Sucheta Dalal :Special Court re-orders sale of Harshad Mehta’s flats in ‘Madhuli’
Sucheta Dalal

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Special Court re-orders sale of Harshad Mehta’s flats in ‘Madhuli’  

May 3, 2010

For the third time since the saga began in 1992, the Special Court set up to try matters relating to the securities scam has asked the Custodian to initiate the process of selling eight out of nine flats belonging to Harshad Mehta at 'Madhuli'. This was once among the most sought-after addresses in Mumbai.


Spread over two floors and 10,400 sq ft, these interconnected flats at Madhuli Co-operative Society occupied by the extended Mehta family then spelt the ultimate in aspiration and achievement for investors and speculators in India’s recently liberalised economy. The property included a billiards room, a putting green and a mini theatre… things that were unheard of in 1992. The Mehtas owned five flats on the third floor and three flats on the fourth floor which were occupied by four brothers and their families and their mother.


The sale of the flats was first ordered in October 2003 after which the case has seen incredible twists and turns with multiple appeals and stay orders before being reverted to Justice DK Deshmukh's court. In an extremely detailed, 140-page order issued on 30th April, which is repeatedly underlined to highlight various aspects, the learned judge has spelt out the basis of his decision. It remains to be seen if this finally settles the issue or will Ashwin Mehta, the late Harshad Mehta's brother, continue his fight to retain the family home. It may be recalled that Harshad Mehta, once described as the Big Bull, died of a heart attack in December 2001 while still facing charges of having diverted several hundred crores of rupees from banks to the capital market. His brothers, Ashwin and Sudhir Mehta, are co-accused in many cases. Over the past 18 years, they have been embroiled in never-ending and messy litigation which includes some absurd tax claims by the government.


Justice DK Deshmukh says:”Because these properties are attached properties and as per the judgement of the Supreme Court in Jyoti Mehta's case, the Custodian is entitled to receive income from the attached properties and because the notified persons are occupying those properties, the Custodian is not getting any income from these properties, the Custodian shall initiate the process of sale immediately and complete it as soon as possible and submit a report to the Court."


The Special Court order also says that all the notified parties and entities operated in tandem with Harshad Mehta in conducting the securities transactions as members of one family constituting a group. Since the various notified parties in the petition are members of the Harshad Mehta group, the properties of each notified party and entity can be sold for discharge of the liabilities of Harshad Mehta, the court order said.


Last year in July, the Supreme Court had ordered that the sale of these eight flats owned by Harshad Mehta’s family shall be confirmed by the Special Court.


Members of the Mehta family had been trying to stall the auction of ‘Madhuli’ by filing various litigations. However, all of them, after reaching the apex court, have come back to the Special Court. Earlier in January, the Special Court had even said that the Mehta family was adopting delaying tactics to stall the sale of these eight flats.

Each notified member of the Mehta family had said that since their property or share in the said property is not funded by Harshad Mehta or brought before the securities scam, it should not be attached or termed as ‘benamidar’ of Harshad Mehta by the Custodian. 

Rejecting these arguments at the outset, the Special Court said:"In our opinion, the attachment of all the properties in terms of sub-section (3) of Section 3 of the Special Act is automatic. The said sub-section does not provide for any qualification that the properties which are liable to be attached should relate to the illegal securities transactions in respect of which the Act was enacted."


The Court said that it came to the conclusion that Harshad S Mehta had funded all the residential properties and they could therefore be disposed of accordingly. In this regard, the Court said, it relied on the report of the auditors Vyas and Vyas, who had considered the flow of funds from Harshad Mehta to various notified parties. “This was the fact that the funds had specifically been transferred for purchase of the properties just before the purchase. There was also a huge amount outstanding in the accounts of the notified parties to Harshad Mehta on 1-4-1990 and 1-4-1991,” the Court said.


An interesting aspect of the judgement is the detailed recording of various charges made by Harshad Mehta's widow Jyoti Mehta, while challenging Justice DK Deshmukh's earlier order in the Supreme Court. Some of Jyoti Mehta's arguments were that the judge had "misread" and "misconstrued" the Supreme Court directions in the Ashwin Mehta case, that the judge had "committed a serious illegality in so far as he relied upon the Janakiraman Reports and other reports which are wholly inadmissible as evidence" and that the judge had "reproduced large amounts of the Custodians' report" raising the question "as to whether he took into account the arguments of the appellants in the case". The rejection of each of these contentions forms a big chunk of the report.


The Mehta property, at its current market price (about Rs40,000 per sq ft), could fetch around Rs42 crore. According to the Supreme Court ruling, a part of the proceeds from the sale would be used to pay off income tax, banks and other debts of Harshad Mehta.— By Sucheta Dalal with Yogesh Sapkale

-- Sucheta Dalal