No. 42, Chitrakoot may be subjected to sale.
7. The learned counsel for the appellant further submits that as against tax assessment, appeals are pending before the Tribunal. It is admitted that there is no interim order of stay against recovery granted by the Tribunal. We clarify that the appellant is at liberty to seek an order of stay from the Tribunal and if the Tribunal stays the recovery then the question of properties being subjected to sale for recovery of the amount which is stayed may not arise. However, this does not amount to expression of any opinion by us on the question whether the Tribunal would grant stay or not, which question lies within the discretion of the Tribunal.
8. We also clarify that this order is confined to disposing of the appellant applicant's aforesaid four properties only.
IA No. 3
9. The alleged mortgagees from the co-owners of the properties which are under attachment and proposed to be sold by the Special Court, have staked their claim in this Court for the first time. We express no opinion on the merits of their claim or their locus standi to move the application. They are at liberty to move the Special Court. The prayer for their impleadment in this Court is also refused.
Court Masters
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