CANBANK FINANCIAL SERVICES versus CUSTODIAN AND ANR.

RAJENDRA BABU, J. Facts leading to this Appeal are as follows:

p. 1101, margin G

Appellant engaged Respondent No. 2 as a broker to sell I 0,00,000 shares of Reliance Petro Chemicals Ltd. at the rate of Rs. 29 per share. It is said that those shares were sold and the Respondent No.2 is liable to collect the sale proceeds and pay the same to Appellant. The payment was, however, not made. In the meanwhile, Custodian appointed under Section 3 of Special A Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 \ (the Act) notified Respondent No.2, whereby all properties bdonging to him stood attached. Appellant filed a Petition before the Special Court for a declaration that the sum of Rs. 2.90 crores received by Respondent No 2 on

pp. 1101–1102, margin G

behalf of Appellant was not property 'belonging to' him and hence the attachment of that amount is void. There was also a pica to release the said sum in favour of the Appellant.

p. 1102

Special Court dismissed these prayers vide its Order dated 14 September 1993. Dismissal was on the reasoning that the Appellants failed to show that the money was credited into or lying in any particular account. The Special Court further held that all that the Appellant entitled is only to a charge on the estate of Respondent No.2 for recovery of their money, but refused to release the money to Appellant. This Order is impugned herein. It is also the case of Respondent No.2 that the Appellant is liable to pay about Rs. 3 crores to his brother and that he is entitled to set off the sum of Rs. 2.90 crores against the amount due to his brother Harshad Metha.

p. 1102, margin B

Case put forwarded by the Appellant is; that Respondent No.2 merely acted as agent I broker on behalf of the Appellant; that the amounts he received from the sale of their shares should have been handed over to them; ~ that as long as the amounts are not handed over, Respondent No.2 holds the

p. 1102, margin B

same in trust for and on behalf of the Appellant; that the same is not his property; that Respondent No. I/Custodian ought not to have attached the property since it is not property 'belonging to' Respondent No.2.

p. 1102, margin B

Respondent No. l has not denied the transaction.

p. 1102, margin E

In this context the position of law that needs to be ascertained is whether the amount, Respondent No.2 is holding, belongs to him or not. Under section -~ 11 (I) of the Act, the Special Court is empowered to direct Custodian for the disposal of property under attachment. In Harshad S. Metha v. Custodian and Ors., [ 1998] 5 SCC 1 this Court clarified that if any person other than the notified person has any interest, share, title or right in the attached property it cannot be extinguished. It was clarified that the Special Court cannot dispose of property, which does not belong to notified person.

p. 1102, margin E

In this case, it is the admitted position that Respondent No.2 was asked to sell shares for and on behalf of Appellant. Thus the proceeds of such sale

p. 1102, margin F

cannot be treated as property belonging to him. It belongs to Appell~nt and H Respondent No.2 was only holding the same in trust. The relationship between a share broker and customer is one of trust. In this view of the matter, attachment under Section 3 of the Act cannot extend to Appellant's (Rs. 2.90 crores) and, therefore, appellant is entitled to get back his

pp. 1102–1103, margin F

In order to locate the money that belongs to Appellant, this Court it essential that more facts in relation to the sale proceeds and the claims of set off needs to be ascertained. An Order was passed on 6 February, 200 I by this Court wherein Respondent No.2 was directed to file an affidavit disclosing the following facts: - (a) The dates on which and the parties to whom the said

p. 1103, margin A

shares were allegedly sold; (b) The manner in and the date on which the price of the said

p. 1103, margin C

was realized; (c) The manner in which he dealt with the proceeds stated

p. 1103, margin C

been realized· from the sale of those shares; (d) The account particulars (in so far as it is relevant) of the in which the proceeds, if any, of the sale of the said shares deposited; and (e). In case any payment had been received way of settlement or adjustment of any other transaction, the full particulars of the parties with whom those transactions

p. 1103, margin C

were held and the particulars of those transactions.

p. 1103, margin D

His brother was also directed to file an affidavit clarifying his position on the claim of set off. In order to ascertain the particulars, Respondent 2 and his brother were given liberty to verify the documents and records the custody of CBI or income tax authorities concerning the said transaction.

p. 1103, margin E

Pursuant to this Order Respondent No.2 filed an affidavit; along he attached a contract note dated 3 March, 1992 indicating that I 0 shares of Reliance Petro was sold to Harshad Metha at the rate of Rs. share. By this he answers first point.

p. 1103, margin F

Though sufficient time and liberty to verify relevant records was he failed to answer queries (b) to (e) on one ground or another not in law and hence adverse inference has to be drawn against him. On 6, 200 I brother of Respondent No.2 Harshad Metha filed an affidavit stating that he is not claiming any set off against Appellant regarding his claims.

p. 1103, margin G

Even in Reply to the application filed by the Appellant before Special Court Respondent No.2 submitted as follows:

pp. 1103–1104, margin H

" .... .I say that it is correct that some time in March been approached by the Petitioner herein for Reliance Petrochemicals Ltd. I recollect that had taken place on behalf of the Petitioner some 1992. I understand that the sale proceeds in respect have also been received by my firm. I cannot moneys have been received. It is also correct not been paid over by my firm to the Petitioners there was a balance in the firm's account in when the account was frozen by CBI... .. "

p. 1104, margin A

Considering the categorical admission by Respondent received money on behalf of Appellant, the Appellant his money, because Respondent No.2 is holding the Respondent No.2 blended the property I money with under Section 66 of the Indian Trusts Act, 1882 (the is entitled to a charge on the whole fund for the amount cannot agree with the finding of the Special Court that to locate the particular account in which the money it back. Section 66 of the Trusts Act arms the Court the whole property of the trustee to the extent of amount

p. 1104, margin C

In the result, we cannot sustain the view adopted on the application of Appellant for releasing its money. entitled to the amount to the extent of Rs. 2.90 crores Respondent No.2.

p. 1104, margin E

Hence, we allow this appeal, set aside the order of direction to work out appropriate modalities for refund appellants at an appropriate stage. R.P.

p. 1104, margin F