DATES AND EVENTS OF LIFE JOURNEY OF LATE HARSHAD MEHTA BEFORE AND AFTER
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It is very difficult to capture all the Dates and Events of past 30 years and so many orders passed by Hon’ble Special Court, Hon’ble Supreme Court and appellate authorities under the I.T. Act. However, a sincere effort is made to capture all the significant facts disproving the allegations made against Harshad Mehta and narrating the difficulties faced by the family both during and post his demise and the herculean efforts made to turnaround the situation for fulfilling the wishes of Harshad Mehta. While we wish to put the saga behind us and not run any campaign but for sake of accuracy and truth we would correct / improve / update the present site.
Harshad Mehta was born to a traditional cloth Merchant Shri Shantilal Mehta and mother Smt Rasilaben Mehta at Ghatkopar, Mumbai.
Harshad had initial schooling at Ghatkopar and then at Rose Manor Garden School at Santacruz, Mumbai.
Due to health problems of Shri Shantilal Mehta, the nucleus family moved to Raipur (Capital of Chhattisgarh). Family had no relatives or friends at Raipur. Harshad and his brothers took admission in Holy Cross High School at Raipur.
Shri Shantilal Mehta faced multiple business set-backs in which he lost all his wealth but honoured his obligations even by sale of the jewellery of Smt Rasila Mehta. The family faced acute financial problems and even faced difficulties to pay for the school fees but yet the gift of best education was given by parents of Harshad and other children.
Harshad migrated to Bombay for better future and lived with his Uncle and Aunt. He took admission in Lala Lajpatrai College of Commerce, Worli on the back of his excellent credentials as a cricketer being a left arm spinner but a right hand batsman and therefore cricket remained his biggest passion. While in college and studying for B.Com, Harshad tried his hands at several menial jobs with little success such as supplying cement, getting diamonds polished every weekend by travelling to Surat and working in a relative’s hosiery store. During this period, he fell in love with neighbourhood girl Ms. Jyoti Doshi during Navratri playing dandia-raas.
Harshad joined New India Assurance in their Head Office at Fort in the Hull department. That without having a house of his own and reasonable earnings and for better prospects he sought a transfer to the Investment department of New India Assurance and also started visiting Bombay Stock Exchange (“BSE”) during lunch break. Very quickly he managed to get entry into the restricted Club and the trading hall of BSE and also persuaded an elderly broker, Shri P. Ambalal, to give him a badge and a block necessary to undertake trades. During the same time, the other family members and parents also migrated to Bombay and from Ghatkopar they moved to a small rented place in Kannamwar Nagar, Vikhroli, the lowest point in their life. He proposed to Ms. Jyoti and with consent of families tied his knot in Ghatkopar on 17.05.1977.
As lease expired in 11 months, the family hired a flat at Padma Apartments near Charkop, Kandivali (West) for another 11 months. Due to conflict of interest, Harshad resigned from his job at New India Assurance and started a full-time career in BSE. He took to market making (jobbing), under which two-way quotations are given to impart liquidity in the market keeping small margins and the positions are squared-up by the end of the day. He became an ace market-maker and registered immense success which skills shaped his future when he entered the Money Market after about a decade.
Mehta family purchased a small flat in Rajesh Apartments, Shankar Lane, Kandivali (West) through initial success of Harshad in Stock Market.
Harshad and Jyoti Mehta were blessed with son Aatur.
Due to very sharp and sudden fall in market prices Harshad lost all his capital and incurred losses because of which the broker temporarily withdrew his badge and block. This was the first test of his integrity when he offered to the broker his house and Jyoti’s jewellery to meet his obligations. However, the broker was kind enough and refused to take security as he had immense trust in Harshad. But upon insistence of Harshad, Jyoti’s “mangalsutra” was unwillingly accepted by the broker only as a token and after about a month his badge and block was returned to him and within no time he cleared his outstanding to the broker and was back on the path of prosperity.
Shri Shantilal Mehta expired under a massive stroke and the family did not have money even for his cremation. This was another lowest point in life.
Harshad with his younger brother, Ashwin set up a small partnership firm Growmore Investments and started from a gallery of about 50 square feet, situated in Bharat Bhavan, Kalbadevi, which was rented by their father at Rs.250/- per month but it was revised to Rs.500/- per month for the new venture. This firm started offering value added service of Portfolio Management of investments in equity shares to several investors in and around their office charging small fee over and above the brokerage thereby earning a few thousand rupees per month. The research-based approach to investing generated exceptional returns and therefore business grew quickly because of which even the youngest brother Sudhir and their first cousin Deepak Mehta also joined the team.
To cope up with increased volume of business, Growmore shifted to a new office near Handloom House, where they saw a further sharp improvement in the client base. The brokerage income increased sharply and therefore Harshad purchased a membership card and applied to BSE to admit him as a member so that he does not have to share brokerage for business which was entirely generated by the efforts of Growmore.
After the board of BSE approved the transfer and admitted Harshad as its registered member, the brokerage business of sole proprietary brokerage firm of M/s. Harshad S. Mehta Membership No.241 commenced on the BSE to undertake transactions for clients of Growmore Investments as also to do proprietary trades and investments on behalf of the Mehta family. Because of exceptionally good research based stock-picking, the boom in stock prices in the year 1985 under the leadership ofvRajiv Gandhi was fully harnessed and M/s. Harshad S. Mehta rose to fame and came to be counted amongst the leading brokerage firms. His exceptional growth could not be digested by the then market leader Shri Manubhai Maneklal, also a leading badla financer who had a vice like grip on the market which was slipping into the hands of younger generation brokers like Harshad Mehta. Harshad became very popular in the trading hall which became his life and greatest passion.
The success of portfolio management business resulted into acquisition of a large and most modern office in Maker Chamber V in Nariman Point which spacious office brought increased business and prestigious and resourceful clients. To corporatize the structure, Growmore Research and Assets Management Ltd. (GRAM) was promoted to render value-added services like tax planning, registration of shares and research was widened to capture all macro and micro trends in the economy and to intensely monitor corporate performance by appointing field staff. This led to excellent stock selection and the same generated exceptional returns both for the clients and the Mehtas.
Shri V.P. Singh, then Finance Minister surprisingly presented a harsh budget which softened the markets and seizing this opportunity Shri Manubhai Maneklal planned to create a crisis for Harshad by hammering down those stocks in which he was heavily invested and his clients had taken large speculative positions. However, a whiff of the above sinister plan was given to Harshad by someone extremely close to Manubhai Maneklal and timely action was taken and history was created by Harshad by making payment to the stock exchange 14 days before time to scotch rumors of his bankruptcy which Manubhai had spread. This had a telling effect and Mehtas decided to completely revamp the business and seek diversification.
M/s. Harshad S. Mehta therefore critically reviewed the adverse events and decided to completely re-organize the business by moving away from the individual clients undertaking speculative transactions towards the brokerage business in equity shares for institutions and banks to insulate itself from vicious attacks. This met with instant success as just within a year, the firm started commanding largest volume of brokerage business from several leading institutions and banks largely because of excellent research which helped in stock-picking through which exceptional returns were generated for the clients.
This became a watershed year because Harshad decided to enter into money market business comprising of Government securities, Units of UTI 1964 Scheme and Public Sector Bonds. Until then this interbank market was closed to outsiders as about 5 members conducted 90% of the business and the existing brokers were patronized by Citi Bank. Harshad decided against all odds to try and attempt breaking of a very powerful cartel. After a huge effort of several months, Harshad got a breakthrough from which he rapidly built up a client base of leading banks who were looking for a young loyal broker. To penetrate further and gain marketshare, he stopped going to the trading hall of BSE and became the first broker to set up hotlines between his office at Nariman Point directly into the trading ring of BSE thereby virtually bringing the market to his office. Harshad also delegated the equity brokerage and investment business to his family members. The family also took a very major decision to make investments in equity and move away from the broking and portfolio management business which was the root cause of abnormal growth which took place in later years. The stock prices at that time were lying at an abnormally low level and therefore decent quantities would be purchased and which stocks turned into multi baggers.
Younger brother, Ashwin got selected as Member of BSE under ‘professional category’ and transactions in equity shares were shifted to his firm of M/s. Ashwin Mehta so that M/s. Harshad S. Mehta could enhance his business in money market. Mehtas were amongst the first brokers to develop software programs and computerised its operations entirely. They could therefore capture huge volumes of business, both in capital and money market and special computer tools were also developed in-house for automating the money market business. The family also shifted their residence from Kandivali to Khar.
The banks wanted to trade in money market instruments but there was no liquidity and treating this as an opportunity and using his market making skills Harshad became market-maker and got immense support from all banks and by 1991 almost commanded about 75% volume. During the same period, a large number of young and bright Chartered Accountants and MBA’s were recruited to expand the reach for money market business and of research for investing in equities. A number of offices were added and staff strength crossed about 200.
The family of Harshad Mehta shifted to 9 residential flats and combined them together at Madhuli Apartments, Worli.
In the raid carried out by Income Tax department on M/s. V.B. Desai, Harshad helped by making pay-in of about Rs.6 Crores to BSE to avoid their default. The Income Tax discovered this fact and within 12 days carried a cross-raid on Harshad and his family members. The capital market software purchased by M/s. Harshad S. Mehta and M/s. Ashwin Mehta as the first-time users suffered a virus problem which deeply affected both the programs and data due to which the books of account were incomplete and had to be redrawn and returns of income remained pending to be filed. This raid continued for 90 days but several crucial disclosures were made to the department
M/s. Harshad S. Mehta duly explained to Dy. Director of Investigation by a letter the source of funds for himself and his family for making investments in shares and for purchase of residential flats by stating as under:
Harshad truthfully disclosed his source of money as at that time the brokers were not keeping their own money and monies belonging to clients separately which was started by SEBI only in the year 1994.
HSM addressed a letter to the I.T. department for its raid u/s 132 of the I.T. Act and provided all the details required explaining the source of monies for shares and 9 flats at Madhuli. He made the most important clarification as follows:
A detailed final Declaration u/s 132(4) of the Income Tax Act was made by Harshad and his family members on conclusion of the raid and duly explained the arrangement that was prevailing between the family members and role played by them by active participation. The family confirmed their strong belief in making long-term investments. The said joint declaration of income of Rs.4.25 Crores was duly accepted by the Income Tax department. By no means, any illegal activity much less any criminal activity of siphoning off of monies from banks was found in this raid.
Smt Jyoti Harshad Mehta purchased a membership card and BSE admitted her as a registered member styled as M/s. J.H. Mehta and this firm largely catered to the investments made by the family members. Based on excellent research inputs, the family members purchased huge quantities of shares at extremely low prices in blue-chip companies like Hero Honda, Reliance Industries, Castrol India, Gujarat Ambuja Cements, Bharti Telecom, ITC, MRF, Tata Motors, ACC, Apollo Tyres, Excel Industries, Shree Cements, Tata Tea, Ponds, Hindustan Lever etc. which gave exceptional returns.
The Indian Banking Association (IBA) standardized the format of Bank Receipt (BR) and also framed Rules in that regard. It can be seen that BR is only a money receipt and a commitment to deliver the security as and when it is ready. The BR was valid for 3 months and it was open to the bank to issue fresh receipt if the BRs were not discharged within 90 days.
RBI issued a Private & Confidential circular to all the banks in relation to trading in securities on their self-account and on account of their clients and in respect of routing facilities being offered by the banks to their customers. This circular was not known to Harshad Mehta until 1993. However, it emerged from this circular that the banks were given advice by RBI in respect of aforesaid activities. It advised to exercise caution so far as the routing facilities were being offered to the customers. The circular was in the nature of advice and RBI had not prohibited the routing facilities. It is on the basis of above RBI circular that Harshad Mehta stated that he had undertaken transactions which were permissible and had not invented any new practice but only followed the age-old market practices. In any case circular establishes that routing facility was governed by RBI.
Harshad filed an Application with the State Bank of India seeking a single-point clearance facility under which pay orders would be brought in the name of SBI and against which pay orders would be issued in favour of parties as per the instructions of M/s. Harshad S. Mehta which facility was granted. Such facility known as “routing facility” in money market was granted to M/s. Harshad S. Mehta even by several other banks.
Harshad got a call from Shri Sunil Mittal, his friend and promoter of Bharti Telecom that the then Prime Minister, Shri Narasimha Rao would like to meet him in the morning of Monday (Dhanteras) and therefore on 03.11.1991 he along with his younger brother Ashwin, travelled by Indian Airlines to New Delhi and stayed at Holiday Inn, New Delhi.
Shri Satpal Mittal (Sunil’s father and a close friend of Shri Narasimha Rao), Shri Sunil Mittal, Satpalji’s PA Shri Manmohan, Harshad and his brother, Ashwin visited 7, Racecourse Road in the morning to meet the PM. PM stated that he was extremely worried because of precariously low level of foreign exchange of the country which were just about sufficient to meet the import bills of only 7 days and any default in meeting international obligations would push the country into much deeper financial crisis and make the country a ‘banana republic’ in the comity of nations. The Government wanted to introduce bold reforms and wanted an environment when these reforms are received positively. The PM asked Harshad to create that environment by boosting the stock market as it will be a signal as a harbinger of growth. He called upon Harshad to serve the country at such a critical juncture and will bless him for such service as Harshad had demanded nothing. However, only as a goodwill gesture Harshad offered a sum of Rs.1 Crore as contribution to PM towards his election expenses for him to get elected as an MP from Nandayal constituency. Rs.67 lacs were hand-delivered at the time of the meeting and Rs.33 lacs were later delivered to the Office of Congress Treasurer, Shri Sitaram Kesari. Shri Rao got elected won his election from Nandayal and ruled for 5 years and was the real architect of the bold reforms introduced in the country.
Harshad started spreading the message of positivity and made long-term investments in equity while the Government started introducing bold reforms starting with devaluation of the currency and received a good response to its foreign currency immunity scheme. The BSE Index in anticipation of good times, within a span of 3 months climbed from about 1400 to about 2800 level before the Budget which gave ample time and opportunity to discerning investors to participate in a once-in-a-lifetime opportunity if they really believed in future of the country. Unfortunately, several leading players short sold stocks at such a historic moment when the country was to witness a mega turn-around in its economic history since independence of the country.
The BSE issued a Show-Cause Notice on M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J.H. Mehta stating that why disciplinary action should not be taken against them for purchasing large quantities of shares even though they were purchased in cash for delivery. When the Government learnt of such an action, its nominee and representative, Director, Shri Paul Joseph, Joint Secretary attended the BSE board meeting and registered his strong protest against any disciplinary action against the above 3 brokerage firms as he felt that the proposed action was unprecedented and was being taken to protect the bears who had heavily short-sold the market. Because of the above protest, BSE dropped the above Show-Cause Notices.
Harshad filed a second Application with SBI in continuation of his earlier letter dated 19.08.1991 to seek routing facility through the Treasury Division which was granted by the then officials of SBI. It was urged that he was a prime broker for SBI and SBI Capital Markets Ltd. and had day-to-day dealings with the securities division of banks. In order to facilitate single-point clearance, he requested that the activity of issuance and acceptance of banker’s cheques be conducted by the securities division to enable to meet the deadline for clearing inter-bank cheques. The charges will be credited to the personal banking division but the day-to-day float in the current account will remain with you. This facility was granted by senior officials of SBI whose comments are also enclosed. Later SBI falsely denied granting such facility when claim was made against it for recovery of attached assets and after some years when it suited SBI it admitted to existence of this facility and prevalence of such a market practise.
The Income Tax carried out a massive raid just one day before the Budget on Harshad Mehta and all his associate entities and seized his computers, physical records and vast quantities of shares and securities virtually paralyzing his business at a very crucial juncture in the market just a day prior to the Budget. This raid continued for 90 days upto 2nd June 1992 and later on it was found out that Shri Manubhai Maneklal, the old rival was the informer to Shri C.P. Ramaswamy, Dy. Director Investigation.
Dr. Manmohan Singh, the then Hon’ble Finance Minister presented a path-breaking reformist budget ushering bold reforms, which set the markets on fire and created a huge panic run of the bears who had heavily short-sold the market. Harshad gave his famous TV interview post-budget in the trading hall of BSE and announced that “India is a turn-around scrip on the global stock exchange.” In view of the sharp and perpendicular rise, the BSE authorities put heavy restrictions permitting only delivery-based trades and squaring up of outstanding speculative positions which caused a further bear squeeze and therefore everybody turned buyer on the market with the volume completely drying up. The Sensex climbed from 2800 to 4487 by April 1992 and this sharp climb was falsely attributed to HSM though the real architect was Dr. Manmohan Singh. This created existential problem for the big bears of the time but later converted them into big bulls since that was the right side to be. Due to continuing IT raid there was minimal participation in post-budget rally by HSM but yet he became a target of a set of very powerful persons. Only because of these reforms, our country has recorded much higher growth and we have witnessed sharp improvement in corporate earnings. The FII’s were allowed to invest in our markets for the first time and we have seen incessant flow of money directly to the corporate world under FDI as also in the stock market through secondary route. There has been a paradigm shift in supply of capital since then and the Index itself has risen by almost 10 times which completely disproves the allegations that market was manipulated by Harshad by using monies from the banks. Even otherwise it is incomprehensible that with meagre amount of about Rs.500 crore anyone can quadruple the indices. Harshad and our family are therefore a product of that unique time in history when BSE Sensex rose from 800 to 4487 in shortest period.
SBI called upon Harshad to reconcile his transactions and deliver securities against its purchases but he explained the difficulties that his firm was facing due to the continuing Income Tax raid and seizure of data and records and the risk involved in bringing the delivery of securities in his office which could get seized permanently and therefore offered to pay the amount so that SBI could then buy the securities which were short-delivered as per its records.
The Securities & Exchange Board of India (SEBI) was established as per the Securities & Exchange Board of India Act of 1992.
As per the commitment made to SBI as above, M/s. Harshad S. Mehta made a payment of Rs.622.52 Crores to SBI out of which Rs.616.17 Crores was already paid before 22.04.1992 from which the securities were purchased by it leaving a surplus of Rs.22.57 Crores with SBI. In terms of the understanding SBI had to refund the above amount to Harshad but it has deliberately failed to do so. Thus, when Ms. Sucheta Dalal got the information from a gossip on 22.04.1992, Harshad had already refunded to SBI in 4 working days an amount of Rs.616.17 Crores. Sucheta’s story was false as when she wrote it on 22.04.1992 as by then Harshad had already returned the amount of Rs 616.17 crores to SBI.
Ms. Sucheta Dalal alongwith a co-journalist, Mr. R. Srinivasan on the basis of information received on 22.04.1992 wrote a front page headline story that Big Bull was asked to square up securities of Rs.500 Crores without following the code and ethics of Journalism but by protecting herself by not naming Harshad. She alleged that big fraud was committed on SBI. Her story was already denied by SBI Chairman, Shri M.N. Goiporia and the General Manager, Shri C.L. Khemani on 22.04.1992 which fact and receipt of payment is already admitted in the book written by Ms. Sucheta Dalal with her husband Debashish Basu relevant excerpts of which are enclosed. The story carried out by Times of India on 23.04.1992 was libelous and motivated to malign and finish Harshad and to bring down the market by creating a scare and absolute panic so that the short sellers get bailed out. It is admitted by Ms. Sucheta Dalal in preface of their book that they had no documentary proof in their hands while writing the above story. For the above and other work she was later awarded with Padma Shri though because of her several investors incurred losses and they got deprived to buy stocks at their historical low levels. Thus, the mayhem in the financial market was creation of Ms. Sucheta Dalal and not of Harshad Mehta who fell prey to her devious reporting. She also wanted personal glory and credit for investigative journalism though her story had no truth and the panic created by her writing itself became a self-fulfilling prophecy as it is very easy to create panic. Her false reports created a frenzy in the Parliament and amongst regulators and investigating agencies all of whom went into an overdrive. What could have got easily resolved in days have now taken more than 30 years and costed several lives and thousands of crores in litigation.
After The Times of India carried the above lead story on 23.04.1992, the special correspondent from Economic Times, its leading sister publication interviewed the Chairman, Mr. M.N. Goiporia of SBI who clarified as under: “The reconciliation problems which had arisen regarding the purchase of government securities by its investment department had been sorted out with the outstandings squared up. “As of today” Mr. Goiporia said “there are no outstandings.” Despite above, Ms. Sucheta Dalal never corrected her false story of the previous day as she wanted to continue with her falsehood against Harshad. Thus, the scam was manufactured by Ms. Sucheta Dalal on 23.04.1992 and delivered to a most telling effect and even the web series is titled “Scam 1992 The Harshad Mehta Story” and contains the same falsehood which was dished out by Ms. Sucheta Dalal in 1992 completely ignoring all the subsequent facts and events. It is significant to note that SBI has never lodged any complaint or FIR with CBI in respect of the said transactions as there was no criminality found by it to lodge any complaint.
25.04.1992 to 08.06.1992
Taking a cue from Ms. Sucheta’s story, the other media also carried out several adverse reports this time covering all the leading brokers of money market and several banks. Overnight the regulators to save themselves de-recognized several market practices widely prevalent in the market since decades. Most of the banks, FIs and PSUs took false stands denying that they had undertaken transactions with brokerage firms on a principal-to-principal basis even though no brokerage was paid. Several years after, both the Hon’ble Special Court and the Hon’ble Supreme Court have severely criticized the conduct of the banks and also reached to the conclusion that the senior most management of banks not only knew what their treasury divisions were doing but they had actively or tacitly blessed it since huge profits were being made by the treasury divisions of all the banks. List of adverse orders of Hon’ble Special Court and by the Supreme Court is enclosed.
Mid May 1992
The BSE as a preventive measure suspended all the 3 memberships of M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J.H. Mehta until further notice without establishing any violation of its Rules, Regulations and Bye-laws which alone governed them and their transactions. Since then, till today the BSE has not lifted the above temporary suspension or conducted any proceedings to prove the above 3 firms guilty of any violations. That in any case, the Rules, Regulations and Bye-laws do not provide for indefinite suspension of membership of any member for 30 years without proving any violations.
The Central Bureau of Investigation (CBI) froze all the bank accounts of Harshad Mehta and his family members and corporate entities u/s 102 of Cr.P.C. which is normally invoked to recover stolen monies whereas in the case of Harshad Mehta the monies were paid by the banks to his brokerage firm M/s. Harshad S. Mehta under written contracts and in discharge of their contractual obligations.
Harshad Mehta addressed a letter to Investigating Officer, CBI stating that he hopes that no precipitate action may be taken to complicate matters and cause serious injury to the national interest as he had no intention of avoiding CBI but was anxious to meet him so that he gets an opportunity of exonerating himself of all allegations. He assured full co-operation in unearthing the truth and he will not abscond. It may be considered whether act of seizure and the publicity given would impair the value of the assets and thereby jeopardize the recovery. He assured that he had adequate assets to meet any commitments.
Because both Money market and Capital markets were paralyzed and investors had suffered immense losses Harshad issued a Press Release as under:
Harshad addressed a letter to Shri R. Janakiraman as Dy. Governor, RBI, under whom a Janakiraman Committee was constituted by the Government as discovered by him in media reports to the effect that an interim report was going to be presented by the committee very soon. He requested for an opportunity of hearing and made offer to place securities to cover his obligations.
The Secretariat of the Janakiraman Committee replied to letter of Harshad Mehta dated 25.05.1992 stating that while “we note that you intend to stand by and honor every one of your commitments, it is not the function of the committee to deal with matters connected with your proposal to secure repayment of your dues to the bank. It is for you to take up such matters with the banks concerned. In case, however, you desire to submit any information which may have a bearing on the terms of reference of the Committee which may be of assistance to the Committee in its deliberations, we would request you to send us the information in writing which will be placed before the Committee for its consideration.”
CBI suo motu and without receiving any complaint from SBI registered an FIR on the basis of source information in respect of transactions undertaken by M/s. Harshad S. Mehta with the bank and levelled several allegations including a false allegation that about Rs.2000 Crores were received in benefit by Harshad Mehta, his 2 younger brothers, his wife, 2 corporate entities and a Public Limited Company, Mazda Industries & Leasing Ltd. and a huge corresponding loss was caused to the bank. The said FIR did not record the material facts that a sum of Rs.622.52 Crores was already paid by M/s. Harshad S. Mehta to SBI between 13.04.1992 to 24.04.1992.
Harshad Mehta addressed a letter to Dr. Manmohan Singh. He made unconditional offers to meet all his obligations and to place shares and securities of equivalent amount and that he would abide by his instructions considering it as a part of his duty to the nation.
Harshad also addressed letters to SBI, ANZ Grindlays Bank and CBI, forwarding a copy of his letter addressed to Dr. Manmohan Singh on 02.06.1992 and also informed that he had earlier written letter to the Janakiraman Committee about his offers. He conveyed that he had offered shares and money market assets of the full value of the transaction stated to be outstanding and requested to indicate the exact amount of outstanding transactions in the books of the bank.
The Income Tax raid on Harshad Mehta family concluded with Mehtas making the largest declaration of income ever made of Rs.100 Crores u/s 132(4) of the Income Tax Act over and above the incomes for which advance taxes were already paid by all the entities. The investments made by the family had recorded sharp appreciation in their value but on which no taxes were payable until the gains were booked and such gains would otherwise fall under long-term capital gains liable to be taxed at much lower rates. This declaration was made even though the business of the family and the corporate entities had already come to an abrupt halt around 15.05.1992 by freezing of their bank accounts by CBI and suspension of 3 memberships by BSE. There was no evidence found of any unaccounted income but only in order to buy peace with the Income Tax department, this declaration was made which was duly accepted so that Harshad could attend to other difficulties being faced by him.
Harshad addressed a letter to Shri R. Janakiraman, Dy. Governor, RBI, in reply to their letter dated 26.05.1992. and made grievance that before publishing their report he was not granted any opportunity of appearing and that the committee had got guided entirely by the records of banks though they were incorrect. That he was not given credit for securities of Rs.250 Crores placed with NHB and that he had receivables from several banks and institutions which when considered would substantially reduce the problem exposure figure. He informed that he had already given unconditional offers to meet his obligations and also placed on record his letters dated 19.08.1991 and 10.01.1992 addressed to SBI under which the bank had granted him the facility of crediting bankers cheques into his current account.
CBI raided Harshad and his family and all their offices and residential premises as also all the senior executives and seized substantial records and shares and by the evening arrested Shri Harshad Mehta, Shri Ashwin Mehta, Shri Pankaj Shah and Shri Atul Parekh. On the same day, raids were also carried out on several bankers who were also arrested and except Harshad, his brothers and executives were granted bail after the custody of 14 days. Harshad was repeatedly arrested and eventually released on bail after custody of 111 days whereas his younger brothers and executives were subsequently arrested in fresh cases and released on bail in each case after 14 days. Out of 25 cases registered by CBI, no complaints or FIRs were lodged by any banks or PSUs in respect of 21 cases and only in 4 cases such complaints and FIRs were lodged with CBI.
The Government promulgated an Ordinance to introduce a Special statute titled as The Special Court (Trial of Offences Relating to Transactions in Securities) 1992 (commonly referred to as the Torts Act, 1992) based on the first interim report of the Janakiraman Committee. This is a short Act of about 15 sections disclosing the main object of speedy trial of criminal offences relating to transactions in securities allegedly committed during the period of 01.04.1991 to 06.06.1992 (statutory period) and incidental object of quick recovery of monies from brokers and bankers involved in siphoning of monies under such transactions to restore them back to the affected banks. However, u/s 11(2)(a) the Act contains a provision which gives priority to Income Tax department for recovery of its dues from notified persons even before any monies belonging to banks is returned to them and therefore if false and exaggerated claims are made by revenue it can take away the monies belonging to banks under the priority accorded to it and defeat the main object of the Torts Act. A Custodian is appointed under the Act with powers u/s 3(2) of the Act to notify any person who is “involved in offence relating to transactions in securities during the aforesaid statutory period.” That u/s 3(3) of the Act, all the assets belonging to a person notified by the Custodian gets simultaneously attached upon the notification which includes receivables and also monies and assets lying in the hands of third parties. Such attached assets can be dealt with by the Custodian u/s 3(4) of the Act only as per the orders of Hon’ble Special Court constituted under the Act and presided over by an existing Judge of Hon’ble Bombay High Court. The Custodian u/s 4(1) is also given power to cancel any fraudulent contracts entered into by a notified person with any third party during the statutory period to trace and recover from third parties any monies are transferred which belonged to banks and financial institutions. On 06.06.1992 itself being Saturday, the Government appointed the first Custodian, Shri A.K. Menon.
Within 48 hours of his appointment on Monday, the first working day, the Custodian upon receipt of a complaint from Ministry of Finance invoked his powers of notification u/s 3(2) of the Torts Act and notified 29 entities in the family of Harshad Mehta being Harshad Mehta and his 3 younger brothers, the 3 brokerage firms of M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J.H. Mehta, wives of 3 brothers, 3 HUFs, a partnership firm and several corporate entities promoted by them. That barring M/s. Harshad S. Mehta, the other entities had not undertaken any transactions with the banks and FI’s and therefore were not involved in any offence relating to transactions in securities nor they have violated any law of the land. The Custodian thereby abused his powers of notification and invoked them without giving any Show Cause Notice to take advantage of the prejudice prevailing against Harshad Mehta because of trial by media. The Custodian used his powers to maximize assets under his control even though the objects of the Torts Act mandated recovery of only those monies which were diverted from the banks. Even though Harshad had made unconditional offers to meet all his obligations but yet 29 entities were roped in by the Custodian and such an approach was not followed by the Custodian in case of other notified entities where only the brokers were notified and not their family members even though there was actual apprehension of large losses.
ANZ Grindlays Bank replied to letter of HSM of 02.06.1992 and conveyed its displeasure stating that the letter was mischievous as there were no outstanding transactions. It confirmed having granted only the routing facility to HSM as its valued customer. It called upon HSM to narrate the facts to relate the facts relating to his transactions with NHB which had led to a situation where RBI directed ANZ Grindlays Bank to pay to NHB Rs.506.53 Crores in respect of 7 pay orders deposited by HSM with ANZ Grindlays Bank.
The Hon’ble Special Court passed an order remanding Harshad to custody and granting bail to all other accused including Ashwin Mehta on very stringent conditions. They were asked to surrender passport, prohibited to travel outside Bombay, that they must report to CBI daily from morning to evening and prohibited from meeting prosecution witnesses including the employees and the business contacts. They were not permitted to attend office.
The Hon’ble Special Court passed an order in MA 14 of 1992 where Dr. Hitesh Mehta, a surgeon and younger brother of Harshad asked for release of Rs.30,000/- from his attached bank account to meet the expense of surgery of kidney stone. This relief was sought because the salaries earned by Dr. Hitesh Mehta from Nair Hospital were also getting deposited with the Custodian who was managing his other attached assets running into crores. He pleaded that atleast his salaries can be released and the amount can be spent on treating himself. The Special Court rejected the application by holding that notified persons must now learn to live like an ordinary citizen and he could not expect luxuries and special treatment and can always go to a Government hospital and get the kidney stone removed.
RBI issued a Circular to all the banks reiterating that the accounts maintained with RBI should be used only for the purposes of fulfilling statutory obligations and not for facilitating credit to accounts of third parties. It is revealed that banks have credited cheques drawn in their favour by other banks to the accounts of constituents even when they are not named as the beneficiaries. If the bank gives such credit, it does so at its own risk and therefore the banks were advised to give credits only if accompanied by instructions to that effect. The circular recognizes that as per a market practice the banks were previously crediting the proceeds in customer’s account and which was discontinued only after the alleged scam. RBI knew for several years the above widely prevalent market practice.
The Custodian issued a Public Notice informing the names of entities notified by him u/s 3(2) of the Torts Act and explained that due to such notification the assets of such entities got simultaneously attached u/s 3(3) of the Torts Act and which included assets lying in the hands of third parties and further explained that such attached assets can be dealt with only under orders of Hon’ble Special Court. The public was called upon to disclose the outstanding transactions with the notified persons and report if any assets and monies belonging to them are held by it so that the same can then be handed over to the Custodian. It was conveyed that no transactions of any kind and in any manner relating to such properties is permissible except as directed by the Special Court nor can any movable property be removed or taken possession of without the consent of the Custodian.
NHB addressed a letter to Custodian in reply to Custodian’s letter dated 16.09.1992 and stated that it was jointly holding the safe custody with RBI certain shares, bonds, securities etc. as per Annexure-1 delivered by M/s. Growmore Research & Assets Management Ltd. the details of which were furnished in enclosed annexures of a face value of Rs.258 Crores. NHB confirmed that after notification they had not dealt with in any way the abovementioned securities.
Upon release on bail Harshad took the following steps:
Harshad was summoned to depose before a Joint Parliamentary Committee (JPC) constituted to investigate the securities scam and he appeared before the Committee on 12th and 13th November 1992 and made elaborate deposition. In order to properly avail the above opportunity, on 09.11.1992 he requested the Committee for a permission to make a slide presentation and provided 40 copies of his presentation for circulation amongst the members. Harshad presented both complete facts relating to his business and assets and liabilities and also regarding the functioning of the money market and the genesis of how under compulsions to make profits the banks took to trading in Government securities and other money market instruments. He assured the Hon’ble members that no loss would be caused to any banks and stated that several aggressive trading strategies were introduced in money market by Citi Bank. He made grievances about lop-sided investigations and how they were sensationalizing and exaggerating the exposure figures. He also explained how the banks had offered routing facility to leading brokerage firms and that the brokers were not governed under RBI guidelines but instead governed by SCRA, 1956 and Rules, Regulations & Bye-laws framed by BSE, 1957. He stated that he had helped the process of creation of wealth for the investors and the country had a great future. He asserted that capital market can singularly change the face of this country and can serve as a powerful engine to catapult the country in a much higher and faster growth. The investment of the Government in public sector was a millstone in its neck which can be profitably sold in a healthy market and the mounting debt of the Government could be liquidated through that which in turn can create an option for reduction of taxes across the board.
SBI addressed a letter to Investigating Officer being a Dy. Superintendent of Police, CBI in reply to its letter dated 24.12.1992 calling upon bank to give its clarification in respect of non-delivery of securities by M/s. Harshad S. Mehta. SBI admitted to receipt of Rs.622.52 Crores from HSM which were used to purchase the securities not delivered to the bank and there existed a surplus of Rs.22.57 Crores. The note confirms that even on account of dealings with other brokers, there were such delays in delivery of securities leading to a loss of interest of Rs.28.84 Crores. SBI in its reply to CBI has not alleged any violation of law nor attributed any criminality to Harshad.
Harshad addressed a letter to Custodian informing him that a packet of money market securities valued at Rs.250 Crores was lying with National Housing Bank (NHB) which may be recovered on his behalf. The above assets were since partly recovered realizing a sum of Rs.403.88 Crores which amount was paid over to SBI in the year 2002. The balance recovery is pending.
Harshad addressed a letter to Custodian informing him that 3.71 Crore Units of UTI valued at Rs.70 Crores were lying with SBI Capital Markets Ltd. which may be recovered on his behalf. The credit for above Units was offered by SBI Caps after falsely denying the claim but the claim for recovery by Smt Jyoti Mehta remains pending which runs into several hundred crores. While making a false claim on Harshad, both SBI and SBI Caps suppressed the details of about 3.71 Crore Units held by them belonging to Harshad but the Hon’ble Special Court got the matter investigated and after seeing its findings the credit for 3.71 Crore Units of a much smaller amount of less than Rs.51.99 Crores was granted taking advantage of the sudden demise of Harshad Mehta and inability of Smt Jyoti Mehta to represent his estate.
Harshad addressed a letter to SBI seeking copy of bank statement of his bank account maintained with SBI with details of break-up of cheques received and paid date-wise. He stated that in the past SBI had furnished bank statement only depicting the net figures and therefore requested for itemized break-up of the said net figures. This letter was forwarded to Custodian stating that such a statement was sought from SBI to commence the process of reconciliation and in case SBI had given the same to the Custodian it may be provided to him.
SBI replied to Harshad’s letter dated 25th February 1993 stating that there is nothing on record to show that SBI has offered any facility to carry out money market transactions and the matter was under investigation by the CBI. That on bank’s scrutiny of the transactions, it has been observed that Harshad had been bringing banker’s cheque and taking banker’s cheque against the same as well as conveying debit/credit instructions many times orally, details of which were known to Harshad and the bank employees who were at the operating end of the Securities Division at the material time were aware. It is rather astonishing that you seek details of your own transactions which are available with you. SBI acting illegally even refused to provide the bank statement of the account maintained by M/s. Harshad S. Mehta with SBI so that he is paralyzed and not able to carry out a reconciliation to find out the money market assets recoverable by him from SBI and every other bank and therefore even till date there is strong apprehension that assets of Harshad have been usurped by banks which are yet not discovered due to impediments created by SBI and other banks. On the false stand of SBI about the routing facility, the Hon’ble Special Court in Para 24 to Para 32 of its order dated 24.10.1996 passed in MA 185 of 1993 has come to the conclusion that it was amply clear that M/s. Harshad S. Mehta was enjoying such a routing facility and this fact is also borne out from public documents like Janakiraman Committee Report and the Report of Joint Parliamentary Committee. Later in the year 2000 when it suited SBI, it admitted to granting such routing facility to HSM and the prevalence of market practice to give credit to clients against Pay Orders drawn in the name of the bank.
Harshad addressed a letter to Custodian informing him about a claim for recovery from SBI on account of outstanding transactions for an amount of Rs.447.22 Crores out of which the claim for difference in prices funded by Harshad itself amounted to Rs.125.86 Crores. The claim for recovery has not been lodged by the Custodian till date and thereby huge amount has remained recoverable from SBI.
The Hon’ble Special Court passed an order in an Application filed by revenue seeking release of Rs.200 crores towards its claims being MA 107 of 1993 which was rejected. The Hon’ble Special Court criticized the conduct of revenue by holding that “the department by continuing to act, as if it is not concerned with what has happened, is creating innumerable problems. The Government must now consider restraining the Income Tax Department from levying interest and penalties on notified parties at this stage. This so that the collection & distribution is in an orderly fashion. I clarify that the Court is not suggesting that the rights and powers of the department be curtailed and abrogated in any manner. But it would be better, if they wait patiently like others.”
Harshad addressed a letter to Shri Ram Niwas Mirdha, Chairman, JPC and stated that he had addressed a letter to the Custodian requesting him to furnish to the Committee a Report on his assets and liabilities so as to prove beyond doubt that no loss will be suffered by the nation on his account. He further conveyed as under:
The Hon’ble Special Court passed an order in MA 53 of 1993 filed by Custodian against Canbank Financial Services Ltd. (Canfina) for recovery of PSU Bonds being 13% NLC Bonds of Rs.5 Crores f.v. Admittedly a payment of Rs.448,12,671.23 (Rs.4.48 Crores) was made to Canfina on 22.02.1993 against a BR but thereafter Canfina acting dishonestly refused to deliver the Bonds. The Hon’ble Special Court strongly criticized the stand taken by Canfina being a nationalized body but advancing contentions which were patently dishonest. It was held that in these transactions very often the selling institute or bank may not have actual securities in their possession. It is only finally at the end, that after adjustments, delivery of actual securities takes place. BR is in the nature of a document or title to the equivalent of the securities mentioned therein. It is a proof of the control of the possession or control over the equivalent of the securities mentioned therein. That by issuing a BR an obligation to deliver 13% NLC Bonds of Rs.5 Crores f.v. has been undertaken. Accordingly Canfina was directed to deliver the Bonds and interest accrued thereon. The conduct of Canfina was criticized further in Para 11 of the order as under:
The Hon’ble Special Court passed a combined order in MA 120 of 1993 and other applications filed by the Custodian to seek disclosure of assets by Mehtas as on the date of their notification on 08.06.1992 and to seek approval for appointment of Chartered Accountants to draw the books of accounts and arrive at the asset and liability picture
RBI addressed a letter to Custodian stating that during the course of the reconciliation of investment accounts of banks, certain outstanding transactions have come to its notice where the banks are holding securities which are yet to be delivered. A note indicating the details of such transactions was enclosed according to which the following assets of HSM were found to be lying with banks:
Harshad and all his associate entities jointly filed MA 215 of 1993 before Hon’ble Special Court joining the Custodian, CBI, Income Tax, Stock Exchanges and banks and FI’s as parties to place a plan of repayment before it. The repayment scheme was submitted to offer immediate appropriation of certain money market assets belonging to Harshad Mehta but also subject to the counterclaims of HSM on banks. It was prayed that barring Harshad Mehta, all other entities may be de-notified.
SEBI issued a Circular for introduction of a new regulation from 01.01.1994 under which the brokers were directed to open separate accounts for clients to keep their monies and securities. Thus, no such Regulation existed when M/s. Harshad S. Mehta was actively undertaking transactions with banks in money market on a principal-to-principal basis. and crediting the cheques into his account as per the law prevailing then. Thus crediting of cheques into HSM’s bank accounts did not violate any law much less is amounted to any offence of siphoning off monies belonging to banks.
The Hon’ble Special Court passed and order in MA 270 of 1993 filed by Custodian to seek relief of appointment of 3 independent firms of Chartered Accountants to draw the books of accounts and audit and verify them for the period covering 01.04.1991 to 06.06.1992 and arrive at the asset and liabilities picture. The CBI and Income Tax department were directed to assist these Chartered Accountants by handing over to the Custodian all computers, floppy disks, hard disks and Income Tax department was directed to render all assistance and to supply such information as they have already gathered. These Chartered Accountants were empowered to summon evidence and carry out verification of each and every transaction undertaken by Mehtas so that factually an accurate picture emerges of the assets and liabilities of each notified entity. Admittedly, these Chartered Accountants could not draw the books of accounts and therefore Mehtas extended full co-operation by drawing the books of accounts and placed them before these independent Chartered Accountants for their audit and verification which was extensively carried out by them. Unfortunately now for past 22 years the IT department is rejecting these books of accounts without even verifying them in complete violation of directions given by Hon’ble Income Tax Appellate Tribunal (ITAT) only in order to sustain / resurrect patently false and highly exaggerated additions.
The National Stock Exchange (NSE) commenced operations.
The Hon’ble Special Court passed an order in MA 269 of 1993 filed by Custodian against Standard Chartered Bank (SCB), Harshad S. Mehta and Growmore Research & Assets Management Ltd. for recovery of 50 lakh Units from SCB with accruals thereon. It was observed by the Hon’ble Special Court as under:
At the behest of letter addressed by Harshad the Custodian filed the claim and several contentions raised by SCB to deny the claim were overruled and directions issued to return the 50 lakh Units to Custodian.
The Hon’ble Special Court passed an order in MA 101 of 1994 filed by Custodian for recovery of 3 securities being attached assets from ANZ Grindlays Bank in which Standard Chartered Bank was Respondent No.2, M/s. Harshad S. Mehta was Respondent No.3, M/s. Growmore Research & Assets Management Ltd. was Respondent No.4, NHB as Respondent No.5 and Power Finance Corporation Ltd. as Respondent No.7. The 3 securities were 9% PFC Bonds of Rs.30 Crores f.v., 13% NPC Bonds of Rs.14.5 Crores f.v. and Festival Boinanza of Rs.50 lakhs which were recovered except that for NPC Bonds HSM was directed to file an Affidavit. On the conduct of SCB the following adverse observations were made:
The Hon’ble Special Court passed an order in Miscellaneous Application No.27 of 1994 filed by Smt Jyoti Mehta in Special Case No.1 of 1993 filed by CBI vs K. Margbandhu & Ors. under which she was discharged from the criminal case filed against her by CBI even before framing of any charges against her. It was held that there is absolutely no material on record against her for charge of conspiracy levelled against her. Thus, even though Smt Jyoti Mehta is held by Hon’ble Special Court not involved in any offence relating to transactions in securities as required under the Torts Act but yet her notification by the Custodian has been continued for past 30 years and large amounts belonging to her have been transferred from her accounts to the account of Harshad to meet claims against him. The Income Tax department and the banks have not established her liability to pay to them for their claims on HSM.
Harshad addressed a letter to Custodian disclosing vast quantities of unregistered shares purchased by Mehtas which were standing registered in the names of other notified entities and requested him to register them in the name of Mehtas. These shares were handed over to Custodian who thereafter did not take any steps to register them for 9 years and then filed MA 332 of 2003 to seek the orders of registration of shares and recovery of all the accruals on the shares from 08.06.1992 onwards. That arising out of the above letter the Custodian till date has not recovered accruals on the shares like dividends, bonus and rights shares from other notified entities amounting to several hundred crores though such recovery is very easy to cause since the assets of other notified entities are also under control and management of the Custodian. In this manner, the Custodian has hurt the interest of Mehtas and passed corresponding benefits on to other notified entities.
Harshad addressed a further letter to Custodian disclosing vast quantities of unregistered shares purchased by Mehtas from the market and requested him to get them registered and recover all accruals on them particularly the bonus shares issued by several companies paid over to previous owners. The Custodian filed 45 Petitions being MP 114 to MP 158 of 1995 (and sample Petition with 2 orders in MP 114 of 1995 is enclosed) and was granted reliefs by Hon’ble Special Court within one year but the above orders have been deliberately not complied with by the Custodian to give monetary benefits to those shareholders who had already sold their shares and received consideration thereagainst. Such recoveries run into several hundreds of crores which are deliberately not caused by the Custodian for past 27 years.
The Hon’ble Special Court passed an order in MA 198 of 1993 filed by PNB Capital Market Services Ltd. (PNB Caps) for claiming title on 9% IRFC Bonds of Rs.8 Crores f.v. This application was rejected on the ground that it had entered into transaction with M/s. Harshad S. Mehta on principal-to-principal basis and not with his banker, ANZ Grindlays Bank Ltd. as falsely claimed by PNB Caps. This conclusion was reached on the basis of evidence relied upon by PNB Caps which established that the transaction was undertaken on principal-to-principal basis between PNB Caps with M/s. Harshad S. Mehta and therefore the subject IRFC Bonds were an attached property liable to be handed over to the Custodian. In Para 24 it was further laid down that the moment M/s. Harshad S. Mehta and M/s. Growmore Leasing & Investments Ltd. were notified all their assets stood attached and it was held that “after the date of attachment, there could be no transfer. If any transfer has taken place after that date, such transfer is an illegal transfer. It would create no rights in favour of the third party. In this case admittedly, the transfer has taken place after 15.06.1992. There is thus no valid transfer. There is thus no completed contract.” The Hon’ble Court further criticized the conduct of banks and FIs in Para 12 of its order as follows:
The Hon’ble Special Court passed an order in MA 107 of 1993 filed by IT department where overruling the contentions of the department it was held that even though the Special Court cannot sit in appeal over the assessment orders passed by the department but it can yet not release any monies towards its demands if they are unjustified to ensure fair distribution amongst the creditors. The Court had to observe the priorities laid down u/s 11(2) of the Torts Act and the objects of the Act would be defeated if the Court cannot go into bona fides of a claim. In that case IT department may make a claim in an absurdly large amount at the expense of other creditors.
The Hon’ble Special Court passed an order in MA 400 of 1994 filed by SCB and criticized the conduct of several big banks and other parties. Court was noticing that many parties including the big banks are not performing their obligations. After notification all properties of notified parties stand attached. The Custodian has issued Public Notice calling upon all parties to inform him if anything is owed to notified parties. Many parties have not replied. They have kept quiet. This probably in the hope that if things do not come to light, they might escape liability. Many of them may ultimately succeed, in as much as limitation is fast running out. If the Custodian does not learn of the claim, he cannot file an Application to recover. Parties including notified parties, do not inform the Custodian. It is possible that there is an understanding between them. Presumably at some stage, after known assets are distributed, there will be an adjustment between them and the notified party. The Court observed that it must take serious note of this tendency to not to disclose. That if it comes to attention of Court that a party has not disclosed for the last over 2/3 years and that it is holding attached assets, then that party must be made to pay a high rate of interest and high costs.
RBI wrote a letter to Custodian in respect of pending recovery of PSU Bonds of Rs.50 Crores from Syndicate Bank belonging to Harshad Mehta and provided complete details as sought for by Custodian to reach the conclusion that the said Bonds belonged to Harshad because he had paid the purchase consideration. The Custodian recovered the above Bonds with accruals on them amounting to Rs.130.73 Crores by filing MP 88 of 1998 but after Harshad’s sudden demise and acting in collusion with SBI he withdrew the recovery claim from Hon’ble Special Court on 06.09.2002.
The Hon’ble Supreme Court delivered its judgment in appeal filed by the IT department to challenge the order of Special Court dated 21.03.1995 which came to be reported as (1995) 5 SCC 200. It was held that Special Court has no power to sit in appeal over or overrule the orders of the tax authorities, the Income Tax Appellate Tribunal (ITAT) or the Courts in regard to the tax liabilities of notified persons. The only power of the Special Court is to determine the priorities in which claims shall be paid. It can decide taking into account the funds available how much can be paid and if full claim is not met provision would have to be made for the balance.
Pursuant to the above order passed by Hon’ble Special Court, the RBI issued a circular on 25.08.1995 to all banks and FIs informing them of the adverse observations made by Hon’ble Special Court against the conduct of banks. RBI called upon the banks to take note of these observations and take suitable action immediately in the matter of declaring to the Custodian within one month the attached assets in their hands under advice to RBI. Even if banks have no attached assets to declare to the Custodian, he should be informed alongwith RBI accordingly within one month. In case banks have a claim against the notified person or the exact extent of the claim is not known, or if banks have genuine doubt as to whom the assets belong, it may take up the matter with the Custodian immediately. RBI warned that any instance of non-disclosure comes to its notice and if it is deliberate or intentional, it would be viewed very seriously.
The Hon’ble Special Court passed an order in MA 255 of 1994 in an application preferred by HSM against PNB Mutual Fund for recovery of 17% NTPC Bonds of Rs.10 Crores f.v. with interest on it. Upon direction given by Hon’ble Special Court, an Affidavit was filed by ANZ Grindlays Bank who had acted as a banker to HSM and disclosed all the facts relating to the transaction and accordingly it confirmed that the said transaction did not pertain to ANZ Grindlays Bank and it had no transaction with PNB Mutual Fund. That the amount received was deposited by it in the account of HSM and further confirmed that no security belonging to it was ever delivered to PNB Mutual Fund. The stand taken by PNB Mutual Fund that it had entered into transactions with ANZ Grindlays Bank was therefore belied. The Hon’ble Special Court in Para 6 laid down the test for finding out the true counterparties as under:
The Hon’ble Special Court also relied upon its following conclusion in order dated 19.08.1995 in MA 219 of 1993:
The Hon’ble Special Court passed an order in MA 221 of 1993 filed by Custodian to seek recovery of 3.5 Crore Units of UTI at the request of Shri Harshad Mehta wherein both Harshad Mehta and Citibank were joined as a party. The claim was lodged by Custodian because of letter of HSM dated 04.03.1993 on which basis Custodian lodged a claim on Citibank for recovery of 3.5 Crore Units of UTI. In its letter dated 29.04.1993 Citibank admitted the Ready Forward transaction and its sale of 3.5 Crore Units on 18.05.1992 @ Rs.14.85 per Unit but on the basis of legal advice denied its liability alleging breach of contract by HSM. A civil trial was conducted where Shri Ashwin Mehta stepped into the witness box and extensively cross-examined and on behalf of Citibank Shri G. Shiva their Vice President stepped into the witness box. After detailed trial, the Hon’ble Special Court granted the claim in favour of HSM and against Citibank and strongly criticized the dishonest conduct of Citibank and its witness Shri G. Shiva as under:
This judgment though long should be read to see the dishonest conduct of Citibank and its witness. Harshad’s allegation that it was not securities scam but truly a “Citibank scam” gets wholly supported by above judgment as Citibank was maintaining more than one set of books of accounts and was putting its own trades in the client’s accounts enrolled as its customers under the Portfolio Management product. Later Citibank paid huge compensations to such customers after its conduct was exposed in media.
The Hon’ble Special Court passed an order in MP 215 of 1995 filed by all the notified entities (Mehtas) seeking relief for release of fees from the attached bank accounts for payments to Advocates and Counsels so as to defend their legal interest by causing recovery of their attached assets from third parties and by contesting the false claims made by banks and revenue on Mehtas. This Petition was rejected by holding that if any expense is incurred before seeking the approval from the Hon’ble Court the same cannot be paid immediately and would be payable at the time of distribution in last priority u/s 11(2)(c) of the Torts Act. That the notified entities had a constitutional right to be represented by the Advocates and Counsels of their choice but such a right was not available so long as liabilities exceeded assets as in that case such payment would tantamount to payment out of monies belonging to creditors. The Court at the relevant time on the available facts felt that liabilities exceeded the assets and therefore the expense was not allowed. However, liberty was given to notified entities that in some cases, if necessary, they can take assistance of the Custodian. It was also held that if assets were greater than liabilities, then the Mehtas had freedom to incur expense as they would like. The Torts Act does not provide for maintenance and livelihood and therefore it is extremely draconian.
The Hon’ble Special Court passed a combined order in MA 573 to 577 of 1995 being applications filed by 2 corporate entities viz. Growmore Research & Assets Management Ltd. and Growmore Leasing & Investments Ltd. and by Shri Harshad Mehta, Shri Ashwin Mehta and Smt Jyoti Mehta to seek relief of payment of salaries to large number of employees working for the above 2 corporate entities and the 3 brokerage firms. Amongst the employees there were some very senior personnel and many junior staff. These applications were partially granted inasmuch as the Hon’ble Court proceeded on the basis that all these entities do not have assets sufficient to meet their liabilities without explaining the basis for such a presumption. It was held that because of excess of liabilities the payments amount to drawing monies belonging to the creditors and therefore it was held that salaries cannot be paid at previous scales which were found to be much higher in comparison to salaries paid to Government employees and accordingly very meagre sums were sanctioned for temporary employment without any benefit of the Provident Funds, Gratuity, Bonus and other statutory dues. That services of drivers, secretaries and security staff was to be dispensed with. The contentions that the staff had first-hand knowledge and expertise which justified higher payments were rejected.
The Hon’ble Special Court passed an order in MP 285 of 1995 filed by Custodian against Modern Chemical Corporation to recover attached asset of Shri Hiten Dalal and the Hon’ble Court held as under:
The Hon’ble Supreme Court passed a judgment in the case of Tejkumar Balakrishna Ruia vs. A.K. Menon Custodian reported as (1997) 9 SCC 123 and set aside the order of Hon’ble Special Court dated 14/29.02.1996 wherein it was held that even the future income of the notified persons will stand attached under the Torts Act. The Hon’ble Supreme Court interpreted Sec.3(3) of the Torts Act and held that only those assets which belonged to the notified person on the date of his notification stands attached and the future income does not get attached. That the conclusion reached by the Special Court would render the Act perilously close as being unconstitutional, for it would deprive the notified person, from even earning a livelihood through begging. So far as shares were concerned it held that all accruals on them in the form of dividends, rights and bonus shares would also constitute attached property.
The Hon’ble Special Court passed an order in MA 185 of 1993 filed by Custodian before Hon’ble Special Court for recovery of 3.71 Crore Units from SBI Capital Markets Ltd. (SBI Caps) with accruals thereon and in which SBI and Harshad Mehta were also joined as parties. The claim of Harshad Mehta made through Custodian under his letter dated 22.02.1993 was opposed by SBI Caps and SBI on numerous grounds all of which were rejected and overruled by Hon’ble Special Court as under:.
The Hon’ble Supreme Court delivered a judgment in the case of BOI Finance Ltd. Vs. Custodian reported as (1997) 10 SCC 488. It laid down the law in regard to Ready Forward (R/F) transactions entered into by banks with brokers and held that the Ready part was legal and the Forward part beyond 14 days was held to be illegal. It further laid down that:
The above judgment makes it abundantly clear that RBI’s private and confidential circulars on banks could not be applied to M/s. Harshad S. Mehta, that routing facility was absolutely legal and that shares purchased by the family members and corporate entities which were already transferred in their names could not be taken away even if Custodian were to establish the Harshad Mehta Group theory because completed transfers cannot be disturbed.
The Hon’ble Supreme Court passed a landmark judgment in the case of Harshad Shantilal Mehta vs. Custodian and Ors. reported as (1998) 5 SCC 1. It resolved the dispute between competing claims of I.T. department and banks on the attached property and also upheld the constitutional validity of Sec.3 r/w Sec.11 of the Torts Act by laying down the following:
Mehtas have been denied benefit of the above binding law which has been violated with impunity by the Custodian and the Income Tax department acting in collusion with each other and a huge amount of Rs.3285.46 Crores have been released to the I.T. department on adhoc and interim basis in complete violation of above law by securing an undertaking to unconditionally bring back the amounts when ordered to do so. The department has repeatedly misrepresented that it has framed the assessment orders in accordance with law and denied that they are high-pitched. Though the I.T. Act does not provide for recovery of dues of “A” from “B” but yet demands on HSM have been recovered from the family members and the corporate entities.
In support of above complete facts and supporting evidence is set out and adduced hereinafter.
The Custodian filed MP 41 of 1999 within less than 1 year of the Hon’ble Supreme Court passing the above landmark judgment in Harshad Mehta’s case. In violation of the said judgment and even before crystallization of liabilities, the Custodian acting mala fide and with the ulterior object to uproot the Mehtas and make them homeless. The Custodian prayed in this Petition to sell the 8 residential flats in Madhuli Apartments being the only residential property in which Mehtas were residing to pay maintenance charges and to meet the demands raised by IT department and other claims.
The Hon’ble Special Court passed an order in Chamber Summons 35 of 1999 in Suit 35 of 1995 where SBI urged:
The Hon’ble Special Court granted the relief to SBI to amend the Suit to discover the truth. SBI can always establish the falsity of NHB’s contentions and that it had been deliberately keeping back the records from the Court. If the transactions were with HSM then SBI had correctly credited the cheques,
The Hon’ble Special Court passed a combined order in MA 150 to 156 of 1999 filed by the I.T. department to seek release of monies which were opposed by Mehtas by relying upon the judgment of Hon’ble Supreme Court in Harshad Mehta’s case dated 13.05.1998 and urging that the demand of the department did not constitute ascertained liability as the matters are pending in appeal before the appellate authorities. It was also contended that till the demands are finally decided upon by the Appellate Authorities no amount should be allowed to be withdrawn. That besides above, asset and liability position was not clear and large number of creditors are also required to be paid from the attached accounts. It was further contended that the assessment in question are ex-parte assessments made by the department and that the amounts paid to the department are more than the taxes payable by them. The above objections were overruled and the Hon’ble Court interpreted the Supreme Court judgment and concluded that “it is clear that the words “Taxes Due” in Sec.11(2)(a) refer to an ascertained liability for payment of taxes quantified in accordance with law. In the present matter, the demands of the I.T. department run into several crores. They are based on the assessment orders passed by the AO. These assessment orders may be subject matter of appeal before the Appellate Authorities. Nonetheless, they would certainly constitute an ascertained liability for payment of taxes.”
The Hon’ble Special Court passed an order in MP 64 of 1998 filed by the Custodian to seek approval to the scheme governing sale of shares.
Mehtas have been aggrieved by the above order because though the Hon’ble Court was not required to sit in appeal and judgment over the assessment orders but yet it made the presumption that the liabilities of Mehtas to pay taxes was much higher and further completely misinterpreted Harshad Mehta’s judgment by coming to exactly contrary conclusions. Due to above, the Custodian acting high-handedly sold all the shares to release monies to the IT department against illegal and high-pitched demands which eventually did not survive and such premature sale of shares have caused losses of Rs.20,677.28 Crores. The sale of Madhuli flats was set aside by Hon’ble Supreme Court under order dated 02.05.2017 in CA 6326 of 2010 by holding that no steps including selling of the same shall be taken until final distribution is made by the Custodian. If this correct principle was applied Mehtas would not have incurred the above stupendous loss of Rs.20,677.28 Crores. The Income Tax demands on the very face of it were preposterous and the department had also itself conceded before Hon’ble Supreme Court in Harshad Mehta’s judgment that exorbitant tax demands can be ignored but yet the Hon’ble Special Court presumed that the false demands were the liabilities of Mehtas to pay tax and now we have conclusively established that such a presumption was incorrect.
The Hon’ble Special Court passed a combined order in several applications filed by the I.T. department to seek release of monies from corporate entities of Mehtas which was opposed on the ground that the date of distribution of assets u/s 11 comes only after all the liabilities of the notified persons are decided upon and such date of distribution would arrive only when the Special Court completes examination of all claims u/s 9A of the Act. That the words “Tax Due” u/s 11 of the Act cannot refer merely to a liability created by the charging section but it must refer to an ascertained liability for payment of tax quantified in accordance with law. That the department was seeking distribution without ascertainment of the liability and the assessees were entitled to go in appeal right upto the highest court and until such time it cannot be said that the liability stood determined. That the corporate entities owed monies to the 3 brokerage firms and if monies were paid to the department under illegal and untenable assessment orders, the creditors being other notified entities will stand deprived. That under interim order of Hon’ble Supreme Court dated 26.08.1996, the amounts were also released for AY 1991-92 and in case of Growmore Research & Assets Management Ltd. the CIT(A) had already deleted several additions because of which the same stood reduced from Rs.58.86 Crores to Rs.20.67 Crores. Thus large amounts were refundable by the department with interest @ 18% p.a. The Hon’ble Court held that it was not necessary to go into above arguments and since Rs.262 Crores were disbursed till date the department was called upon whether it had considered all the above facts but the Advocate stated that he had no instructions. The Hon’ble Special Court thereafter rejected the Application on the ground that department had withdrawn huge amounts for non-statutory period and therefore it cannot be saddled with liability to pay interest and on the ground that the demands of GRAM were already reduced and the Custodian was already earning interest from banks. The Hon’ble Court held that after going through the charts submitted by the department and by the Custodian and looking to the demands raised by the department for statutory and non-statutory periods and look to the amounts lying in Fixed Deposits it would not be possible for the Court to release further amounts. That the Court was of the view that interest earned by the Custodian on FDs provide a better return as compared to disbursement of the amount in favour of I.T. department which is required to give an undertaking to pay interest @ 18% p.a. even if the interest rate was reduced it would impose a larger liability on the Central Government as compared to what the Custodian is earning by way of interest.
The Custodian filed MP 4 of 2001 before Hon’ble Special Court for seeking relief to sell all the offices and other commercial and residential properties of Mehtas on the grounds that after their notification all the entities had ceased to carry out any business and the only work that they were supposed to carry was related to transfer of shares and finalization of accounts and therefore so may premises were not required and there was no necessity to incur expenses of electricity charges (Rs.40 lakhs) and society charges (Rs.36 lakhs) annually. That the said premises were being misused for personal purposes for carrying out other businesses not permitted under orders of the Hon’ble Court. That the overall claims of banks and revenue were extremely high and the corporate entities were nothing but fronts of notified entities viz. Shri Harshad S. Mehta, Shri Ashwin S. Mehta, Shri Sudhir S. Mehta and Smt Jyoti Mehta. The shareholdings of the companies was held by the family and that the funds were being provided by M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J.H. Mehta and therefore their corporate veil was liable to be lifted. The Custodian had a mala fide object to paralyze the entire organization of Mehtas so that they are unable to defend their legal interest.
The Hon’ble Supreme Court delivered a combined judgment in CA No.46 of 1997 with CA No.90 of 1997 being the 2 Appeals preferred by SBI and SBI Caps to challenge the order of Special Court dated 24.10.1996 in MA 185 of 1993. A grievance was made that the Special Court could not have decided the issue on the basis of affidavits and SBI and SBI Caps ought to have been permitted to lead evidence to prove their allegation that there had been a collusion between Harshad Mehta and an employee of SBI viz. one Sitaraman. The Hon’ble Supreme Court held that Suit No.41 of 1995 filed by SBI against HSM was still pending and the main defence was their allegation about collusion between Sitaraman and Harshad Mehta and therefore this aspect could not have been brushed aside as seems to have been done by the Special Court. It was held that the Special Court looking at the nature of the dispute between the parties, should have, therefore not only tried the case as a Suit but should have heard it along with Suit No.41 of 1995. We do agree that the lengthy procedure of the Code of Civil Procedure does not apply and therefore it would have been in order for the Special Court to take any evidence by affidavits and then whenever a request is made and the Court thinks it appropriate to allow cross-examination of the deponents, it may do so. In addition thereto, looking into the object of the Torts Act it would be in order that in appropriate cases wherever the Special Court so feels, it should summon and enforce attendance of persons whom it considers necessary for the purpose of recording their evidence. It was held that when claims are made against the notified party, the Court may form an opinion that it is necessary to examine the notified party or some other person and even if they are not summoned as witnesses by any of the parties before it, but in order to ascertain the truth and to realize all the assets of notified party for the purposes of the Act, the Special Court ought to, wherever necessary, summon the person as the Court witness. This will help in speedy disposal of cases as well as assist the Court in coming to a correct decision. The impugned order was set aside and the case was remanded to Special Court for fresh trial and it should be tried with Suit No.41 of 1995.
Harshad was last arrested and kept in custody for 54 days in Thane jail under a fresh case registered by CBI. In the evening around 7 p.m. he reported to jail authorities of acute pain in chest and heavy perspiration and clarified that his complaint may not be taken lightly in view of his family history and that he was not trying to avoid the custody. The jail authorities had no Doctors nor appropriate medicines and therefore Harshad requested to administer him Sorbitrate which incidentally was provided by his wife and kept in custody by the jail authorities. Sorbitrate gave temporary relief and an opportunity to jail authorities to take emergency steps but they failed to do so for 4 hours and only around 11 p.m. Harshad was taken to a Thane hospital by walking a long distance. The cardiogram confirmed the heart attack and doctors advised immediate admission in ICU. Just when he sat in a wheelchair, he collapsed under a second attack and passed away at 11.10 p.m. If he had received the treatment in time, his life could have been saved but the jail authorities were extremely negligent in taking urgent steps. Despite requests, the family was not even provided the post-mortem report. However, the family did not make an issue out of the above negligence realizing that it will never bring him back. Harshad had no prior history of heart ailment when he died hale and hearty at a very young age of 47 years. In this manner, he received the highest form of punishment even before he was proven guilty by the CBI and which should have made all his detractors happy and satisfied, including Ms. Sucheta Dalal and Shri Debashish Basu who have continued to heap on him completely baseless allegations in their book which has earned for Ms. Sucheta Dalal several years later a Padmashri award.
Harshad expired on 30.12.2001 due to a Heart Attack. His life journey ends here however the family’s struggle began and collectively they have fought and the struggle yet continues……
Smt Jyoti Mehta filed her Affidavit in MP 63 of 1992 which was filed by SBI to seek a decree of Rs.707.56 Crores. She deposed that she was the sole legal heir as per the Will of late HSM and that the two other legal heirs, Smt Rasila Mehta (mother) and Shri Aatur Mehta (Son) had not made a claim on his estate and therefore were seeking to be de-suited. The gist of her offer was as under:
The Hon’ble Special Court passed an order in Chamber Summons No.11 of 2002 in Suit 35 of 1995 and granted the relief prayed for by SBI to administer interrogatories on to NHB in order that the truth emerges before the Hon’ble Special Court. The Ld. Judge held as follows:
The Custodian filed before Hon’ble Special Court MA 436 of 2002 in MP 64 of 1998 to seek the relief of modification in the scheme governing Controlling Block of shares as approved by the Special Court under its order dated 17.08.2000 passed in MP 64 of 1998 and duly approved by Hon’ble Supreme Court under its judgment dated 23.08.2001 passed in CA 7629/30 of 1999. The Disposal Committee and the Custodian on the basis of experience of sale of shares of Killick Nixon Ltd. concluded as under:
Shri Ashwin Mehta filed Affidavit-in-reply in MA 436 of 2002 filed by Custodian in MP 64 of 1998 to seek the relief of sale of “Controlling Block” of shares as Routine Shares. This was strongly opposed on the following grounds:
Hon’ble Special Court passed an order in MA No.436 of 2002 in MP No.64 of 1998 filed by Custodian to seek permission to sell controlling shares of ACC and ATL as routine shares by the Disposal Committee. It was held that at this stage the Application is premature as Custodian has not followed the method applicable to “Controlling Block” of shares as laid down by Supreme Court in order dated 23.8.2001. It was held that the Application appears to have been filed by Custodian only on the basis of an apprehension that the shares could only be sold as routine shares in view of the experience which the Committee got in the case of sale of shares of Killick Nixon Ltd. It was held that Custodian will have to follow the procedure laid down by Supreme Court by inviting offers by advertisement. The Court further held as under:-
Hon’ble Special Court passed an order in MA No.437 of 2002 in MP No.64 of 1998 in respect of application filed by Custodian that since shares of Killick Nixon falling under “Controlling Block” of shares did not receive proper offer, he sought permission to sell them as routine shares without following the second method of selling the shares under the Bulk category. Hon’ble Special Court held that Custodian should first explore the second method which was not adopted till date and therefore it was not possible for the Court to direct the sale of controlling shares as routine shares in view of the Judgment of Hon’ble Supreme Court. Custodian was allowed to sell the shares under Bulk category subject to approval of the Court.
The Hon’ble Special Court passed an order in MP 88 of 1998 which was filed by the Custodian against SBI and Syndicate Bank for recovery of attached PSU Bonds of Rs.50 Crores f.v. being 17% NTPC Bonds of Rs.20 Crores f.v.. The said claim was filed by Custodian on the basis of unimpeachable evidence provided by RBI to the Custodian under letters dated 03.09.1993 and 12.07.1995 to the effect that on 28.03.1992 the payment consideration of Rs.48.73 Crores for purchase of the subject Bonds was paid by HSM to Syndicate Bank on which basis the Bonds were recovered by Custodian under order of Hon’ble Special Court dated 12.01.1999 which with accrual amounted to Rs.130.73 Crores. However, after sudden demise of HSM and acting in collusion with SBI the Custodian withdrew the claim on the Bonds which was already granted by Hon’ble Special Court. In fact, the Custodian withdrew 2 claims against SBI amounting to Rs.1012 Crores as per the chart which is enclosed.
SBI filed an IA 4 of 2002 in Civil Appeal 4146 of 2002 before Hon’ble Supreme Court. The said Civil Appeal had been preferred by NHB against SBI to challenge the order of Hon’ble Special Court dated 04.06.2002 passed in Chamber Summons No.11 of 2002 in Suit No.35 of 1995 and during the pendency of the said Civil Appeal the Hon’ble Supreme Court directed both the parties to settle the dispute through the intermediation of the Government which settlement was signed between them on 30.10.2002. Relief was sought by SBI to declare the packet of securities of Rs.258 Crores deposited by HSM with NHB and which was already recovered by Custodian from NHB does not constitute the property of HSM and should be appropriated towards liquidation of his liability to SBI/NHB and to declare that Custodian had no right, title or interest in said securities and all accruals thereon should be handed over to SBI in terms of its settlement.
The Hon’ble Supreme Court passed an ex-parte order within 5 days in IA 4 of 2002 filed in CA 4146 of 2002 and granted the reliefs prayed for by SBI. In the proceedings in IA 5 of 2002 the Hon’ble Court recorded that the dispute between NHB and SBI has been settled out of Court and terms of settlement have been signed on 30.10.2002 which were taken on record and the Civil Appeal was disposed off in terms of the said settlement.
Hon’ble Special Court passed an order in MA No.381 of 2002 in MP No.64 of 1998 in application filed by Custodian seeking modification in procedure for sale of Bulk category of shares by the Disposal Committee by selling them as routine shares since one case of Ranbaxy Laboratories offer was not received. It was urged by Custodian that since certain scrips in the bulk category do not fetch any offer and monies had to be spent, they may be permitted to sell the shares under routine category. It was clarified by Custodian that at present he does not seek any modification in respect of sale of controlling block. It was stated by Custodian that Disposal Committee does not accept offer which is below the average price in last one year and Custodian should make attempts to get as higher price as possible. The Advocate for Custodian stated that copy of public notice will also be sent to affected notified party to make all possible attempts to bring any better offer which offers would be accepted by the Court. So far as sale of bulk shares in Ranbaxy Laboratories were concerned, Mr Ashwin Mehta stated that he has an offer which he would disclose on affidavit by next morning. The application by Custodian was allowed in terms of prayer clause (a) and (b) with modification to the extent that Custodian shall make one attempt for sale of any scrip falling in bulk category as per the procedure prescribed and copy of the Public Notice shall be sent to the affected notified party. It was held that when offer is received in respect of bulk category, Custodian shall give notice to affected notified party of the date on which the Court is moved for approval of the offer so that he can produce the person offering higher price, which the Court will take into consideration.
The Hon’ble Special Court passed an order in MA 185 of 1993 and observed that SBI as per statement contained in Para 19 of the Plaint of Suit 41 of 1995 it was ready to abide by the statement contained therein and to give credit of the amount stated in paragraph No.19 of Rs.51.99 Crores to heirs of deceased Harshad Mehta. In view of this statement, the Application for recovery of 3.71 Crore Units was not withdrawn by the Custodian. SBI suppressed the material fact from Hon’ble Special Court that earlier under an order of Hon’ble Supreme Court dated 09.10.2001 the Hon’ble Court had already granted the reliefs prayed for by SBI and SBI Caps to lead evidence against HSM and Shri R. Sitaraman, an employee of SBI and prove their allegation that the two of them had acted in collusion with each other. Realising that the value of the subject 3.7 Crore Units with accruals amounted to about Rs.550 Crores and taking advantage of the sudden demise of HSM and inability of Smt Jyoti Mehta to defend the legal interest of HSM, SBI offered credit of a meagre amount of Rs.51.99 Crores in lieu of the subject Units. In fact, the Custodian withdrew 2 claims against SBI amounting to Rs.1012 Crores as per the chart which is enclosed.
The Hon’ble Special Court passed an order in Suit 41 of 1995 filed by State Bank of India to seek a relief of a decree of Rs.189.11 Crores with interest @ 23.25% from the filing of Suit till realisation. That HSM had filed Written Statement denying the allegations and now legal heirs were brought on record but on 04.02.2002 Smt Jyoti Mehta who was present stated that she would be accepting the order of this Court as she does not understand the repercussions of making any Statement. She was given time to enable her to take appropriate legal advice but even after that she has not filed Written Statement or remained present.
The Custodian issued a Public Notice inviting bids for sale of 54,88,850 shares of Apollo Tyres Ltd. (ATL) of Rs.10/- f.v. constituting 15.01% of the equity capital of the company and falling under “Controlling Block” category and framed the Terms and Conditions governing the sale which stipulated that there should be one composite offer for the entire block which was so restrictive that no offers are received and the shares get offered to ATL and its promoters. Full quantity was not offered in gross violation with order dated 16.08.2002 passed in MA 436 of 2002 wherein the Custodian was directed to defer the sale till registration of all shares.
The Hon’ble Special Court passed an order in MP 63 of 1992 being an ex-parte decree of Rs.706.98 Crores awarded in favour of SBI against the estate of late Harshad Mehta with interest @ 15% p.a. leviable from 13.06.1992 onwards till payment. SBI joined 3 legal heirs being Smt Jyoti H. Mehta (wife), Shri Aatur H. Mehta (son) and Smt Rasila Mehta (mother) and averred that they are liable to the extent of their inheritance. This decree was passed on misrepresentation by SBI that Harshad Mehta had already admitted to his liability to pay the said amount. SBI suppressed the affidavit of Smt Jyoti Mehta dated 02.05.2002 in which she had already denied the liability. The decree was awarded by relying upon the Janakiraman Committee Report and the Joint Parliamentary Committee Report. The decree was contrary to the 2 orders previously passed by the same Ld. Judge being order dated 17.02.2000 in Chamber Summons No.35 of 1999 and order dated 04.06.2002 in Chamber Summons No.11 of 2002 where it was held that it was absolutely necessary to ascertain whether the transactions were undertaken by NHB with M/s. Harshad S. Mehta and if that be so then the claim of SBI against NHB was bound to be granted. SBI also deliberately did not give credit for Rs.403.88 Crores which it had already received from Custodian in compliance with the order of Hon’ble Supreme Court dated 26.10.2002 and even Custodian actin gin collusion with SBI despite making payment did not claim credit of Rs.403.88 Crores or contested the claim including for interest at 15% p.a. The Custodian knew that in all previous cases involving Fairgrowth Financial Services Ltd. (FFSL) a notified entity interest was awarded only upto the date of notification dated 02.07.1992, a list of which decrees is enclosed. The mala fide object of SBI and Custodian was to take full advantage of the demise of HSM and inability of Smt Jyoti Mehta to defend the legal interest of HSM.
The Disposal Committee opened two bids and the Custodian submitted a report regarding the sale of 54,88,850 shares of ATL. That pursuant to Public Notice only two offers had been received highest bid being Rs.80/- per share of PNB and did not reject them since they were very low but instead the Disposal Committee decided to sell additional quantity of 8,15,485 shares of ATL notwithstanding very poor bids were received. This was patently illegal act of the Disposal Committee and the Custodian to offer additional quantity after the bids were received which were as it is very low. Such additional quantity could have then benefited only the two bidders and if the shares were offered to ATL and its promoters.
The Advocate for Custodian addressed a letter to Mehtas in regard to the bids invited for sale of 54,88,850 shares of ATL. It was informed that the bids received will be considered by Hon’ble Judge, Special Court in his Chamber on Wednesday, 30.04.2003 at 2:30 pm. It was further conveyed as under:
The Custodian addressed a very urgent but patently illegal letter to Advocate of ATL stating that pursuant to order of Hon’ble Special Court dated 17.08.2000 and order of Hon’ble Supreme Court dated 23.08.2001 the Custodian had issued Public Notice of sale of “Controlling Block” of shares of ATL. It informed that the offers received by the Custodian of sale of shares have already been forwarded to Hon’ble Special Court under the sealed envelope for placing it before the Court and the matter will be taken up for consideration on 30.04.2003 at 2:30 in the chamber. That your company’s management has an option to buy back the shares at the highest offer as may be ascertained by the Hon’ble Court on 30.04.2003 and subject to the provisions of the Companies Act and all Rules, Regulations and Enactment concerning thereto and applicable in case of purchase by your management or Buy Back the shares by your company. That the company was advised that it should ensure their representatives / lawyers to attend and they will have instructions to either accept/reject the offer in the Court at the highest price to be ascertained in the Court on that day. As per order of Hon’ble Supreme Court dated 23.08.2001 only after ascertaining the highest bid it was the discretionary power of Ld. Judge, Special Court to decide whether or not to give option to ATL and its promoters to make bid at the highest price but the Custodian in order to help ATL and its management exercised the powers of the Ld. Judge, Special Court and even before placing of the bids before Hon’ble Special Court invited ATL and its management to participate and come with full instructions. This conduct of Custodian was later criticized by Hon’ble Supreme Court in its judgment in the case of Ashwin Mehta Vs Union of India dated 08.11.2011 (Refer Paras 13, 36 to 38 of the judgment).
“This is in furtherance to our letter dated 28.04.2003, where it was inadvertently mentioned in the last paragraph that you may submit offers if any, that you may have received independently for the sale of the shares belonging to you.” We hereby clarify now that pursuant to the order dated 17th January, 2003 passed by His Lordship, Mr. Justice A.B. Palkar on the Report of the Custodian. His Lordship had directed that when any Public Notice is issued by the Custodian for the sale of bulk shares the notified party should approach the Custodian with their offer, so that at the time of the confirmation of the sale in Court, no problem arises. Therefore no offers, if any brought by you in Court on the said date will be considered.” The above letter from Custodian’s Advocate was illegal and mala fide as in terms of order of Hon’ble Special Court dated 19.12.2002 in MA 381 of 2002 Custodian was directed to give notice to affected notified party of the date on which the Court is moved for approval so that he can produce the person offering higher price which the Court will take into consideration. That even otherwise without making any bids ATL and its promoters were invited to offer bids after ascertaining the highest bid and being owners of the property Mehtas could not have been prevented from procuring a higher bid before the sale was confirmed. The Custodian was orchestrating the sale in favour of ATL and its promoters by preventing Mehtas to get better bids which gets established by the combined reading of letter addressed to ATL and its promoters on 28.04.2003 itself being an illegal communication and the present letter.
The Custodian filed Report before Hon’ble Special Court on the bids received by him in which proceedings ATL and its promoters participated in the Chamber at 2:30 p.m. and they were represented by Sr. Advocate, Shri P. Chidambaram. On enquiry, the Advocate for Custodian as well as the Appellant informed that the market price was Rs.120/- per share and same was ranging between Rs.100/- to Rs.123/- for last 6 months. The Hon’ble Special Court ordered sale of shares in favour of both ATL and its promoters @ Rs.90/- per share in the following manner:
Mehtas filed Written Submissions to oppose the sale of shares as ATL had recently recorded a price of Rs.150/- and because the current price was Rs.120/- whereas the bids were very low. Selling the shares at a deep discount of Rs.30/- per share (25%) would entail loss of Rs.15 Crores which was not justifiable. In view of the average price of Rs.116/- for one year and the book value of Rs.100/- per share and since ATL was doing extremely well and the company had set a target to raise the turnover from Rs.2000 Crores to Rs.5000 Crores in 2 years, the profits of the company were rising sharply and prospects were extremely bright. Despite depressed stock market the shares of ATL were rising and therefore the postponement of sale would logically fetch only better prices. That the scheme governing sale of shares as approved by Hon’ble Special Court and Hon’ble Supreme Court envisaged that “Controlling Block” would fetch substantial premium over the prevailing market price and the Hon’ble Supreme Court had modified the scheme of sale of shares under its order dated 23.08.2001 with a view to maximise the realisation by giving options of selling the shares in the alternative as Bulk category or as routine shares which procedure was bound to be followed. Since best prices were not being realised the procedure prescribed by Hon’ble Supreme Court was bound to be adhered to.
The Hon’ble Special Court passed an order in Chamber in Report of Custodian dated 25.04.2003 in pursuance of order dated 30.04.2003. It recorded that the company and their management disclosed their interse arrangement giving the details as to how they would be purchasing the total lot of 54,88,850 shares. It was clarified that the sale was accepted as joint offer and it is only the interse arrangement that has been conveyed to the Court by way of modalities. The demand drafts as stated in the application were handed over to the Custodian in Chamber. It was directed that balance payment upto 25% was to be made within 7 days and 75% within 15 days of the order. The Written Submissions though taken on record were not dealt with at all by the Hon’ble Court stating that it was not necessary to go into these submissions.
The Hon’ble Special Court passed an ex-parte decree in MP 61 of 1992 filed by SBI Caps to seek a decree against the estate of late Harshad Mehta for Rs.16.25 Crores with interest. It was urged that the property of HSM was already attached and the Petitioners would be satisfied if decree was passed only against the estate left behind by the deceased HSM. The decree was granted with interest @ 15% p.a. instead of 25% p.a. claimed by the Petitioner and it was clarified that for execution of the decree only the estate left behind by the deceased Respondent No.1 can be considered.
The Hon’ble Special Court passed an order in Suit 28 of 1995 filed by Standard Chartered Bank to seek a decree against deceased Harshad S. Mehta for a sum of Rs.774,96,85,661.08 (Rs.774.97 Crores). After demise of HSM the bank had joined 3 legal heirs viz. Smt Jyoti Mehta (wife), Shri Aatur H. Mehta (son) and Smt Rasila Mehta (mother) by making express averments that they were liable only to the extent of their inheritance from the estate of late Shri Harshad Mehta. It was observed that during his lifetime Harshad Mehta had not filed any Written Statement to contest the claim. The two legal heirs viz. Smt Rasila Mehta and Shri Aatur Mehta filed Affidavits that they were not claiming any part of the estate of late Shri Harshad Mehta as his entire property was bequeathed to his wife. The Special Court ordered as follows:
Jyoti Mehta is aggrieved with the findings and conclusion that admission of receipt of monies is not admission of liability to pay and decree could never have been granted on inadmissible material like the Janakiraman Committee Report and JPC Report or on the basis of unproven documents and HSM also had counter claims. ANZ Grindlays acting as his banker could not have admitted to any liability to pay NHB and then seek recovery of the said amount from HSM. The recovery was in respect of Ready Forward transactions which were already held to be illegal by Hon’ble Supreme Court in the case of BOI Finance vs. Custodian reported as (1997) 10 SCC 488.
The Hon’ble Special Court passed an order in MP 14 of 1995 filed by the State Bank of India to seek a decree against deceased Harshad S. Mehta for the amount of loss caused to it because of unauthorised use of money belonging to SBI for various period of time. According to SBI various transactions in securities took place between Mr. Harshad S. Mehta and an employee of SBI and after the alleged scam broke out it undertook reconciliation and scrutiny of transactions and discovered several irregularities. That there was delay in delivering of securities and since monies of SBI were used HSM was liable to make good the losses caused to SBI which loss was calculated at Hon’ble Supreme Court. It was held that Report of Janakiraman Committee is a public document and therefore contents thereof can be relied on by the Court and it can be admitted in evidence without it being required to be proved since no Written Statement was filed and taking material on record the claim was granted against Harshad Mehta under the provisions of the Torts Act by reducing the rate of interest to 15% p.a. instead of 23.25% p.a. claimed by SBI.
The I.T. department filed MA 272 of 2003 to seek release of monies from Mehtas based on complete misinterpretation of judgment of Hon’ble Supreme Court in case of Harshad Mehta dated 13.05.1998 and after making several false and misleading averments as under:
Special Court ordered sale of 12,49,875 shares of ATL @ Rs.175 per share after receiving the bid under bulk category @ Rs.160 per share from J.P.G. Builders Pvt. Ltd. The above shares were sold in less than 4 months @ Rs.175 per share whereas the Hon’ble Special Court confirmed the sale of 54,88,850 shares on 02.05.2003 @ Rs.90 per share which conclusively establishes undue haste shown in sale of shares without complying with the directions of Hon’ble Supreme Court dated 23.08.2001 that if proper offer is not received under the “Controlling Block” of shares then the Special Court should sell the shares under the “Bulk Category” failing which as routine shares. The above shares commanded almost 100% improvement in price in less than 4 months when 12,49,875 shares were sold under the “Bulk Category”. This sale conclusively establishes all the contentions of Mehtas against the sale of shares of ATL ordered by Hon’ble Special Court.
Jyoti Mehta filed an Application MA 278 of 2003 before Hon’ble Special Court stating that she was a housewife and all her assets were under attachment and she was also the sole legal heir of late Harshad Mehta. She made a grievance that for considerable period she was facing acute difficulty in securing legal representation for her own self and her late husband and that in a number of matters they had gone unrepresented due to attachment of all the assets. She stated that she was very keen and desirous of defending and putting up a proper legal representation including to contest sale of her only residential flats as it concerned her shelter and the shelter of her son and she sought help only because her husband had suddenly expired in judicial custody. She sought relief of adjournment of proceedings regarding sale of her residential flats and prayed that the Hon’ble Court may sanction appointment of senior counsel and order release of fees from the attached bank accounts of herself or her husband.
Custodian issued a Public Notice for sale of shares under the “Controlling Block Category” belonging to several entities of Harshad Mehta group as also other notified parties. The offers were invited for 1,62,64,865 shares of ACC of Rs.10 f.v. which included 4,25,677 shares standing registered in the name of Dhanraj Mills P. Ltd. (DMPL) and 12,50,000 shares of Snowcem India Ltd. and the bids were to be submitted by 8.10.2003. The custodian framed the Terms and Conditions governing the sale which stipulated that there should be one composite offer for the entire block.
Mehtas viz. Ashwin, Hitesh, Jyoti, Deepika and Pratima filed MA 316 to 320 of 2003 before Hon’ble Special Court to seek the relief of release from attachment of their shares of ACC for which bids were already invited on the ground that they were purchased by them prior to 31.03.1991 and therefore had no nexus with any tainted monies being 6,78,382 (ASM), 8,99,732 (HISM), 4,65,840 (JHM), 6,43,712 (DAM) and 8,13,365 (PHM) shares of ACC respectively totalling to 35,01,031 shares. As an interim relief it was prayed to stop the sale of the shares on the ground that present bank balance and receivables would be sufficient to meet the legitimate claims and therefore there is no need or purpose of selling the shares of ACC. It was urged as under:
The Hon’ble Special Court passed a combined order in MA 272 of 2003 seeking release of monies to I.T. department which was opposed by the notified entities and SBI. Both notified entities and SBI opposed release of monies relying upon Harshad Mehta’s judgment dated 13.05.1998 and further urged that if monies were released the same will not be brought back by the I.T. department. Overruling the above contentions the Hon’ble Court held that monies are being released to Government of India against an undertaking and therefore they are bound to be brought back. Instead of keeping the monies idle the Government can utilize it for welfare activities of the State and it will save the notified entities from liability to pay interest and accordingly the reliefs were granted.
The Hon’ble Special Court passed an order in above MA 278 of 2003 filed by Jyoti Mehta by rejecting the said application on the ground that “None appears for the Applicant”. In this manner, despite stakes of thousands of crores a widow and a housewife was denied the right to legally defend herself and her husband though our Constitution provides that no person will go unrepresented much less a widow and a housewife. Taking advantage of such a breakdown the I.T. department and the banks through misrepresentation and by acting in collusion with the Custodian secured several ex-parte decrees and orders to foist upon the estate of late HSM huge liabilities including liability to pay interest the effect of which was to make him from a very solvent person to a bankrupt person by preventing him from meeting his genuine obligations and instead blocking up large amounts against false claims which would then entangle him into a prolonged litigation during which period interest @ 15% p.a. would be allowed to be run incurring liability to pay interest of several lakhs of rupees per day. The Custodian abandoned his statutory duty to defend the estate of late HSM and instead stepped into the shoes of the creditors and thereby defeated the objects of the Torts Act.
The above order has already caused losses of Rs.4219.92 Crores out of the losses of Rs.20,677.28 Crores suffered by Mehtas. The shares of ACC if they were not sold in haste before crystallization of liabilities themselves could have met all the legitimate claims of the I.T. department and banks against Mehtas. That Hon’ble Supreme Court had already laid down the law in case of Harshad Mehta that distribution u/s 11(2) may be undertaken only on arrival of date of distribution which would arrive after completion of examination of all claims u/s 9A of the Torts Act. The losses suffered by Mehtas are directly attributable to gross violation of the law laid down by Hon’ble Supreme Court consciously committed by all the 3 organs of the “State” acting in collusion with each other viz. Custodian, I.T. department and banks in the lead of SBI and its subsidiary.
The Hon’ble Special Court passed an order in Custodian Report dated 01.10.2003 recording No Objection by 3 firms of Chartered Accountants to the Custodian for appointment of some other Chartered Accountants for auditing the accounts of M/s. Harshad S. Mehta. The Custodian was directed to take steps to appoint new Chartered Accountants and directed Custodian to place a further Report before the Court on 12.11.2003 for securing its order.
The Hon’ble Special Court passed a combined order in MP 41 of 1999 and MP 4 of 2001 and granted reliefs prayed for by the Custodian by ordering sale of 8 residential flats at Madhuli Apartments and all the offices on the ground that the claims made by revenue and the banks far exceeded the assets even though such claims were disputed, denied and under challenge before appellate authorities. In coercive recoveries residential properties are never sold as the first step and without awaiting the outcome of Appeals and crystallization of liabilities which was in grossest violation of law laid down in Harshad Mehta’s judgment dated 13.05.1998. The offices were ordered to be sold without providing for any alternative place to house the huge records of all the entities and Custodian wanted to paralyze the organisation of Mehtas and uproot the family from their only residential premises so that they are put on the road and unable to defend their legal interest. The Custodian always knew that the family members and the corporate entities had not committed any offence in transactions in securities or violated any law but yet he had an ulterior object of persecuting the whole family even before Harshad could be proved guilty of any criminal offences as alleged by CBI. The above order was therefore challenged by the Mehtas before Hon’ble Supreme Court.
The Custodian without securing an order of approval from the Hon’ble Special Court in regard to the name of the Chartered Accountants and the terms of reference as also of payment of fees proceeded to issue a letter of appointment to M/s. Vyas & Vyas, Chartered Accountants. The Custodian all by himself sanctioned an abnormally large fee equivalent to the fees sanctioned to the previous 3 Chartered Accountants knowing fully well that thereafter the Hon’ble Special Court had uniformly sanctioned fees only @ Rs.4.5 lakhs p.a. being the upper ceiling fixed for fees. The Custodian knew that when the said 3 firms of Chartered Accountants were appointed in the year 1993, no Chartered Accountants were willing to come forward and take such assignments but by the year 2002-03 several Chartered Accountants had agreed to and accepted similar assignments for all the notified entities @ Rs.4.5 lakhs p.a. The Custodian wanted to secure a doctored report from M/s. Vyas & Vyas making adverse observations against the family members and the corporate entities and therefore eventually paid fees of Rs.82.2 lakhs to M/s. Vyas & Vyas (18.25 times of the normal scale) even though they did not complete the assignment of drawing the books of account and auditing them and in fact yet filed a Report which was highly qualified without owning up the accuracy of the findings given by it in reports prepared by it. The Custodian did not have any first hand knowledge and therefore could not have made any allegations or proved them and therefore sought such adverse reports by appointing Chartered Accountants and securing from them such doctored reports.
The Hon’ble Special Court passed an order in MA 270 of 1993 and Custodian’s Report dated 18.12.2003 directing the staff of Harshad Mehta and other entities to be placed at the disposal of Custodian’s office and the notified entities were directed not to interfere with this arrangement. The staff alongwith the computers were directed to be shifted to the office of the Chartered Accountants appointed by the Custodian in relation to the accounts of these entities and such orders were obtained to ensure that Mehtas get completely paralyzed without their staff who had first-hand knowledge and were looking after their affairs. These were extremely high-handed measures adopted by the Custodian only against Mehtas even though the same is not provided for under the Torts Act.
Custodian addressed a letter to Mehtas in compliance with order dated 23.01.2004 informing that the staff along with all the computers are directed to be shifted to the Office of the Chartered Accountants and which will include all the 34 employees though 14 were already working in Custodian’s office.
Custodian addressed a letter to Mehtas in compliance with order of Hon’ble Supreme Court on 05.05.2004 confirming that the sale of properties called upon to deposit the keys with the Office of Custodian latest by 18.05.2004 and thereby granted only 2 days to vacate all the offices with records without giving any alternative space to store them. In fact, records were put on the road and some of the records were handed over to Custodian for custody since there was no arrangement for storing them. The Custodian could always have given adequate time to vacate the offices which had to be vacated without any assistance from any staff who were already asked to report in Custodian’s office by 05.02.2004 under Custodian’s letter dated 04.02.2004.
The Hon’ble Supreme Court in the case of L.S. Synthetics vs. FFSL reported as (2004) 11 SCC 456 which has interpreted the provisions of the Torts Act and laid down the law as under:
The Custodian issued a Public Notice inviting claims against 60 notified entities in compliance with the order of Hon’ble Special Court dated 05.05.2005. However, after receiving the claims the Custodian in violation of order of Hon’ble Special Court dated 05.09.2005 himself decided not to place the same before Hon’ble Special Court and not to proceed with final distribution u/s 11(2) of the Torts Act in respect of any of the Mehtas both individuals and corporates. The Custodian keeps claiming on oath before Hon’ble Special Court and Hon’ble Supreme Court that he does not take any decisions but acts only in compliance with the orders of Hon’ble Special Court. In the present case, the Custodian had ulterior objects of persecuting Mehtas, of retaining control and management of their assets, of conferring huge benefits onto third parties, I.T. department and banks at their expense and in order to perpetuate the notification of Mehtas and to ensure continuation of his office did not proceed with the distribution. Instead he created a false justification in support of his illegal decision and propagated Harshad Mehta Group theory to take away the assets of the family members and corporate entities to meet the claims on HSM and for the purpose did not even file any application to secure such relief from the Hon’ble Special Court.
The Hon’ble Supreme Court passed a judgment in the case of Ashwin S. Mehta vs. Custodian and Ors. reported as (2006) 2 SCC 385 whereunder it set aside the order of Hon’ble Special Court dated 17.10.2003 passed in MP 41 of 1999 ordering sale of 8 residential flats of Mehtas at Madhuli Apartments. but confirmed the sale of offices. The Hon’ble Supreme Court criticized the order of Special Court on several counts and directed it to consider the issue afresh in light of observations made by it. The Hon’ble Court rejected the contentions that the assets of family members can be used for discharge of liabilities of Harshad and instead directed Custodian to prefer claims on the family members for recovery on behalf of M/s. Harshad S. Mehta. It directed the Special Court to follow Harshad Mehta’s judgment since the demands were raised under best judgment assessments and they had not attained finality. The conduct of the Custodian was also criticized as he did not disclose the material in support of his allegations and therefore he was directed to give inspection of all the records relating to the attached assets of Mehtas which he was not parting with for several years.
The I.T. department filed an Affidavit in MP 41 of 1999 to deal with the objections of the notified entities and made false and misleading averments. While it had secured release of monies under the Torts Act, under procedure which was not provided under the I.T Act yet it stated that the refunds would be due to the assessee only by applying Sec.240 of the I.T. Act despite the fact that it had given unconditional undertaking to bring back the monies with interest as and when ordered to do so. It assured that the department would perform duties in a fair and transparent manner and redo the exercise. The Affidavit completely ignores the law laid down by Hon’ble Supreme Court in case of Harshad Mehta Vs Custodian reported as (1998) 5 SCC 1 (Paras 24 to 27 and 39) which precluded any release of monies to the department until its demands becomes final and binding and the date of distribution arrives.
Mehtas addressed a letter to Custodian and informed him that 29 lacs shares of Reliance Industries Ltd. (RIL) valued at Rs.435 Crores were not accounted for by the Custodian in the assets of Mehtas presented before Hon’ble Special Court while proposing sale of their only residential flats. The above shares were discovered by Mehtas through the inspection of records of Custodian as ordered by Hon’ble Supreme Court and these shares were lying in the company representing bonus issue of shares of 1997 issued in the ratio of 1:1. It was apprehended that there were many such other shares which were not being recovered and accounted for by the Custodian in order to understate the assets of Mehtas and to secure orders of sale of their assets by projecting that the liabilities far exceeded the assets in case of Mehtas. In fact, since then Mehtas have been regularly discovering and pointing out to Custodian his deliberate failures in accounting, tracing and recovering our attached assets most of which are lying in the hands of third parties and banks. In fact now for past 22 years the Custodian has been deliberately presenting completely false assets and liabilities picture in violation of law laid down in Harshad Mehta’s judgment by understating the assets and overstating the liabilities. It is ironic that the Custodian wanted to sell the 8 Madhuli flats for a paltry sum of Rs.30 Crores without accounting for in our assets, shares of Reliance Industries then valued at Rs.435 Crores. Since then we have made a herculean effort to find out several such failures of Custodian in not accounting for and recovering our attached properties and actually recovered attached assets of more than Rs.2500 Crores and are vigorously pursuing further pending recoveries of about Rs.5000 Crores. It was because of directions given by Hon’ble Supreme Court against the high-handed methods of Custodian that we could get inspection and copies of about 2 lakh documents in the inspection which were then analyzed to trace and recover our assets which were not being recovered by the Custodian.
Smt Jyoti Mehta filed an Affidavit-in-rejoinder on behalf of HSM to the Affidavit of the I.T. department filed in MP 41 of 1999 wherein the department had supported sale of residential flats of Mehtas on the basis of its demands raised on them. In the main, the following was urged;
14.06.2006 upto 02.08.2006
Smt Rekha Gupta, the then Custodian made adverse observations in the matter of payment of fees to M/s. Vyas & Vyas, Chartered Accountants.
On 27.06.2006 there are further file notings as under:
Finally on 02.08.2006 Smt Rekha Gupta criticized and made the following observations
The I.T. department filed an Affidavit in reply in MP 41 of 1999 filed by the Custodian in rejoinder to Affidavit of Smt Pratima Mehta. Several false averments are made that there was no fault of the department, statutory or procedural in the assessment order. That the revenue was seeking to espouse the cause of justice and acting in utmost good faith and there is no question of distortion of assets and liabilities and denied that assessments were high-pitched. In the main, it contested that while the department was bound by the undertaking given to the Hon’ble Court to bring back the amount if ordered to within stipulated period but in the same breath made a contradictory statement that monies released to the department were appropriation towards the demands and therefore they cannot be added in the assets of the notified persons together with accrued interest on it. That merely setting aside of the assessment order would not entitle the notified entities to a refund as per Sec.240 of I.T. Act.
Mehtas filed identical applications in MP 41 of 1999 seeking a relief that since the Hon’ble ITAT had set aside the assessment orders to the file of the AO for fresh assessment the monies released to the I.T. department may be recalled together with interest and the residential flats may not be sold before crystallization of liabilities. That such monies together with interest on it may kindly be included in their assets and sample Application of Smt Pratima Mehta is enclosed.
The Custodian filed MP 20 of 2006 against Smt Rasila Mehta and Smt Rina Mehta praying for relief to declare them as front and benamidars of Harshad Mehta and other Mehtas and to allow use of their assets to meet the claims against Harshad Mehta and others. In the alternative the Custodian prayed for decrees against Smt Rasila Mehta of Rs.86.36 Crores and Smt Rina Mehta of Rs.59.32 Crores for amounts payable by them to the 3 brokerage firms in the family. This application was filed by the Custodian with the mala fide intent to take away the assets of two non-notified family members of HSM only because they had appreciated very sharply. The Custodian was incompetent to make above allegations as he had no first-hand knowledge of any transaction prior to 06.06.1992 when he got appointed and therefore could never have proved them. The material of report of Chartered Accountants, M/s. Vyas & Vyas could also not have proved the baseless allegations levelled by Custodian. The Custodian resorted to a novel concept of declaring the persons as fronts though it is not defined in law and to declare the persons as benamidars as only transactions are benami transactions and a person cannot be declared as a benamidar without the Custodian alleging any transaction to be benamidar. The Custodian wanted to by-pass very well-settled law that completed transactions and transfers cannot be disturbed under the Torts Act and also wanted to by-pass Sec.4(1) of the Act.
Smt Rasila Mehta and Smt Rina Mehta filed their Affidavits in MP 20 of 2006 strongly opposing the Petition of the Custodian.
The Custodian issued a Gazette Notification declaring Smt Rasila Shantilal Mehta (mother) and Smt Rina Sudhir Mehta as notified persons u/s 3(2) alleging after 15 years that they had been involved in the offences relating to transactions in securities on the basis of completely false, frivolous and got-up complaint filed by Canfina with the Custodian even though Canfina owed large monies to HSM and had defaulted in performing several transactions with his brokerage firm and which complaint is enclosed. The Custodian grossly abused his powers of notification as:
The Custodian withdrew MP 20 of 2006 filed against Smt Rasila Mehta and Smt Rina Mehta with the liberty to file the same again. However, in past 15 years the Custodian has never filed the above Petition again and therefore it is liable to be presumed that he has given up his allegations and case of fronts and benamidars against these 2 persons.
The Advocate representing Smt Jyoti Mehta (legal heir of late HSM) made a ‘Without Prejudice’ offer to ANZ Grindlays Bank by offering to pay the entire principal sum of Rs.506.53 Crores as and by way of a full and final settlement. In the alternative, a request was also made to the bank to support the efforts of Smt Jyoti Mehta and Shri Ashwin Mehta in contesting false claims of the I.T. department on late Shri Harshad Mehta since that would enhance the distributable corpus.
Smt Jyoti Mehta filed before Hon’ble Special Court MA 114 of 2007 inter alia praying for the relief of disclosure from the Custodian why he had not given credit to HSM for payment of Rs.590.83 Crores paid by him to SBI and disputed the picture of liabilities presented by the Custodian.
It is ironical that the same Ld. Judge even after his above order was upheld by Hon’ble Supreme Court through their judgment in the case of DCIT Vs SBI reported as (2009) 2 SCC 451 later under his order dated 25.02.2011 in Report 9 of 2010 ordered release of Rs.1995.67 Crores to the I.T. department out of which Rs.1635.14 Crores were released on account of claims of I.T. department on HSM even though the department had not refunded Rs.546.22 Crores with interest as directed above. The I.T. department had never applied for release of such an abnormally large amount but had orally prayed for release of some amounts to it. The order of assessment for AY 1992-93 in case of HSM has been quashed and set aside and therefore Smt Jyoti Mehta on 12.02.2019 applied for refund of Rs.3803.90 Crores but yet the amount is not being refunded by the department.
The Hon’ble Special Court passed an order in MA 275 of 2006 and in other cases filed by Smt Pratima Mehta. Since the department had passed fresh assessment orders and determined incomes at still higher level, the relief prayed for by Mehtas were denied and sample order is enclosed.
The Hon’ble Special Court passed an order in MP 41 of 1999 once again ordering sale of the 8 residential flats at Madhuli Apts. on the ground that the liabilities were far in excess of the assets and by rejecting the contentions of Mehtas that the claims made by revenue were high-pitched and illegal and they were under challenge and therefore their flats may not be sold. They disputed the assets and liabilities picture presented by Custodian by showing that their assets were understated and liabilities were grossly overstated. The benefit of the law laid down by Hon’ble Supreme Court in the case of Harshad Mehta vs. Custodian was once again denied to them but subsequently each member of Mehta family had secured reliefs from appellate authorities and therefore now the assets of each member are greater than their liabilities. Had the sale of flats been confirmed, there was no way they could got them back besides the fact that the flats were proposed to be sold at virtually one-fifth of their true value. The original valuer had obliged the Custodian and therefore when the valuation was challenged at the instance of Mehtas, a new valuer was brought whose valuation was vastly higher by several times than the original valuer. Being aggrieved by the above second order of sale, Mehtas challenged the same for the second time before Hon’ble Supreme Court.
The Hon’ble Supreme Court delivered their combined judgment titled as DCIT Vs SBI reported as (2009) 2 SCC 451 in Appeals filed by SBI and I.T. department to challenge the order of Special Court dated 29.09.2007 and held as under:
For past 13 years both the banks and the I.T. department has not made compliance with the directions to adjudicate on two remanded issues of facts nor the Hon’ble Special Court has made compliance nor any extension of time for making compliance was applied for after 2010. The Custodian, I.T. department and the banks have instead colluded with each other by propagating the Harshad Mehta Group theory under which from 2011 onwards more than Rs.2500 Crores have been drawn and transferred from the account of family members and corporate entities to the account of HSM which has been used to meet the claims of I.T. department and banks on HSM. The banks have already withdrawn from Hon’ble Special Court their applications seeking scaling down of income of HSM despite winning their matters before Hon’ble Special Court and Hon’ble Supreme Court. In essence, the funds belonging to banks which have been wrongly taken away by the I.T. department are not being sought back from the department by all the 3 organs of “State” acting in collusion with each other and as a reward for brazenly violating the above judgment and order of Hon’ble Supreme Court have used the monies of the family members and corporate entities.
The Hon’ble Supreme Court passed a second judgment in respect of Madhuli flats titled as Jyoti Harshad Mehta vs. Custodian and Ors. reported as (2009) 10 SCC 564 whereunder it once again set aside the second order of Special Court dated 25.07.2008 passed in MP 41 of 1999 ordering sale of 8 residential flats at Madhuli Apartments. The Hon’ble Supreme Court while setting aside the second order of sale made strong adverse observations against the Ld. Judge, Special Court and held that there was non-application of mind as the submissions of Mehtas were not considered and it is well-settled law that “justice must not only be done, but also must be seen to be done”. It directed the Special Court to consider matter afresh strictly in the light of the earlier judgment passed in Ashwin Mehta as well as the observations made in the above judgment.
Smt Jyoti Mehta challenged 5 ex-parte decrees and one order passed by Hon’ble Special Court in favour of banks on the ground that the decrees and orders have been secured by the banks by playing a fraud on the Special Court and by acting in collusion with Custodian and therefore the same may be declared as nullity, nonest and void. It was urged in case of 2 largest decrees that Harshad had already denied the liability to pay the claims made by SBI and SCB of Rs.707 Crores and Rs.506 Crores but yet both the decrees were awarded on admission of liability, HSM was not given credit for Rs.403.88 Crores already paid to SBI and for other attached assets held by NHB and SBI which were suppressed from Hon’ble Special Court. The banks took full advantage of the sudden demise of Harshad in jail and of the fact that Smt Jyoti Mehta, his widow was unable to defend his legal interest. The Custodian who had a duty to contest the “patently illegal claims” instead supported them and despite knowing that in terms of settled law HSM was not liable to pay any interest for the period covering his notification, yet did not object to awarding interest on the decrees at 15% to 18% p.a. so that HSM becomes bankrupt and the above banks are rewarded with interest of thousands of crores. Custodian also knew that in each and every case of Fairgrowth Financial Services Ltd. (FFSL) decrees were awarded carrying interest only upto their date of notification i.e. 02.07.1992 and even the precedents set in 2 cases of Mehtas where interest was awarded only at 6% to 7% p.a. SBI also fraudulently secured a decree for damages of more than Rs.800 Crores for damages which were not suffered by it and which were never proved before Hon’ble Special Court. The Hon’ble Supreme Court is due to hear the above Civil Appeals, particulars of which are enclosed.
The Hon’ble Special Court passed an order in Custodian Report 19 of 2008 wherein the Custodian sought a direction that the occupants of 8 flats at Madhuli Apts. should be directed to vacate the flats for failure to pay maintenance of Rs.1,62,80,811/- within a period of 4 weeks from their future income. This was one more mala fide attempt to throw out Mehtas from their residence even though Hon’ble Supreme Court had set aside the sale of their flats under two prior judgments as cited earlier.
The Hon’ble CIT(Appeal) passed orders in case of Harshad for AY 1992-93 and AY 1993-94. While marginal reliefs were granted but at the instance of AO, he enhanced the income of HSM for above 2 assessment years u/s 251(2) of the I.T. Act after 15 years by Rs.454.82 Crores and Rs.710.02 Crores respectively totalling to Rs.1164.83 Crores. These incomes were enhanced on the basis of Report of Chartered Accountants, M/s. Vyas & Vyas, which admittedly was prepared by the said Chartered Accountants under orders of Hon’ble Special Court and delivered to Custodian in the year 2004. Smt Jyoti Mehta is grossly aggrieved by the above 2 orders on the following grounds:
Being aggrieved by the above order and the erroneous assets and liabilities picture for the third time the Mehtas challenged the above order before Hon’ble Supreme Court and filed CA 6326 of 2010. During the pendency of the above appeal, Mehtas vigorously contested the false claims of I.T. department and met with a huge success, made efforts to recover their attached assets which had not been deliberately recovered by the Custodian and completely turned around the position.
The Hon’ble Special Court passed identical orders in 6 Misc. Petitions being MP 5 to 10 of 2009 filed by Smt Jyoti Mehta to seek the relief of declaration of 5 ex-parte decrees awarded to SBI, SCB, SBI Caps and 1 ex-parte order permitting Custodian to withdraw the claim for recovery of attached assets of HSM as nullity, nonest and void, on the grounds that these orders were obtained by playing a fraud on the Hon’ble Special Court and by acting in collusion with the Custodian. It was urged by Smt Jyoti Mehta that she discovered the above acts of fraud and collusion much later after seeking inspection of records from Special Court in the year 2007-08 and after further verification of records.
Smt Jyoti Mehta challenged the order of Hon’ble Special Court dated 08.06.2010 passed in MP 8 of 2009 before Hon’ble Supreme Court being CA (D) 25366 (later renumbered as CA 9342 of 2010). Even other 5 orders passed by Hon’ble Special Court were similarly challenged by Smt Jyoti Mehta since she is aggrieved both by the original ex-parte orders and later by identical orders passed by Hon’ble Supreme Court on 08.06.2010. A compilation of synopsis of the above 6 Appeals are enclosed together with a tabulated list of the same. According to Smt Jyoti Mehta the decrees are illegally obtained without giving credit of large amounts due to Harshad Mehta on account of his assets lying with them and other counter claims including the two claims withdrawn by the Custodian to confer huge favour on to SBI. The 2 largest decrees of Rs.706.54 Crores in favour of SBI and Rs.506.53 Crores in favour of SCB were obtained by misrepresentation that Shri Harshad Mehta had already admitted to the liability to pay though they were expressly denied by him. In 3 decrees, SBI failed to give credit of Rs.592.49 Crores which was later on reluctantly given by it after passage of 8 years only when Smt Jyoti Mehta placed the facts regarding the acts of fraud and collusion perpetrated by SBI in obtaining the 3 ex-parte decrees and even Custodian then completely changed his stand and these 6 appeals are pending hearing.
The Hon’ble Supreme Court passed a combined order in 3 Civil Appeals filed by Smt Jyoti Mehta to challenge the identical orders passed by Special Court on 08.06.2010 in Civil Appeal (D) 25366 of 2010 (since renumbered as CA 9342 of 2010), CA(D) 25364 of 2010 (since renumbered as CA 9338 of 2010), CA(D) 25365 of 2010 (since renumbered as CA 9339 of 2010). The Hon’ble Supreme Court was pleased to grant the relief of “Issue notice”. The above Civil Appeals challenging the ex-parte decrees and the orders of Special Court are pending.
The Hon’ble Supreme Court passed an order in Interim Application No.2 of 2010 filed by SCB in Civil Appeal 2672 of 2009 where in it had challenged the order of Hon’ble Special Court dated 03.04.2009. The Hon’ble Supreme Court issued the following directions:
The I.T. department filed MA 21 of 2011 before Hon’ble Special Court against Mehtas to seek release of Rs.1865.72 Crores towards its demands for tax against several notified entities and by joining all the banks SBI and SCB as party Respondents. It was misrepresented that the demands are crystallized based on assessment orders/appellate orders passed after giving full opportunity to the assessees and after providing all the documents/records to the assessees and that therefore the assessments no longer remain best judgment assessment and the liability of Income Tax cannot be scaled down by the Special Court.
Smt Jyoti Mehta filed Affidavit-in-reply in MA 21 of 2011 strongly opposing release of monies to the I.T. department. Affidavits were also filed by other family members almost on identical lines.
The Hon’ble Supreme Court passed an order in Interim Application No.3 filed by Mehtas in Civil Appeal 6326 of 2010. The Hon’ble Supreme Court issued following directions:
It has been brought to our notice that pursuant to the said order, notices of hearing have been issued by the Special Court to all the parties concerned, including the family members of the Harshad Mehta Group.”
SBI filed MA 36 of 2011 before Hon’ble Special Court seeking release of monies to it against the decrees. However in paragraphs 23 and 24 it offered to HSM a credit of Rs.592.49 Crores after 8 years of payments already made to it by the Custodian. This credit was given only after Smt Jyoti Mehta discovered the fraud played by SBI in obtaining the decrees in collusion with Custodian and after the Hon’ble Supreme Court granted reliefs to Smt Jyoti Mehta of “issue of notice” in 6 Civil Appeals filed by her after vehemently denying through 3 Affidavits filed by Custodian in MA 114 of 2007 that any credit is liable to be given by SBI to Harshad the Custodian completely changed his stand after SBI offered the above credit and reduced his liabilities in the fresh assets and liabilities picture presented by the Custodian before Hon’ble Special Court. By the above act of SBI retrospectively giving 3 credits amounting to Rs.592.49 Crores, the allegations of Smt Jyoti Mehta against SBI and Custodian that the decrees were obtained by SBI playing fraud on Special Court and by acting in collusion with Custodian gets conclusively established. SBI obtained the ex-parte decrees taking full advantage of the sudden demise of HSM.
The Hon’ble Special Court passed an order in Report 9 of 2010 filed by the Custodian directing payment of Rs.1995.67 Crores to I.T. department and about Rs.225 Crores to banks and Mehtas are aggrieved by this order for following reasons:
The above order of Hon’ble Special Court has indefinitely postponed the final distribution since the revenue which has illegally taken away a huge amount of Rs.1995.67 Crores is not refunding them even after its false claims are already deleted by the appellate authorities. HSM in this manner has been prevented from meeting claims of genuine creditors and the liability to pay interest has kept on mounting on him so as to make him bankrupt. It is settled law that a “discretion” when applied to a Court of justice means discretion guided by law. It must not be arbitrary, vague and fanciful but legal and regular.
The Hon’ble Supreme Court passed an order upon listing in Civil Appeal (D) No.6671 of 2011 filed by Mehtas to challenge the above order of Hon’ble Special Court dated 25.02.2011. The Hon’ble Supreme Court issued notice and refused to stay the impugned order. However, it issued the following clarification:
The Hon’ble Supreme Court passed a combined order in 3 previous Civil Appeals and 3 fresh Appeals filed by Smt Jyoti Mehta to challenge the identical orders passed by Special Court on 08.06.2010 in Civil Appeal (D) 32659 of 2010 (since renumbered as CA 3285 of 2011), CA(D) 32708 of 2010 (since renumbered as CA 3284 of 2011), CA(D) 32711 of 2010 (since renumbered as CA 3286 of 2011). The Hon’ble Supreme Court was pleased to grant the relief of “condoning the delay” and once again directed “Issue notice”. The above Civil Appeals challenging the ex-parte decrees and the orders of Special Court are pending adjudication before Hon’ble Supreme Court and according to Smt Jyoti Mehta the said decrees are liable to be declared as nullity, nonest and void.
The Hon’ble Supreme Court passed a judgment in the case of Rasila S. Mehta Vs Custodian reported as (2011) 6 SCC 220 upholding the notification of Smt Rasila Mehta and Smt Rina S. Mehta. The Hon’ble Supreme Court rejected the contentions of the Appellants. However this judgment has thereafter been deliberately misread and misinterpreted by the Custodian to state that the Appellants were held to be members of alleged Harshad Mehta Group and therefore their assets are liable to be used to meet claims on HSM.
The Custodian filed Report 11 of 2011 praying for the relief of sale of all the assets of Smt Rasila Mehta and Smt Rina Mehta to meet the claims against them and against late Shri Harshad Mehta by misreading and misinterpreting Rasila Mehta’s judgment.
Smt Rina Mehta filed an urgent reply in Report 11 of 2011 to oppose the reliefs prayed for by the Custodian as she apprehended gross injustice and therefore filed her preliminary affidavit within 2 days.
The Custodian replied to above letter of inspection dated 04.06.2011 and also stated that all the material was already available but if any inspection is still required than Custodian may be intimated of the documents for which inspection is required with the prior appointment. The Hon’ble Special Court has framed Regulations u/s 9-A governing the proceedings before it and in terms of Regulations 3 and 4 matters dealing with substantive rights regarding securities, monies and properties required filing of Petitions supported by affidavits and the Respondents in terms of Regulation 11 can file their replies within 3 weeks. The Custodian sought listing of their Report on 10.06.2011.
The Hon’ble Special Court passed an order in Report 11 of 2011 filed by the Custodian and granted the reliefs as prayed by the Custodian directing sale of properties belonging to Smt Rasila Mehta and Smt Rina Mehta. The order was passed on the first day of hearing without granting any opportunity to file the replies and even before the Custodian could offer inspection of the material relied upon by him. Neither the oral submissions were recorded nor the preliminary affidavit filed by Smt Rina Mehta was examined or the objections raised by her recorded or dealt with except that the Ld. Judge confirmed that he had perused the affidavit. The Ld. Judge observed that the Civil Appeals of Smt Rasila Mehta and Smt Rina Mehta were already dismissed by Hon’ble Supreme Court and in the judgment it was clearly held that Rasila and Rina Mehta have been notified so that their assets can be sold to meet the liabilities of Harshad Mehta. That taking into account the judgments of Hon’ble Supreme Court in case of Shri Sudhir Mehta and Smt Rina Mehta the Report will have to be granted because immediate steps are to be taken to sell the properties and therefore all the prayers were granted.
SBI addressed letter to Custodian to furnish details of amounts received by it against the claims made on late Shri Harshad Mehta and disclosed the credit of Rs.592.49 Crores it retrospectively offered to Shri Harshad Mehta from the years 2002-03. That thereafter the Custodian completely changed his stand as repeatedly taken on oath in MA 114 of 2007 to the effect that no credit was liable to be given to Harshad. The Custodian recomputed the liabilities of HSM which came down by about Rs.1500 Crores after 8 years and the above conduct of SBI and Custodian conclusively establishes the serious allegations made by Smt Jyoti Mehta about the acts of fraud and collusion perpetrated by both of them taking full advantage of the sudden demise of HSM and inability of Smt Jyoti Mehta to defend his legal interest.
The Custodian in compliance with the above order dated 10.06.2011 effected illegally on a rapid fire basis sale of large quantities of shareholdings of Smt Rasila Mehta of Rs.211.95 Crores and Rs.179.07 Crores virtually within a period of 4 days without inviting any offers or seeking prior approval of the Hon’ble Special Court as required under the scheme governing sale of shares and incurred losses of Rs.134.3 Crores and Rs.126.84 Crores respectively. The shares were sold rapidly and illegally before Smt Rasila Mehta and Smt Rina Mehta could challenge the order of Hon’ble Special Court dated 10.06.2011 and secure reliefs from Hon’ble Supreme Court.
The Custodian filed Report 14 of 2011 before Hon’ble Special Court to seek relief of distribution of the amounts lying in the bank accounts of Smt Rasila Mehta and Smt Rina Mehta as also those amounts realized through the sale of their shares to meet the claims against them and against Harshad Mehta.
The Hon’ble Special Court passed a combined order in Custodian Report 9 of 2010 and Report 14 of 2011 and ordered payments to the banks against their ex-parte decrees by drawing the amounts from the accounts of the family members including Smt Rasila Mehta and Smt Rina Mehta for their ex-parte decrees obtained against late Shri Harshad Mehta. The above order was passed by Hon’ble Special Court in 2 days without granting any hearing to Smt Rasila Mehta and Smt Rina Mehta and it was observed that they were already held to be members of Harshad Mehta Group and since their notification was upheld the monies belonging to them could be used to meet the claims against Shri Harshad Mehta. That if the notified parties wish to file their affidavits they can do so and if on that basis any amounts released today become liable to be recalled that order also can be made and therefore it was not necessary to adjourn the proceedings or to grant them time to file their Affidavits.
Custodian filed identical affidavits in reply to Smt Jyoti Mehta’s Applications being MA 13 and 14 of 2011 to seek recovery of attached assets since Custodian had not complied with several orders of Special Court directing recovery. The Affidavit contained false statements that all recoveries were caused by the Custodian and all the orders were complied with.
The Custodian made payment of Rs.259.65 Crores to SBI in compliance with order of Special Court dated 09.09.2011 by drawing an amount of Rs.129.65 Crores and Rs.130 Crores respectively from the accounts of Smt Rasila Mehta and Smt Rina Mehta in order to penalize them the most by drawing entire amount from their bank accounts leaving even balances in account of HSM.
The Hon’ble Supreme Court upon listing passed an order in Civil Appeal (D) No.23188 of 2011 filed by Smt Rasila Mehta and Smt Rina Mehta challenging the order of Hon’ble Special Court dated 09.09.2011. It immediately admitted the above Civil Appeal and granted the interim relief of status quo prevailing as on date. The said Civil Appeal has since been renumbered as CA 8437 of 2011 which is pending adjudication now for past 11 years. Smt Rasila Mehta sought justice from Hon’ble Supreme Court by repeatedly urging that being a very senior citizen and suffering from serious health issues her appeals may be heard. That she wanted to bequeath her assets during her lifetime and discharge serval liabilities incurred by her but unfortunately she could never get justice in her lifetime before she expired on 26 April 2020 at the age of 84 years. She suffered a widowhood from 07.06.1982 and attachment of her assets for almost 30 years since 08.06.1992 without violating any law of the land but only because she happened to be mother of Shri Harshad Mehta. The Custodian, CBI or the Income Tax department had never alleged violation of any law by her and the Torts Act contained no provision to punish innocent person like her. Admittedly and within the framework of law she purchased and sold shares and made long term investments by undertaking transactions through the 3 brokerage firms in the family by paying full scale brokerage and all the transactions were reported to the Bombay Stock Exchange. She paid interest @ 12% p.a. to her 2 sons and one daughter-in-law. The Custodian despite knowing that the value of her investments grew very rapidly yet made completely baseless allegations “how a housewife could have shareholdings of crores”. These allegations are conclusively demolished by presenting the Chart disclosing the sharp appreciation in value of her investments post the demise of HSM between 2003 to 2007 to 2011. It is neither illegal nor any crime for a housewife to make long term investments in shares and no punishment is prescribed for it in law.
The Hon’ble Supreme Court passed a judgment in the case of Ashwin S. Mehta vs. Union of India reported as (2012) 1 SCC 83. Ashwin Mehta and Deepika Mehta had challenged the orders of Special Court dated 30th April 2003 and 02nd May 2003 under which 54,88,850 shares of Apollo Tyres Ltd. (ATL) of Rs.10/- f.v. constituting 15.1% of the equity capital was sold @ Rs.90/- per share when the market price was Rs.120/- per share. The scheme governing sale of shares provided that such “Controlling Block” should sell at a large premium to the market price. The Hon’ble Supreme Court held as under:
30.12.2011 to 30.03.2012
The Hon’ble CIT(A) passed 6 orders in case of the family members of late Shri Harshad Mehta granting them substantial reliefs by deleting several additions made for AY 1992-93 and AY 1993-94 and which resulted into large refunds, the particulars of which reliefs and refunds are given in enclosed charts. These reliefs were granted in third round of litigation and the reliefs attained finality since the I.T. department did not challenge the orders of Hon’ble CIT(A) before Hon’ble ITAT. However, it did not offer the refunds and therefore applications were filed before Hon’ble Special Court to seek a direction on the I.T. department to offer the refunds. Since the department did not make refunds despite filing of the above applications, a grievance was made even before Hon’ble Supreme Court in the proceedings in CA 6326 of 2010 when the Hon’ble Supreme Court intervened and directed the I.T. department to offer refund as is explained hereinafter.
The Hon’ble Supreme Court upon listing passed an order in CA 34052 of 2011 filed by Smt Rasila Mehta and Smt Rina Mehta to challenge the combined order of Hon’ble Special Court dated 09.09.2011. The Hon’ble Supreme Court issued notice and granted the interim relief to stay the operation of the impugned judgment and tagged the said Civil Appeal with CA 8437 of 2011. The above Civil Appeal is since renumbered as CA 2563 of 2012 and the same is pending adjudication for past 9 years.
Hon’ble CIT(A) passed an order in case of late Shri Harshad Mehta for AY 1993-94 and deleted the penalty levied by the AO under order passed on 26.09.2003 for concealment of income u/s 271(1)(c) of the I.T. Act. The AO had determined the income of Rs.1396.03 Crores and levied a penalty of 150% of the liability to pay tax. Hon’ble CIT(A) deleted this penalty on the ground that since HSM had not filed the return of income and the return which was filed was already rejected there is no question of the assessee concealing any income without filing any return of income. This issue was earlier decided by the Hon’ble Bombay High Court in favour of an associate entity under order dated 10.02.2009 and which order and similar other orders were challenged before Hon’ble Supreme Court by the department. The Hon’ble Supreme Court dismissed the appeals filed by the department and held that
“In this case the assessees were notified parties under Special Court (Torts) Act, 1992, hence they could not file return of income. On facts, Sec.271(1)(c) of the I.T. Act will not apply.”
The Hon’ble Special Court passed a combined order in MA 13 and 14 of 2011 which was filed by Smt Jyoti Mehta making a grievance that the Custodian had deliberately not recovered the attached shares belonging to Mehtas of huge value and even not made compliance with the orders of Hon’ble Special Court since 08.06.1992 wherein Custodian was already directed to recover the attached shares of Mehtas with accruals paid on them since 08.06.1992 from their erstwhile shareholders. The Custodian filed a false Affidavit before Hon’ble Court denying the allegations of Smt Jyoti Mehta and incorrectly stating that he had recovered all the assets and made compliance with all the orders of Special Court. The Hon’ble Special Court rejected the contentions of Custodian by holding that the explanation given by him was not correct as shares of atleast Rs.700 Crores were pending recovery. The Custodian was directed to recover every asset and comply with all the orders andfurther directed to constitute a Committee of 3 persons in his office for causing recovery and making compliance with past orders. He was also directed to file progress reports before Hon’ble Court every fortnight. The Custodian was also directed to take into consideration the suggestions of Ashwin Mehta while carrying out the above task.
The Hon’ble Special Court passed a combined order in MA 62 of 2012 and other identical Applications and MA 95 of 2012. The Mehtas once again sought relief for release of monies from their attached accounts for payment of fees to Advocates and Counsels and since Custodian was not recovering their attached assets. They had demonstrably established the falsity of claims made by revenue and prayed for release of Rs.3 Crores annually which would be less than 1% of the gains already secured by them. That MA 95 of 2012 was filed by Smt Rasila Mehta to seek release of 18,100 shares of Hero Honda from attachment together with the accruals thereon on the grounds that they were purchased well before the statutory period prescribed under the Torts Act being 01.04.1991 to 06.06.1992 and therefore had no nexus with monies belonging to banks and also on the ground that these shares were not required to meet any liabilities. She urged that she was not involved in any offence relating to transactions in securities nor was recipient of any monies belonging to banks and CBI had never called her. All the above applications were rejected under a combined order for following reasons:
Mehtas were aggrieved that despite sharp improvement in the assets and liabilities picture because of their sterling efforts and despite change of circumstances and the quantum of relief being a miniscule sum of the actual gains yet their application was rejected. The case of Smt Rasila Mehta was also covered under the judgment of Hon’ble Bombay High Court and Hon’ble Supreme Court and completely disregarding her background and no involvement of any kind yet relief even to her were denied.
The Hon’ble Supreme Court delivered a combined judgment in appeals preferred by SBI and NHB to challenge the order of Special Court dated 24/25 February 1999 passed in Suit 2 of 1995 under which a decree was awarded to NHB against State Bank of Saurashtra (SBS) and at the same time NHB was directed to pay Rs.94.19 Crores to Custodian on behalf of HSM towards recovery of attached IRFC Bonds of Rs.38.75 Crores f.v. The decree obtained by NHB was quashed and set aside on the grounds that NHB had not come clean before the Special Court, had abused the process of law and failed to establish its claim by not adducing any evidence at all. That the evidence adduced by HSM through his witness was found to be truthful and in any case not challenged by NHB. It was held that the senior management of NHB were fully involved but facts relating to them were suppressed to shield them. Even the conduct of the Government was criticized as no attempt was made to find out the truth and to resolve the disputes.
The Hon’ble Special Court delivered its judgment after extensive trial in the case of CBI Vs. S.K. Kumar being a case registered by CBI against Harshad Mehta and his younger brother, Sudhir Mehta in respect of 4 transactions under which SBI Capital Markets had made payments to M/s. Harshad S. Mehta in respect of purchase of Units of UTI, 1964 Scheme. CBI alleged that after receipt of monies no securities were delivered by Harshad to SBI Capital Markets nor the amounts were returned on their due date and therefore the offence of criminal conspiracy, criminal breach of trust and under Prevention of Corruption Act were committed by him. The Hon’ble Special Court completely rejected the above allegations of CBI and acquitted all the accused by holding that CBI had failed to establish the alleged offences by giving detailed reasons from Para 19 onwards upto Para 40 of the judgment.
Smt Jyoti Mehta made a ‘without prejudice’ offer to ANZ Bank for payment of Rs.506.65 Crores through their Advocates for the last time since the previous efforts of 1992 and thereafter of 2007 to arrive at a settlement had not succeeded. She offered to meet the entire principal sum of Rs.506.53 Crores keeping her offer valid for 45 days.
The Hon’ble Special Court passed an order in MA 31 of 2013 granting the relief sought by Smt Jyoti Mehta against the Custodian seeking release of the books of accounts and computers seized by the Custodian illegally and without any power and authority to do so. The Hon’ble Special Court upon the submissions of Smt Jyoti Mehta, called upon Custodian to disclose the provision in law for retaining the documents and books of accounts of Mehtas in his custody but since the Custodian failed to point out any such provision in law, the Hon’ble Special Court ordered release of the same to Mehtas. This order establishes that the Custodian without any power or authority had illegally seized the books of accounts and computers for more than a decade so that Mehtas were unable to either recover their attached assets from third parties or contest the false claims of income tax on them in absence of the crucial material and evidence supporting them
The Hon’ble ITAT passed an order in case of late Shri Harshad Mehta for AY 1992-93 and set aside the order of Hon’ble CIT(Appeal) dated 24.03.2010 and remanded the matter back to the Assessing Officer with a direction to pass a fresh assessment order after giving a due and proper opportunity to the assessee and taking into account the crucial evidence of books of accounts. It rejected all the 7 grounds adopted by Hon’ble CIT(Appeal) for rejecting the books of accounts. It concluded that the books of account have been prepared after the date of search but from the seized documents and they should not have been rejected without going through/examining each and every entry.
The Hon’ble Special Court passed an order in MA 70 of 2014 filed by Smt Jyoti Mehta to seek a relief for a declaration that the Report of M/s. Vyas & Vyas, Chartered Accountants was illegal, that it could not be used by the Income Tax department for making additions under the Income Tax Act, to strike out several adverse findings against Mehtas, to grant opportunity to Mehtas to cross-examine the authors of the Report of M/s. Vyas & Vyas and to recall excess fees paid to them with interest. The Hon’ble Special Court granted the principal release and held that Report tendered by the Chartered Accountant itself cannot be treated as an evidence as it is only an opinion expressed by them.
Smt Jyoti Mehta addressed a letter to Advocates of ANZ Bank in pursuit of her offer of settlement made on 09.06.2014 and with reference to progress made in that regard through several meetings and video conference. That ANZ Bank had already without commitment disclosed their interest to examine the proposal but yet sufficient progress was not being made in the matter and therefore she called upon for an urgent meeting and a time-bound action plan and some confirmation may be issued.
Smt Jyoti Mehta, through her Advocate replied to letter dated 24th April 2015 from Advocates of ANZ Bank on a ‘without prejudice’ basis in regard to the proposed settlement. Grievance was made that ANZ Bank was not making any progress on the offer made by Smt Jyoti Mehta on 09.06.2014 for more than 14 months and thereby tied them down from seeking reliefs before Hon’ble Court. It was conveyed that from progress made till date, she is getting a distinct impression that ANZ Bank was not serious in pursuing the offer. They were therefore called upon to set a timeline to ongoing negotiations.
Advocates of ANZ Bank replied to Smt Jyoti Mehta’s letter dated 27.08.2015 and conveyed that while the bank was inclined to accept the offer and forgo the claim of interest but they were agreeable to the offer provided they were not called upon to give an undertaking to bring back the amounts by Hon’ble Courts. They also saw a stumbling block for their inter se settlement with NHB who may not agree to forgo the claim of interest. ANZ Bank was still therefore looking forward to some windmill proposal taking care of its concern.
The AO filed an Affidavit in reply in MA 135 of 2012 filed by Smt Jyoti Mehta denying the allegation that revenue had inflated liability in the group cases of HSM Group by rejecting the books of accounts. That the department is not adjusting the refund against its other demands by invoking Sec.245 of the I.T. Act because as per the Hon’ble Supreme Court judgment department would be entitled to payment on final distribution. AO averred that at no point of time in seeking relief before Hon’ble Courts and in representations to the Custodian the department had made any false statement or submitted wrong facts or colluded with the Custodian. In Para 8 of the Affidavit the following averments are made:
The Hon’ble Supreme Court passed an order in CA 6416 of 2005 filed by Gurukripa Trust set by notified entity Shri Bhupen Dalal to challenge the order of sale of their property passed by the Special Court. The Hon’ble Supreme Court directed Custodian to give clarification in respect of 7 questions framed by it as follows:
The above replies are patently false as the Custodian takes several decisions by himself such as whom to notify, files applications for selling of assets, presents completely false assets and liabilities picture, decides whether or not to comply with the orders of Hon’ble Special Court or Hon’ble Supreme Court and whether or not to recover the attached assets from third parties and thereby deals with the attached assets, decides and executes sale of assets by deciding when to invite and for what quantity to invite the bids, violates the standing instructions to deploy surplus monies in Fixed Deposits by keeping them idle in the Current Accounts, acts for and on behalf of creditors and third parties by colluding with them instead of protecting, preserving and augmenting the attached assets of notified parties. The Custodian also decides whether to inform the Hon’ble Special Court the facts of pending recovery of attached properties from third parties, does not ever seek extension of time for delay or failure to comply with the orders Hon’ble Special Court, does not file any reports disclosing status of compliance and recovery.
Mehtas filed MA 8 of 2016 before Hon’ble Special Court against the Custodian seeking directions against him to file Status Report of compliance made by Custodian on past orders of Special Court from 08.06.1992 in respect of causing recovery of their attached assets and also provided a list of several such orders. The Custodian was called upon to explain the steps being taken by him in recovering the attached assets after gaining knowledge about them and to furnish the plan for accomplishing the task Relief was also sought of a direction to Custodian to give complete access to the records and also provide copies of all correspondence being undertaken by the Custodian.
The Assessing Officer passed a fresh order in case of late Shri Harshad Mehta for AY 1992-93 mechanically resurrecting the assessed income of Rs.2346.32 Crores without examining the books of accounts and making any compliance with the order of Hon’ble ITAT dated 29.10.2014 cited earlier. The detailed submissions made before AO and all the subsequent facts and orders passed in that regard by Hon’ble Special Court which were binding on the AO were completely ignored. The AO defied with the order of Hon’ble ITAT to deny the benefit of reliefs granted by ITAT and in order to illegally enjoy large amounts released to it by Hon’ble Special Court in complete violation of law laid down by Hon’ble Supreme Court.
Custodian filed Affidavit in reply in MA 8 of 2016 falsely denying the allegations made against him and stated that he has always recovered the attached assets. That nothing prevented Applicants to recover their attached assets and Custodian’s office was not in existence when the transactions took place and therefore to expect the Custodian to file Recovery Application without any tangible evidence is preposterous and Custodian will extend all co-operation. The Custodian made following averments:
The Hon’ble Special Court passed an order in MA 8 of 2016 filed by Mehtas to seek compliance with all the previous orders passed by Hon’ble Special Court from 08.06.1992 onwards and strongly criticized the reply filed by Custodian on oath by Affidavit dated 30.06.2016 stating that “it is absolutely waste of time without any meaningful purpose to look at each and every order passed since 08.06.1992 and the principal relief is impracticable for compliance.” The Hon’ble Special Court criticized the choice of above words and observed that the reply dodges the main issue and directed Custodian to personally file on oath an Affidavit explaining the manner in which records are maintained or recoveries made and how the Custodian’s office is maintaining records of orders of the Court and their compliance. It was further directed that the Affidavit shall contain all details of how files are maintained in the Office of the Custodian and whether there is any audit of these records at any level.
The Custodian filed Additional Affidavit in MA 8 of 2016 in compliance with order of Hon’ble Special Court dated 23.12.2016 and set out at length the statutory duties of the Custodian, organizational set up, major aspects of functioning of the Custodian, status of work including recoveries effected, maintenance of record, audit and overall recoveries. The Custodian tendered unconditional apology to the Hon’ble Special Court for the Affidavit dated 30.06.2016 filed before it. However, he has falsely stated that it has been the endeavor of the Office of the Custodian to ensure compliance with each order of Hon’ble Special Court in letter and spirit by proactive pursuance with all parties concerned like notified parties, companies, debtors, I.T. department, banks and others. The falsity of above statement got established by subsequent affidavits filed by the Custodian admitting that some of the orders passed in the year 1995 were yet to be complied with by the Custodian.
The Hon’ble Special Court passed an order in Custodian Report 17 of 2016 in MA 72 of 2013 in respect of Fairgrowth Financial Services Ltd. (FFSL) and criticized the conduct of the Custodian by making the following observation in Paras 4 and 5 of its order as follows:
The above order conclusively establishes the allegations of Mehtas against the Custodian.
The Hon’ble Supreme Court amended its above order dated 02.05.2017 to include a direction on Custodian to recover the attached assets of Mehtas. However, these directions have not been complied with by the Custodian during past 5 years as vast quantities of attached assets of a minimum of Rs.5000 Crores still remain pending to be recovered by the Custodian.
Shri Ashwin Mehta addressed a letter to the Custodian in respect of proceedings in CA 6326 of 2010 to put on record the facts that the Advocate representing the Custodian before Hon’ble Supreme Court on 02.05.2017 had conceded that the claim of interest of Rs.15,898.86 Crores of the Income Tax department was not liable to be included in the liabilities. The Custodian was requested to instruct his office not to include the claims of interest included by the Income Tax department in the liabilities of Mehtas.
The Hon’ble CIT(A) passed an order in case of late Shri Harshad Mehta for AY 1992-93 and granted the relief of deletion of about 60.86% of the additions. The AO had assessed the income at Rs.2346.23 Crores but the Hon’ble CIT(A) deleted additions of Rs.1427.99 Crores and for the residual additions an appeal was preferred before Hon’ble ITAT. The Hon’ble CIT(A) has criticized the conduct of the department for not extending any co-operation and for failing to file any Remand Reports as sought for for from the department (Paras 7, 24.22, 25.7, 27.4).
The revenue refunded a sum of only Rs.329.71 Crores to Custodian on behalf of Mehtas in compliance with the order of Hon’ble Supreme Court dated 02.05.2017 but underpaid a sum of Rs.453.84 Crores for which an Application seeking clarification and direction has been filed by Mehtas before Hon’ble Supreme Court.
Mehtas have filed before Hon’ble Supreme Court MA 1007 of 2017 in CA 6326 of 2010 to seek clarification and direction on the I.T. department to pay interest @ 18% p.a. as directed under order dated 02.05.2017 for the entire period for which the monies were secured and enjoyed by the department since it underpaid an amount of Rs.453.84 Crores to Mehtas.
The Assessing Officer passed an Order Giving Effect (OGE) for the reliefs granted by Hon’ble CIT(A) to late Shri Harshad Mehta for AY 1992-93 and substantially deleted the interest levied earlier under various sections of the Income Tax Act and further stated that reliefs granted under Ground Nos.6, 8, 10, 13 and 17 were subject to verification and accordingly demand of Rs.1607.38 Crores was raised u/s 156 of the Income Tax Act.
The Hon’ble Special Court passed a combined order in MA 205 of 2003 and upon grievance made by the banks and HSM the Advocate representing the I.T. department after taking instructions from AO stated that all Orders Giving Effect (OGEs) which are now pending will be passed and communicated within a period of 4 weeks.
The Hon’ble Special Court passed a combined order in MA 205 of 2003 recording the grievance of banks and HSM that the AO had passed OGE without giving effect to large number of reliefs granted by Hon’ble CIT(A) under his order dated 28.06.2017. The Advocate for I.T. department stated that although certain grounds were allowed by CIT(A), verification has not been entirely carried out before arriving at the amounts referred to in the computation and therefore the Notice of Demand did not reflect the correct amount. The Advocate therefore sought time to obtain further instructions. The AO was directed to disclose on affidavit the verification carried out thus far by him before 5th January 2018.
The Hon’ble Special Court passed an order in MA 8 of 2016 recording the status of pending compliance by Custodian of the orders of Hon’ble Special Court which was disputed by notified entities. The Advocate for Custodian stated that Custodian’s office will continue to complete pending tasks to ensure compliance with the orders and co-ordinate with the Applicants Advocate. The Custodian’s office was directed to provide photocopies of relevant proof of compliance and all communication received from third parties would also be provided to the Applicants.
The AO filed a combined affidavit in MA 205 of 2003 to make compliance with the order of Hon’ble Special Court dated 08.12.2017. That in the OGE dated 28.09.2017 to give effect to the order of CIT(A) dated 28.06.2017 in case of HSM, major relief was given by CIT(A) on the issue of interest of Rs.7904.83 Crores and accordingly the demand had come down from Rs.9512.21 Crores to Rs.1607.38 Crores. The AO admitted that he had not given effect to other reliefs granted by Hon’ble CIT(A) and the needful would be done at the earliest.
Mehtas addressed a letter to Custodian forwarding a combined order passed by Hon’ble ITAT on 27.12.2017 in respect of 21 cases relating to 8 notified entities amongst Mehtas wherein after several years of litigation and opposition by the department the Hon’ble Tribunal concluded that all the family members and corporate entities promoted by Mehtas had availed interest bearing loans from the 3 brokerage firms of M/s. Harshad S. Mehta, M/s. Ashwin Mehta and M/s. J.H. Mehta carrying interest @ 12% p.a. and overruled the orders passed by AO and CIT(A) rejecting the expense of interest claimed on the said loans. This order has become final since it has not been challenged by the I.T. department and therefore is binding on the Custodian and Hon’ble Special Court and the ‘Harshad Mehta Group’ theory stands demolished. It is well settled law that ITAT is the last fact finding body and the findings given by it cannot be disturbed even by Hon’ble Bombay High Court and Hon’ble Supreme Court unless it is proved that the finding is perverse.
The Assessing Officer passed a rectification order u/s 154 of the I.T. Act to the previous OGE dated 29.09.2017 and after verification reduced the assessed income from Rs.2346.32 Crores to Rs.1143.38 Crores (reduced by 51.27%). Fresh Demand Notice of Rs.2324.55 Crores was raised u/s 156 of the I.T. Act by levying higher interest than what the provisions of the I.T. Act permitted and therefore for the residual additions an appeal was filed before Hon’ble ITAT.
Mehtas addressed a letter to the AO calling upon him to give effect to the order of Hon’ble ITAT dated 27.12.2017 wherein reliefs were granted in 21 cases by allowing the expense of interest which was not being allowed by the department for more than 2 decades and the net effect of which would bring down the demands of revenue very sharply in respect of the concerned entities. Grievance was made that OGE was not being passed by the AO despite passage of 10 months in violation of Sec.240 of the I.T. Act in terms of which the AO was required to give effect to the orders of relief even without the assessee seeking the same. The copies of the letters were also marked to the Custodian with a request to secure the revised picture of demands after the above reliefs. That till date the above OGEs have not been passed by the AO to deny the benefit of reliefs secured by Mehtas and to inflate the demands on Mehtas.
Mehtas addressed 2 letters to AO’s to make grievance that they had failed to give effect to 39 + 20 orders of relief passed by Hon’ble ITAT directing the AO to re-compute levy of interest u/s 234B of the I.T. Act and provided them with complete particulars of such orders of relief which were passed from 2013 onwards and also provided the AO with the copies of orders of Hon’ble ITAT. It was clearly conveyed that when effect is given to the aforesaid relief the demands will fall down sharply in all 59 cases. The copies of the letters were also marked to the Custodian with a request to secure the revised picture of demands after the above reliefs. That till date the above OGEs have not been passed by the AO to deny the benefit of reliefs secured by Mehtas and to inflate the demands on Mehtas.
The Hon’ble Tribunal passed a combined order in Appeals filed by Mehtas and revenue in the largest cases of late Shri Harshad Mehta, Shri Ashwin Mehta and Smt Jyoti Mehta for the crucial period of AY 1992-93 and in case of Shri Ashwin Mehta for AY 1993-94. This was the third round after revenue had not made compliance with the previous two orders of Hon’ble ITAT dated 11.07.2008 and dated 29.10.2014 in case of Harshad Mehta for AY 1992-93. The Hon’ble ITAT after examining the facts and true legal position quashed the assessment orders in case of late Shri Harshad Mehta and Shri Ashwin for AY 1992-93 thereby granting 100% relief. That even on merits, the reliefs were granted by deleting more than 98% of the additions in all the 3 cases pertaining to AY 1992-93 and the particulars of relief are given in enclosed charts. That due to the above order false demands of thousands of crores have been deleted and huge refund have become due of Rs.3803.90 Crores in case of late Shri Harshad Mehta, Rs.716.86 Crores in case of Shri Ashwin Mehta and Rs.623.97 Crores in case of Smt Jyoti Mehta for AY 1992-93. That against the above, the I.T. department has given refund of only Rs.476.64 Crores in case of Smt Jyoti Mehta and in case of others now for more than 3 years neither the Order Giving Effect (OGE) is passed nor refund offered since the department wants to illegally retain and enjoy the amounts to which it is not entitled to. The Hon’ble Supreme Court while laying down the law in Harshad Mehta’s case would have foreseen the above conduct of the I.T. department and therefore had clearly laid down that until the demands of I.T. department become final and binding no monies should be released to it and further laid down that the liability to pay tax should be reckoned only when date of distribution arrives which arrives after examination of all the claims u/s 9A of the Torts Act. In gross violation of above law the two organs of the “State” viz. the I.T, department and the Custodian acting in collusion with it secured release of Rs.3285.46 Crores in favour of the department though Hon’ble Supreme Court had expressly directed recalling of Rs.193.71 Crores released to the department under the interim relief granted to it under order dated 26.08.1996 well before the law was finally laid down. The Torts Act and its objects have been consciously subverted by the I.T. department and the Custodian. During these years several false and misleading applications and affidavits have been filed by the I.T. department in proceedings before Hon’ble Special Court and even supported the Harshad Mehta Group theory illegally canvassed by the Custodian for its benefit despite the fact that the I.T. Act does not provide for recovery of dues of “A” from “B”. The losses of Rs.20,677.27 Crores suffered by Mehtas by premature and illegal sale of their shares is directly attributable to the illegalities consciously committed by the I.T. department and Custodian.
Smt Jyoti Mehta addressed a letter to the Assessing Officer with a copy marked to the Custodian requesting him to issue Order Giving Effect in case of late Shri Harshad Mehta for AY 1992-93 in respect of order passed by Hon’ble ITAT on 14.01.2019 and also lodged the claim for refund of Rs.3803.90 Crores. The Custodian was requested to secure refund of the above amount from the I.T. department. The department has filed several affidavits before Hon’ble Special Court that refund is governed by Sec.240 of the I.T. Act but even the said section is now not complied with by the AO for more than 3 years. According to Mehtas, since the monies were released to I.T. department under the Torts Act they ought to have been returned immediately upon deletion of the demands.
The Hon’ble Supreme Court passed an order in CA 6416 of 2005 and set aside the order of sale of the property passed by the Special Court. The Hon’ble Supreme Court examined its earlier judgment in the case of Harshad Mehta Vs Custodian reported as (1998) 5 SCC 1 and accepted the contention of the Appellant that what is recoverable under the Torts Act is only the taxes and not interest and penalty in view of answer to Question No.5 in the said judgment. It further clarified that only in case penalty or interest is found to be recoverable, the Special Court would examine whether out of the monies lying with the Custodian, the amount should be released towards the penalty and interest. In case of Mehtas, the Custodian has been illegally including all claims of interest and penalty in the liabilities and on that basis selling their assets and caused losses of thousands of crores to them even before any decision is taken by the Special Court whether any such claims of interest and penalty are liable to be met at all out of the assets with the Custodian.
The Hon’ble Special Court passed a combined order in MA 81 of 2013 and other refund applications filed by Mehtas. It was urged that refund of about Rs.625 Crores had become due to Smt Jyoti Mehta to which the Advocate of I.T. department responded that refund order has already been issued for Rs.472 Crores and therefore that would leave a difference between the two amounts for argument. The Advocate stated that refund of Rs.472.58 Crores will be credited to the account of Smt Jyoti Mehta with Custodian on or before 28th August 2019. The Hon’ble Court directed the Applicants and the department to hold meetings to ascertain all facts relating to refunds to narrow the gap. As per Mehtas it is the Hon’ble Special Court and Hon’ble Supreme Court which has to decide the issue of the rate of interest applicable on the monies released to the department and which rate has been decided at 18% p.a. by Hon’ble Supreme Court in its order dated 02.05.2017 but yet the department is refunding the monies with interest computed @ 6% p.a. in order to underpay Mehtas.
The Hon’ble Special Court passed a combined order in MA 81 of 2013 and other refund applications filed by Mehtas. The Advocate of the department stated that there was some delay in making the refund of Rs.472.58 Crores on account of the new software and he undertook that the amount will be paid on or before 10.10.2019.
Revenue made a refund to Custodian on behalf of Smt Jyoti Mehta of Rs.476.64 Crores for AY 1992-93 though according to her, refund of much larger amount is due for which the true amounts will be recoverable under order of Hon’ble Special Court and Hon’ble Supreme Court. Department has underpaid by offering interest @ 6% p.a. as explained earlier.
The Hon’ble Special Court passed a combined order in MA 81 of 2013 and other applications seeking refund from the I.T. department. That in compliance of the statement made, the department made a payment of Rs.476.64 Crores to Custodian as refund to Smt Jyoti Mehta for AY 1992-93 pursuant to the reliefs granted by Hon’ble ITAT in its order dated 14.01.2019 on the grievance made that large sums are due even in other cases but refund is not being made. The Advocate representing the department gave an assurance to the Court that “whatever is due in accordance with law will be paid.” However, despite the above assurance given by the I.T. department no refunds have been offered in the largest cases now for more than 2½ years by the I.T. department in case of late Shri Harshad Mehta, Shri Ashwin Mehta and several other orders passed in case of their family members and corporate entities promoted by them.
The Hon’ble Bombay High Court passed a combined order in Notice of Motion and Income Tax Appeal to challenge the order of Hon’ble ITAT dated 14.01.2019 in case of late Shri Harshad Mehta and Shri Ashwin Mehta. The Notice of Motions were filed to seek a stay on the above order of Hon’ble ITAT. It was urged by Addl. Solicitor General on behalf of the department that the urgency in moving the application for early hearing of the Appeals and stay is that “under the statute they are obliged to give effect of the impugned order of the Tribunal by giving refund on or before 21.10.2019. However, the Hon’ble Court held that the Motions will require consideration as the same is opposed and time to pass the OGE to the order of ITAT was extended upto 14.11.2019.
The Hon’ble Bombay High Court passed a combined order in Notice of Motion and Income Tax Appeal filed by the I.T. department to challenge the order of Hon’ble ITAT dated 14.01.2019. The Hon’ble Court directed expeditious hearing of appeal filed by the department. It was urged by the department that if the appeals are not heard early, revenue would be obliged to refund to the Respondents huge amounts. On the Notice of Motion and stay on the order of ITAT the Hon’ble Court held that it would be appropriate to hear them along with the appeals which have been expedited and the prayer for stay would be considered along with the appeals at the time of admission and the same would only arise if the appeals are admitted and the time to pass OGE was extended till 15.01.2020. That for past more than 2 years the I.T. department has neither passed the OGE nor offered refund and even not applied before Hon’ble Bombay High Court seeking extension of time to pass OGE and make the refund.
The Principal Commissioner of Income Tax (PCIT) passed an order u/s 263 of the I.T. Act in the case of Harshad Mehta for AY 1992-93 and thereby reversed the reliefs granted to the assessee after due verification by the AO in respect of the 5 additions amounting to Rs.1094.17 Crores. Being aggrieved, the said order was therefore challenged before the ITAT by Smt Jyoti Mehta. The PCIT incorrectly invoked his powers after the Hon’ble ITAT had already quashed the assessment order and on merits also upheld the order of Hon’ble CIT(A) dated 28.06.2017 and in fact granted further reliefs only in order to somehow nullify the reliefs granted to HSM by the appellate authorities. Being aggrieved, the said order was therefore challenged before the ITAT by Smt Jyoti Mehta.
The AO passed an Order Giving Effect (OGE) to the order passed by the Principal Commissioner of Income Tax passed u/s 263 of the I.T. Act on 11.03.2020 raising the Demand Notice of Rs.6357.12 Crores while not passing the OGE in favour of late Shri Harshad Mehta for AY 1992-93 to the order of Hon’ble ITAT dated 14.01.2019 where the assessment order itself has been quashed and set aside and where it was extremely easy to pass the OGE. This OGE has been illegally withheld since the same leads to deletion of illegal demands of the I.T. department of thousands of crores and to hold back and to illegally enjoy the funds and an amount of about Rs.4500 Crores which are refundable to HSM.
This day Smt Rasila Mehta expired in the afternoon in the presence of family members at an age of 84 years after suffering from prolonged illness and being completely bed-ridden and undergoing dialysis. Just the previous night, she expressed her extreme concern with the difficulties that the family was facing because of enormous delay in securing justice and despite having a huge asset base in her own name she felt completely helpless. She was very keen to spend a part of her wealth while being alive but after waiting for almost 3 decades she atleast drew her Will albeit in respect of her attached assets. Despite being a very senior citizen and even after filing 2 applications before Hon’ble Supreme Court seeking urgent and early hearing of her appeals which were granted but yet no hearing of her Civil Appeals ever got fixed and our family has deepest regret that we could not secure justice to her in her lifetime. She was a very poor girl, born in a very small village and lost her father before her birth. Her widow mother and 7 sisters were virtually adopted by a village neighbour and she suffered widowhood for 39 years out of life of 84 years besides suffering poverty until she got married. Smt Rasila Mehta was a pillar of strength and a beacon to the family and couple of her pictures are enclosed.
23.06.2020 and 30.06.2020
The Hon’ble Special Court passed orders in MA 4 of 2020 filed by Smt Jyoti Mehta to seek recovery of 10,72,260 shares of Reliance Industries Ltd. (RIL) which were deliberately not recovered by the Custodian since 1993 onwards and the said shares were incorrectly transferred to “Custodian Government of India A/c.” though they were already declared to be the property of Smt Jyoti Mehta. The subject shares which includes the rights shares now stand recovered presently valued at Rs. 284.67 Crores because of ceaseless efforts made by Smt Jyoti Mehta to recover the attached property.
The Custodian addressed a letter to the I.T. department in respect of assets and liabilities and called upon the department to clarify whether the status of demands furnished by the department to make disbursements made under the orders of Hon’ble Courts and also after giving effect to the orders of ITAT and CIT(A). That the Custodian had written 15 letters to the department as reminders to their letters dated 22.05.2018 to furnish the latest position of demand in case of Mehtas which was not being made available. That letters were also addressed to AO by the notified entities in regard to Demand Notices.
The Hon’ble ITAT passed an order in case of late Shri Harshad Mehta for AY 1992-93 in respect of challenge by Smt Jyoti Mehta to the order passed by PCIT u/s 263 of I.T. Act on 22.01.2020 in which the reliefs granted to Shri Harshad Mehta had been reversed by him under his order by Rs.1094.17 Crores. The Hon’ble ITAT quashed the order passed by PCIT and strongly observed as under:
In the above manner, the department is repeatedly subjecting a deceased assessee and his wife to ‘tax terrorism’ of the highest order completely disregarding the law of the land. Even after losing the above order, no steps have been taken by the department to pass the OGE for the order of Hon’ble ITAT dated 14.01.2019 nor offered refund to the Custodian almost of about Rs.4500 Crores after making Harshad Mehta and his whole family suffer false demand of several thousand crores raised from March 1995 onwards.
Smt Jyoti Mehta addressed a letter to AO calling upon him to pass Order Giving Effect (OGE) in respect of both order of Hon’ble ITAT dated 14.01.2019 and order of Hon’ble ITAT dated 26.03.2021 against the order passed u/s 263 of the I.T. Act by the Principal Commissioner of Income Tax. It was pointed out that the AO was quick to raise the Demand Notices and passed OGEs in the subsequent proceedings but was deliberately not passing the OGEs in respect of those appellate orders where late Shri Harshad Mehta was granted substantial reliefs for AY 1992-93 and this grievance was supported by conclusive evidence.
The legal heirs of late Shri Harshad Mehta and late Smt Rasila Mehta filed MA 15 of 2021 before Hon’ble Special Court inter alia to seek reliefs of Rs.3 Crores each from the account of the above deceased to pay to Shri Ashwin Mehta for defending the legal interest of late Shri Harshad Mehta and late Smt Rasila Mehta in proceedings before Hon’ble Special Court, before the appellate authorities under the Income Tax Act, before Hon’ble Bombay High Court and before Hon’ble Supreme Court. In the alternative, it was prayed to release a sum of Rs.1.5 Crores from attached accounts of Smt Jyoti H. Mehta, Shri Ashwin Mehta, Dr. Hitesh Mehta and Shri Sudhir Mehta.
The Custodian filed Affidavit-in-reply to oppose MA 15 of 2021 on the ground that liabilities far exceeds the assets and that the Income Tax department and banks ought to have been joined as a party who would be affected. That notified entities should pay from their future income and details had not been provided to substantiate the figures. That attached assets can only be released as per Sec.11(2) of the Torts Act and the present application could be considered only u/s 11(2)(c) at the stage of distribution. That earlier this issue was considered more than once and therefore the application ought to be dismissed and allegations against the Custodian were denied. That the Applicants were liable to be treated as members of Harshad Mehta Group as already confirmed by Hon’ble Supreme Court.
Mehtas addressed a letter to the Disposal Committee and the Custodian making a grievance about sale of shares being effected in case of several entities in violation of law laid down by Hon’ble Special Court in Harshad Mehta’s judgment as also the scheme governing sale of shares and well-settled law that no assets should be sold if there are no liabilities to be met. Besides above, it was urged as follows:
The Applicants filed their Affidavit-in-rejoinder to the Affidavit-in-reply filed by the Custodian in MA 15 of 2021 and denied the contentions of the Custodian and adduced further facts and evidence in support of the reliefs prayed for by them. It was strongly urged that the Custodian on one hand was not discharging his statutory duties of contesting false claims and recovering their attached assets and on the other hand did not want even Mehtas to defend their interest and take corrective steps for the deliberate failures of the Custodian who was acting in collusion with the creditors and several third parties who were holding their attached assets.
Mehtas addressed a letter to Custodian once again making a grievance about grossly incorrect assets and liabilities picture being presented by the Custodian in violation of law laid down in Harshad Mehta’s judgment as also the provisions of Sec.11(2)(c) of the Torts Act. Once again detailed submissions were made to the Custodian to explain the aforesaid violations with a request to present the correct picture.
The Custodian addressed a letter to I.T. department to furnish the latest picture of demand and in all 18 letters were addressed to the department from 26.02.2018 on this issue but for more than 4 years the department is neither passing OGEs nor issuing refunds as also not supplying the latest picture of demands which has fallen very steeply to deny the reliefs to Mehtas which they had secured from the appellate authorities after suffering false additions of thousands of crores for 28 years. The list providing the details of the letters is enclosed.
The Hon’ble Special Court passed its order in MA 15 of 2021 rejecting the reliefs prayed for by Mehtas particularly disbelieving their contentions about surplus of assets over liabilities and without adequately dealing with their contentions that the assets and liabilities picture presented by the Custodian was in gross violation of the law laid down by Hon’ble Supreme Court in the case of Harshad Shantilal Mehta Vs Custodian reported as (1998) 5 SCC 1. The Hon’ble Special Court did not record and deal with all the contentions of the Applicants and failed to appreciate the positive role already played by them in achieving the objects of the Torts Act as the progress made by them was a matter of record. That because of the steps taken by Mehtas the false claims of the I.T. department had fallen by more than Rs.25000 Crores, the claims of banks had fallen by more than Rs.1500 Crores and attached properties lying in the hands of third parties of more than Rs.2500 Crores were recovered by them and several applications for such recovery were still pending before the Hon’ble Court. The Hon’ble Special Court concluded that the Applicants should not repeatedly approach the Hon’ble Special Court seeking the same relief and also directed Applicants to file such Applications only after first seeking the approval of the Hon’ble Court and directed Registry that it shall not accept any Application of attached assets for payment of fees without the leave of the Court.