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Manjit Singh Sodhi vs The Custodian & Ors.

Civil Appeal · 2022 INSC 792Decided 4 Aug 2022
Civil Appeal No. 5126 of 2022

Background

Raviraj Housing Corporation had taken a short-term loan of Rs. 25 lakh from Fairgrowth Financial Services Ltd. (FFSL), a company notified under the 1992 Securities Transactions Act and whose recoveries are handled by a Custodian. A 2003 decree directed repayment with 20% interest, but recovery was pursued only years later. The appellant, who became a trustee of the Corporation in 2005, offered in 2018 to pay the principal and sought a waiver of interest, paying Rs. 1 lakh, but later resisted the Custodian's execution application on the ground that the claim was time-barred. The Special Court held the claim was not barred by limitation and ordered disclosure of the appellant's assets, which the appellant challenged before the Supreme Court.

Decision Breakdown

The Court first rejected the Custodian's objection that the appeal was not maintainable because the Special Court's order was merely "interlocutory", since the order had conclusively decided the limitation issue affecting the parties' rights, it was appealable. On merits, relying on its own earlier three-judge-bench ruling in L.S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd., the Court held that the ordinary Limitation Act does not apply to proceedings before the Special Court for disposal of attached property of a "notified person," since such proceedings are not an ordinary recovery suit. On that basis, the Custodian's right to recover the amount stood regardless of the correctness of the "acknowledgment of liability" finding, and the Special Court's directions for disclosure of assets were left undisturbed. The appellant was given four weeks to disclose assets, with any arrest application over the debt kept in abeyance so long as he complied, and the Special Court was requested to dispose of the execution application within two months.

Lesson Learnt

Recovery proceedings before Special Courts set up under specific securities/financial legislation to distribute a notified person's attached assets are treated as sui generis remedies, not ordinary civil suits, so the general law of limitation may not protect a debtor from such recovery even after a long delay.

Official source (sci.gov.in)View Judgment (PDF)

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