Case Note & Summary
The Custodian appointed under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 filed an application (Misc. Application No. 342 of 2000) before the Special Court at Bombay seeking a declaration that certain properties held by the legal heirs of deceased Harshad S. Mehta (a notified person) and by entities Romil Exports (a partnership firm) and Orion Travels Pvt. Ltd. were 'proceeds of crime' and liable to be forfeited. The properties included flats, shares, and bank balances. The respondents, being the widow, daughter, and son of Harshad S. Mehta, and the two entities, opposed the application claiming that the properties were acquired from their own independent sources or were gifts. The court examined the evidence, including statements of accounts and documents showing that the funds for acquiring these properties originated from Harshad S. Mehta's accounts or from entities controlled by him. The court applied the definition of 'proceeds of crime' under Section 3(2) of the Act and held that once the Custodian establishes a prima facie link between the notified person and the property, the burden shifts to the claimant under Section 3(3). The respondents failed to provide satisfactory evidence of independent source of funds. The court declared the properties as proceeds of crime and directed their forfeiture to the Custodian. The judgment emphasized that the Act is a special legislation to recover assets from the securities scam and that legal heirs cannot claim immunity if the properties were acquired with tainted money.
Headnote
A) Special Court Act - Proceeds of Crime - Definition - Section 3(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 - The term 'proceeds of crime' includes any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to securities transactions - The court held that properties acquired by a notified person or his associates using funds from the securities scam are proceeds of crime, regardless of the legal title being in the name of third parties or legal heirs (Paras 10-25). B) Special Court Act - Burden of Proof - Section 3(3) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 - Once the Custodian establishes that a property is held by or on behalf of a notified person, the burden shifts to the claimant to prove that the property is not proceeds of crime - The court held that the legal heirs failed to discharge this burden as they did not provide independent source of funds for the properties (Paras 26-40). C) Special Court Act - Beneficial Ownership - Section 3(1) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 - Properties held in the name of family members or entities controlled by the notified person are deemed to be held for his benefit - The court held that the properties in question were beneficially owned by Harshad S. Mehta and were acquired using funds from the securities scam (Paras 41-55).
Issue of Consideration
Whether the properties held by the legal heirs of a deceased notified person and by entities controlled by him are 'proceeds of crime' under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, and liable to be forfeited to the Custodian.
Final Decision
The Special Court allowed the application of the Custodian and declared the properties listed in the application as proceeds of crime. The court directed that the properties be forfeited to the Custodian for disposal in accordance with the Act.
Law Points
- Proceeds of crime
- Notified person
- Burden of proof
- Beneficial ownership
- Forfeiture
- Special Court Act 1992
