Properties Deemed Attached When Individual is Notified u/s 3(2) of Special Court Act ’92 from Notification Date | SC

Case Details: Suman L. Shah v. Custodian - [2024] 160 taxmann.com 387 (SC)

Judiciary and Counsel Details

• • Pamidighantam Sri Narasimha & Sandeep Mehta, JJ.

Facts of the Case

In the instant case, R2 was the judgment debtor of company FFSL, notified under the Special Court Act, 1992. Consequently, by virtue of section 3(3) of the Act, all his properties stood automatically attached.

The custodian alleged that the appellants received an amount of Rs.50 lakh from Respondent Nos. 6 to 8. According to the custodian, these were benami companies of R2 who had illegally parked tainted money received from FFSL and the appellants were garnishee of R2 i.e. owner of the benami company to pay Rs.50 lakhs.

The Special Court by the impugned order allowed a miscellaneous application (MA) filed by the custodian and directed the appellant to pay Rs.50 lakh to the custodian.

It was noted that R2 was notified (as a debtor of originally notified company FFSL) with effect from 6th October, 2001, a fortiori, and thus, his properties would be deemed to be attached with effect from that date and not prior thereto.

In addition to this, the appellants borrowed the amount in question from Respondent Nos. 6 to 8 way back in the year 1996-97. By that date, there could not have existed any justifiable reason for the appellants to have entertained a belief that these were benami companies of R2.

The Supreme Court observed that the assertion made by the custodian that the appellants were garnishees of R2 through R6 to R8 was based entirely on a communication received from the Income Tax Department. An appropriate witness to prove such communication would be an official concern from the Income Tax Department.

However, no witness from the Income Tax Department was examined in support of the recovery application. Even, the communication forwarded by the Income Tax Department and relied upon by the Custodian was not proved by proper evidence.

Supreme Court Held

The Supreme Court held that the conclusions drawn and findings recorded in the impugned judgments passed by the Special Court that the appellants failed to prove the fact that amounts had been repaid to the benami companies of the notified person, i.e. R2 did not stand to scrutiny and couldn’t be sustained as being contrary to facts and law.

Therefore, as an upshot of the above discussion, the impugned judgment was to be quashed and set aside.