The Special Court at Bombay has clarified that for the purpose of distribution of property under Section 11(2)(a) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (TORT Act), the phrase “taxes due” refers to taxes that are finally assessed, ascertained, and quantified. The Court ruled that a tax demand that is ‘protective’ in nature and is contingent upon the outcome of pending appeals, which have not been adjudicated for a prolonged period, does not constitute an ascertained and quantified liability.
Consequently, the Court held that the continued attachment of a notified party’s assets based solely on such an inchoate and unenforceable demand is not justified, and the estate is liable to be de-notified.
The Judge N. J. Jamadar has observed that the only claim against the estate of the late Jaideep Pathak is the income tax demand, as Standard Chartered Bank has confirmed a ‘Nil’ demand. The Judge noted that the income tax demand is admittedly a ‘protective demand’, contingent on the outcome of the substantive addition made in the assessment of Standard Chartered Bank.
Relying on the Supreme Court’s decision in Harshad Shantilal Mehta vs. Custodian [(1998) 5 SCC 1], the Court observed that “taxes due” under Section 11(2)(a) of the TORT Act must be an ascertained and quantified liability for payment of taxes. Taxes that are not legally assessed or where assessments have not become final and binding are not covered under this section, as disbursement cannot be made against a liability that is not ascertained.
The Court noted that the Income Tax Department (ITD) itself has stated that the appeals, which were remitted back by the ITAT in 2007, are yet to be heard by the CIT (A), and the department could not even state the exact status of these appeals. Therefore, the demand made by the ITD cannot be considered an ‘ascertained and quantified liability’.
Given that there are no liabilities to be discharged from the attached assets, apart from an inchoate demand from the ITD, the Court found the continued notification of the late Jaideep Pathak’s estate to be unwarranted. The Court also observed that certain assets mentioned in MA No. 68 of 2009 were disowned by all parties, including the legal heirs, and since no claimant has come forward, it is appropriate to transfer these assets to the Consolidated Fund of India.
If no final orders are passed within the said period of one year, the legal representatives of late Jaideep Pathak will be at liberty to approach this Court for enforcement of the undertaking to bring back the amount of Rs. 50 Lakhs released in favour of the Income Tax Department, added the Bench.
Briefly, the case pertains to Custodian’s Report No. 6 of 2025 concerning the assets and liabilities of the late Jaideep J Pathak, a Notified Party, who was notified by the Custodian under Section 3(2) of the TORT Act, 1992, resulting in the automatic attachment of all his properties. Following a public notice inviting claims, only the Income Tax Department (ITD) submitted a claim under Section 11(2)(a) and 11(2)(c) of the TORT Act, which included priority dues of Rs. 331.11 Lakhs and non-priority dues of Rs. 1080.56 Lakhs for Assessment Years (AY) 1991-92, 1992-93, and 1993-94.
The demand arose from the Assessment Officer including an amount of Rs. 5.68 Crore as income of Mr. Pathak for AY 1992-1993 on a protective basis, following allegations that he had fraudulently issued pay orders of that value while employed with Standard Chartered Bank. Initially, the Standard Chartered Bank had made a claim for the same amount but did not submit a specific claim against Mr. Pathak in response to the public notice; instead, it laid claims against another notified party. The bank has since filed an affidavit confirming a ‘Nil’ demand against the late Jaideep Pathak.
When the matter reached the Income Tax Appellate Tribunal (ITAT), it set aside the orders of the Commissioner of Income Tax (Appeals) and directed the CIT(A) to pass fresh orders after the decision on the substantive addition made in the case of Standard Chartered Bank for the same amount. The ITD itself informed the Custodian that the demand raised against Mr. Pathak is protective in nature and therefore not enforceable. Meanwhile, Jaideep Pathak passed away, but his estate remains under attachment. His legal heirs have not laid any claim over certain assets seized by the CBI, which were also disowned by Mr. Pathak and his associates.
Appearances:
J. Chandran, with Aditi Pandey and Shilpa Bhate, for the Custodian/ Applicant
Piyush Raheja, with Sonali Aggarwal, and M/s Dhruve Liladhar & Co, for Legal Heirs of Notified Party
Avinash Bangera and Disha Karambar & Associates, for M/s Sundaram Asset Management Company Limited
Pritesh Chatterjee, for the Income Tax Authority
