Bank N.A. Vs. Standard Chartered Bank & Others  Insc 511 (8 October 2003)
Lahoti & Ashok Bhan.Bhan,J.
Appeal (civil) 8340 of 1995 Canara Bank & Ors.
Bank N.A. & Ors.
judgment shall dispose of Civil Appeal No.7941 of 1995 arising in Suit No.22 of
1994 (filed by Standard Chartered Bank against Citi Bank & Others) decided
on 10th July, 1995 and Civil Appeal No. 8340 of 1995 arising in Suit No. 20 of
1994 (filed by Citi Bank against Standard Chartered Bank & Others), decided
on 7th July, 1995. Suits were tried by the Special Judge appointed under the
Special Courts (Trial of Offences Relating to Transactions in Securities) Act,
1992, hereinafter referred to as 'the Act'.
1991-92, Reserve Bank of India noticed that large scale
irregularities and mal practices were committed in transactions in both the
Government and other securities, by some brokers in collusion with the
employees of various banks and financial institutions. The said irregularities
and mal practices led to the diversion of funds from banks and financial
institutions to the individual accounts of certain brokers. To deal with this
situation and, in particular, to ensure speedy recovery of the huge amount
involved and to punish the guilty and restore confidence in and maintain the
basic integrity and credibility of the banks and financial institutions, this
Act was enacted for establishment of Special Courts to be presided over by a
sitting Judge of the High Court to be nominated by the Chief Justice of the High
Court within the local limits of whose jurisdiction the Special Court is
situated, with the concurrence of the Chief Justice of India. The Act provided
for appointment of one or more Custodian for attaching the properties of the
offenders with a view to prevent diversion of such property by the offenders.
The Custodian, on being satisfied, on information received that any person has
been involved in any offence relating to transactions in securities after the
1st day of April, 1991 and on and before 6th June, 1992 could notify the name of such
person in the Official Gazette. Special Courts were given the jurisdiction to
deal with cases of civil as well as criminal liability of the notified person.
present appeals arise out of a set of transactions between three parties,
namely, the Citi Bank, Standard Chartered Bank ( for short 'SCB') and Canbank
Mutual Fund (for short 'CMF') through its trustees.
No. 22 of 1994 filed by SCB has been decreed against the Citi Bank and that is
how the Citi Bank is in Appeal in Civil Appeal No. 7941 of 1995 and Suit No. 20
of 1994 filed by the Citi Bank has been decreed against the CMF and that is how
CMF is in appeal in Civil Appeal No. 8340 of 1995.
brief facts giving rise to these appeals are:
Bank is a corporation incorporated under the laws of United States of America, carrying on business of banking,
inter alia, at Sakhar Bhavan, Nariman Point, Bombay. SCB is a bank incorporated by royal charter under the laws
of England and Wales. CMF is represented through its trustees. CMF was made a
party respondent along with its trustees in Suit No. 22 of 1994 filed by SCB
initially; they were given up on the application of SCB on 10th July, 1995. CMF has been made a party in Civil
of 1995 (in Suit No. 22 of 1994), though as stated above it had been deleted
from the array of parties in the suit at the instance of the plaintiff SCB.
On 27th May, 1991, CMF purchased certain securities
(11.5% GOI 2009 Bonds) from the Bank of Karad. Citi Bank purchased from CMF
11.5% GOI 2009 bonds of the face value of Rs.44,93,20,414.17 p. for Rs.44.8505 crores
on the same day. The total consideration was paid by the Citi Bank to CMF. CMF
handed over to the Citi Bank their Subsidiary General Ledger ( for short 'SGL')
Transfer Form, duly executed on their behalf to enable the Citi Bank to get the
said securities duly transferred to their name in the SGL maintained by the CMF
with the Reserve Bank of India. CMF maintains with the Public Debt Office (for
short 'PDO') of the Reserve Bank of India an account into which its purchase of
the Government of India Securities were credited and whenever it desires to
sell any Government securities, instead of physically handling the papers, it
merely issues a SGL transfer form which can roughly be equated to a non-
negotiable account payee cheque in favour of the transferee. A SGL has to be
issued in favour of a named person and no blank SGL transfer form can be issued
under the Regulations governing the use of SGL transfer form framed by PDO of
the Reserve Bank of India.
Bank on 27th May, 1991 presented the SGL transfer form to
the Reserve Bank of India but the same was dishonoured for
want of insufficient balance. An endorsement to that effect was made on the SGL
form. It was presented once again on 6th June, 1991 when it was again dishonoured for
want of balance.
18th & 19th
September, 1991, Citi
Bank agreed to sell to SCB 11.5% GOI 2009 Bonds of the face value of Rs. 42 crores
and Rs. 8 crores respectively against receipt of the purchase price paid by the
SCB to the Citi Bank. Since the bonds were not ready, the Citi Bank issued two
Bankers Receipts (for short 'BRs') Nos. 0912621480 and 0912611410 for the said
Bonds with the understanding that the Bonds will be delivered when ready in
exchange for the duly discharged BRs and in the mean time the BRs will be held
on account of the SCB. A seller issues a BR acknowledging its liability to
deliver the purchased securities, when purchaser has made the payments. The
exact term mentioned in the BR is as follows:
Securities/Debentures/Bonds of face value of Rs.42,00,000.00 will be delivered
when ready in exchange for this receipt duly discharged and in the meantime the
same will be held on account of Standard Chartered Bombay." By a letter
dated 19th September,
1991, the SCB
requested the Citi Bank to deliver to the SCB, SGL forms issued by CMF in
exchange for the two BRs issued by the Citi Bank. Accordingly, the Citi Bank
delivered to the SCB, the (1) SGL form which had been issued by CMF in its favour
of the face value of Rs. 44.8505 crores and (2) their own SGL form of the face
value of Rs.5,41,95,000/- in exchange of the two BRs making it equivalent to Rs.
50 crores i.e. the amount advanced by SCB for purchase of the GOI Bonds. SCB delivered
to the Citi Bank, the two BRs duly discharged which had been earlier issued by
the Citi Bank in favour of SCB. The letter dated 19th September, 1991 written by SCB to the Citi Bank is to the following
hereby enclose two BRs (1) 42 crores (2) 8 crores issued by you of 11.5% GOI
2009 on 18.9.91 & 19.9.91 respectively. We now request you to give us SGLs
of Canbank Mutual Fund in exchange of the same." [emphasis added]
Allegedly on 8th of October, 1991 SCB addressed a letter to the CMF requesting
CMF to issue a fresh SGL transfer form in its name in lieu of SGL transfer form
received by the SCB from the Citi Bank. CMF in their written statement in Suit
No. 22 of 1994 denied having received the said letter. The letter was attached
by the SCB with its plaint in Suit No. 22 of 1994 and this fact was mentioned
in the plaint as well. Another important fact which needs to be noticed is that
on 25th November, 1991 SCB received the interest due as on 19th November, 1991
of the said bonds vide cheque No.944073 dated 25th November, 1991 in the sum of
on Andhra Bank. The interest was neither received from the Citi Bank nor from
the CMF. The same was received from a third party whose name was not disclosed
in the plaint by the SCB. Citi Bank's SGL form of the value of Rs. 5,00,95,000/-
was duly encashed by the SCB and there is no dispute about it.
17th June, 1991 SCB addressed their advocate's letter to the Citi Bank calling
upon the Citi Bank to forthwith handover to SCB the consideration of Rs.
44.8505 crores paid to the Citi Bank with further interest in respect of the
said bonds as they had not received delivery of the said bonds from CMF in
spite of the lapse of over nine months from the date of giving of the SGL of
CMF. Advocate for the Citi Bank sent a reply to the advocate's notice of SCB
refuting the claim of the SCB. According to the Citi Bank, the liability of the
Citi Bank to deliver the securities (11.5% of GOI 2009 Bonds) under the
contract of sale between the Citi Bank and SCB stood discharged and the Citi
Bank ceased to be liable to carry out any further obligation in respect of the
On 8th October, 1992 SCB filed a suit against the Citi
Bank in the Federal Court at New York
claiming consideration paid by the SCB to the Citi Bank. SCB also filed a suit
bearing No. 3837 of 1992 in the High Court of Judicature at Bombay on its original side against the Citi
Bank for recovery of the aforesaid amount due towards the Bonds. Citi Bank made
an application to the Federal Court at New York seeking dismissal of the suit on the ground of forum non-convenience.
By an order dated 22nd April, 1994 the Federal Court dismissed the said suit,
inter alia, granting liberty to the SCB to revive the suit in the event the
suit filed by the SCB in the Bombay High Court was not disposed of within a
reasonable period of time.
the service of summons in Suit No. 3837 of 1992, Citi Bank filed a suit in the
nature of third party proceedings being Suit No. 20 of 1994 before the Special
Court at Bombay constituted under the Act, inter alia, against the SCB, CMF and
its trustees in which the Citi Bank pleaded that in the event of a decree being
passed against the Citi Bank and in favour of the SCB in Suit No. 3837 of 1992
filed by the SCB against the Citi Bank, Citi Bank was entitled to a decree
against CMF for delivery of the original securities, or, in the alternative for
the refund of the consideration paid and for other reliefs.
in Suit No. 3837 of 1992 was returned by the High Court for being presented to
the Special Court because one of the parties notified
under the Act was involved. The suit was transferred to the Special Court and renumbered as Suit No. 22 of
1994. Citi Bank after service of the summons in Suit No. 22 of 1994 filed its
the case of SCB against the Citi Bank was for return of money on the ground
that for consideration which was paid on 18th and 19th September, 1991, it had not received the transacted securities. That
Citi Bank expressly/impliedly warranted that CMF would transfer the Bonds and
on its failure to do so, the Citi Bank was obliged to deliver the Bonds. That
the action of Citi Bank was fraudulent and amounted to deceit. That 'useless'
and 'worthless' SGLs were given by Citi Bank which even could not be
transferred in its name. In the written statement filed by SCB in Citi Bank's
suit an additional plea (which is absent in its own suit filed two years
earlier) was taken to the effect that the SGL sought by SCB was an SGL of CMF
in favour of SCB and not the one drawn in favour of Citi Bank. Citi Bank in its
defence in suit no. 22 of 1994 pleaded and contended that as SCB had on its own
volition asked for and took the SGL of CMF which was in its possession and returned
the two BRs duly discharged and therefore the Citi Bank was no longer under any
obligation to either pay any sum or to deliver any securities much less to
refund the money. That SCB returned two BRs duly discharged in exchange of the
SGL of CMF at its express desire. The obligation to deliver bonds under BRs was
substituted by delivery of the SGL of CMF. Citi Bank similarly claimed complete
discharge in its own suit. Citi Bank in its suit claimed for a decree against
CMF in case a decree was passed against the Citi Bank in the Suit filed by SCB.
The defence taken by the CMF in the two suits was more or less common. In
substance it was that all these transactions were part of Hiten Dalal's
transactions with SCB and that CMF as well as Citi Bank were merely used as a
conduit to pay monies from the Bank of Karad which was basically a Hiten Dalal's
account to SCB and from SCB to the Bank of Karad and that all these
transactions were in pursuance of an arrangement which Hiten Dalal had with SCB
under which SCB used to "Park" funds with Hiten Dalal for guaranteed
return of 15 percent, although this parking of funds was shown simulated
transaction in securities.
these broad pleadings the following separate issues were framed in Suit No.20
of 1994 between Citi Bank and SCB (Set A) and between Citi Bank and CMF(Set B):
IN SUIT NO. 20 OF 1994 A. ISSUES BETWEEN THE PLAINTIFF (CITIBANK N.A.) AND
DEFENDANT NO. 2 (STANDARD CHARTERED BANK).
Whether the liability of the Plaintiffs towards Defendant No. 2 stood
discharged and the Plaintiffs ceased to be liable as alleged in paragraphs 8
and 9 of the plaint?
Whether the liability of the Plaintiffs towards Defendant 2 could have been
discharged only if Defendant No. 2 had obtained delivery of the securities as
alleged in paragraph 8 of the Written statement?
Whether the remedy of Defendant No. 2 is only against Defendant Nos. 3 to 3G as
alleged in paragraph 9 if the plaint?
ISSUES BETWEEN THE PLAINTIFF (CITIBANK N.A.) AND DEFENDANTS 3 TO 3G (CANARA BANK
Whether the alleged claim of the Plaintiff is contingent upon the Plaintiff
being held liable for the alleged claim of Defendant No. 2 in Suit No. 22 of
1994 as alleged in paras 12 and 14 of the Written Statement of Defendant Nos.
3A to 3G?
Whether the two transactions dated 27th May 1991 are interconnected with the
Plaintiffs alleged transaction dated 18th September 1991 with Defendant Nos. 2?
Whether the alleged transaction dated 18th September 1991 with the Plaintiffs
are part of and/or connected with the alleged 15% informal arrangement that
Defendant No. 2 had with Defendant No. 1 and whether the alleged transactions
are illegal and opposed to public policy as alleged para 8G of the Written
Statement of Defendant Nos.3A to 3G?
Whether the Plaintiff and the Defendant Nos. 3A to 3G are not liable to
Defendant No. 2 for the reasons alleged in para 8D of the Written Statement of
Defendant Nos. 3A to 3G?
Whether the Defendants are not liable for the claim in the suit in view of the
alleged facts and circumstances mentioned in paragraph Nos.
10 of the Written Statement of Defendant Nos. 3A to 3G?
Whether the two security transactions dated 27th May, 1991 were a ruse by which Defendant No.
1 transferred funds to himself using Defendant No. 3 as a conduit?
Whether claim against Defendant Nos. 3A to 3G personally is barred by
Whether Defendant Nos. 3A to 3G are personally liable for the claim in the
Whether the Plaintiffs claim against Defendant Nos. 3 to 3G is not maintainable
in view of the facts and circumstances set out in paragraphs 5(a) to 5(h) of
the Written Statement of Defendant Nos.3A to 3G? In Suit No. 22 of 1994 issues
were framed between the plaintiff SCB and Citi Bank, defendant No.2. No issues
were framed between SCB and the CMF. The same were as follows:
IN SUIT NO. 22 OF 1994 1. Whether the Plaintiffs have no cause of action
against Defendant No.
alleged in Paragraph 1 of the Plaint.
Whether for the reasons mentioned in paragraph 3 of their written statement
Defendant No. 1 stands discharged of all their obligations.
Whether Defendant No. 1 gave any express or implied warranty of the nature
alleged in para 13 of the plaint.
Whether there is any failure of consideration as alleged in para 14(3) of the
Whether Defendant No. 1 is guilty of any fraud or deceit as alleged in para
14(g) of the Plaint.
Whether any amount is payable by the 1st Defendant to the Plaintiffs as alleged
in para 15 of the plaint.
what reliefs are the Plaintiff entitled to? 8. And generally.
of documents in Suit No. 20 were tendered in the Court. No oral evidence was
led by any of the parties in Suit No.20. Suit No. 20 of 1994 was listed for
hearing. Citi Bank and CMF submitted before the Special Court that issues
between Citi Bank and SCB should not be decided in Suit No. 20 of 1994 (Citi
Bank suit) but in Suit No. 22 of 1994 as issues between Citi Bank and CMF were
dependent on the result of Suit No. 22 of 1994 filed by SCB against Citi Bank.
It was contended that the suit filed by the Citi Bank was a contingent suit
depending on the result of the suit filed by SCB against the Citi Bank. This
objection was overruled by the Special Court.
the three issues (Set A) in Suit No. 20 of 1994 between the Citi Bank and the
SCB were decided in favour of the SCB and against the Citi Bank on 5th/6th
July, 1995. It was held that the liability of the Citi Bank was not discharged
towards the SCB and that the remedy of SCB was not against the CMF or its
trustees. It was further held that the liability of the Citi Bank towards SCB
could be discharged only if the SCB had obtained delivery of the securities as
alleged by the SCB in paragraph 8 of its written statement.
of July, 1995 issues between Citi Bank and CMF (Set B) in Suit No. 20 of 1994
were answered in favour of the Citi Bank and the suit decreed against CMF.
Issue No.1 was decided in the negative. Issues No.2 to 6 were also answered in
the negative because of the absence of any evidence. Issues Nos. 7 & 8 were
not pressed. Issue No. 9 was decided in the negative i.e. against the CMF and
in favour of the Citi Bank. Citi Bank's claim against CMF was held to be
justified. CMF was ordered to deliver Bonds equivalent to the amount mentioned
in the SGL to the Citi Bank along with interest at 11.5% accrued thereon. Under
the Bonds the interest was payable after every six months. Since it was not
paid, in order to compensate the Citi Bank for denial of the use of the interest
amount accrued, coupon interest of 20% on the interest accrued was ordered to
be paid. The trustees of CMF i.e. defendant Nos. 3 to 3G were discharged from
their personal liability. The decree was made contingent depending upon the
result in Suit No.22 of 1994 filed by SCB against Citi Bank.
in Suit No. 22 of 1994 were answered in the following terms.
Nos. 1 & 2 were answered in the negative i.e. in favour of the SCB and
against the Citi Bank. It was held that SCB had a cause of action against the Citi
Bank and the Citi Bank was not discharged of its obligations towards the SCB.
Issues Nos. 3 & 5 were not pressed. Issue No. 4 was answered in the
negative. Issue Nos. 6, 7 and 8 were answered as per order.
suit was decreed for Rs.54,07,24,676.93 p. with interest at 20 % per annum on
Rs.44,79,44,864/- from the date of the suit till payment for the reasons set
out in the judgment dated 7th July, 1995 in the issues between Citi Bank and
the SCB in Suit No. 20 of 1994.
10th of July, 1995 SCB filed an application for dropping defendants Nos. 2 to 9 (CMF and its trustees) in Suit No.22 of 1994. This was
opposed by the CMF. Court permitted the CMF and its trustees to be dropped from
the array of the parties. Another fact which needs to be noticed is that CMF
filed Civil Appeal Nos.8248-89 of 1995 against the orders passed by the Special Court dropping it as a party in Suit No.
22 of 1994 and the decree passed therein. Both of these appeals were dismissed
by this Court on 18th
Special Judge did not accept the Citi Bank's plea that there was a satisfaction
accepted and recorded to the original contract between Citi Bank and the SCB in
terms of Section 63 of the Indian Contract Act.
that the original contract to deliver the 11.5% GOI 2009 Bonds was substituted
by the SCB vide their request letter dated 19th September, 1991 and instead to
give "SGLs of Canbank Mutual Fund in exchange of the same" was not
accepted on the ground that novation of the contract could not be there as CMF
was not a party and consented to the transfer of their SGL form in favour of
SCB which was in the hands of Citi Bank.
made by the counsel appearing for the SCB to the effect that Section 41 of the
Contract Act would be more appropriately applicable was accepted as the third
party (CMF) failed to perform or the Citi Bank failed to get the promise made
by it to be performed by the CMF. That the SCB by returning the two BRs did not
dispense with or remit the performance of the promise made by the Citi Bank.
Learned Special Judge gave detailed reasons for turning down the request of the
CMF for issue of chamber summons as the learned Special Court was of the opinion that there was an effort on the part of
the CMF to get the suit adjourned.
we go to the submissions made before us by the learned senior counsel for the
parties, reference may be made to the entire documentary evidence present on
the record which was referred to and read out extensively during the course of
the hearing. Exhibit 'B' is the form of transfer for operation on SGL account
dated 27th May, 1991 by Canara Bank as trustee of Canbank
Mutual Fund and to assign and transfer their interest and share in SGL by way
of 11.5% GOI 2009 Bonds for the sum of Rs.44,58,05,000/- in favour of Citi
Bank. On presentation of the SGLs by the Citi Bank to the Reserve Bank of India the same were dishonoured and
returned with an endorsement "insufficient balance" on the face of
two Banker's receipts dated 18th & 19th September, 1991 in the sum of Rs.42 crores and Rs.
8 crores being the cost of securities/debentures/bonds of 11.5% GOI 2009 Bonds
issued by the Citi Bank and handed over to the SCB is jointly marked as Exhibit
'A'. On the reverse of these two receipts there is a stamp of SCB and
signatures of an officer of the bank. Then there is a letter dated 19th
September, 1991 written by the SCB to the Citi Bank requesting the Citi Bank to
give the SCB SGL's of Canbank Mutual Fund in exchange of the two BRs. On
receipt of this letter, Citi Bank handed over the original SGL forms of 11.5%
GOI 2009 Bonds received by it from the CMF dated 27th May, 1991 face value of
which was Rs.44,58,05,000/- and its own SGL in the sum of Rs.5,41,95,000/-
making a total of Rs.50 crores in return for the two BRs of equivalent amount
bearing Nos. 0912611410 & 0912621480 in the sum of Rs. 42 crores and Rs.8 crores.
Then there is Advocate's letter of SCB dated 17th June, 1992 addressed to the
Manager, Citi Bank asking for securities of the face value of Rs.44,58,05,000/-
instead of SGL of Canbank Mutual Fund of the same amount in the form of 11.5%
GOI 2009 Bonds or in the alternative to make payment of the said amount in
respect of the valuable consideration already received by the Citi Bank. Exhibit
'D' is the letter addressed by the Advocates of the Citi Bank refuting the
statement of facts made by in the advocate's notice of the SCB dated 17.6.1992.
It was stated that SCB knew that SGLs are not transferable but in spite of that
SCB desired to have SGLs issued by CMF in favour of the Citi Bank. Accordingly,
SGLs were delivered in exchange of the two BRs. That SCB for reasons best known
to it and of its own volition chose to take from Citi Bank the SGL of CMF which
was in its possession in exchange for the two BRs. The obligation of Citi Bank
to physically deliver the securities ceased/ or was discharged. The question of
handing over the securities or valuable consideration for the securities, under
the circumstances therefore, did not arise at all.
position which emerges from the facts narrated above is that on 18th September, 1991 and 19th September, 1991 Citi Bank had agreed to sell to SCB 11.5% GOI 2009
Bonds of the face value of Rs. 42 crores and Rs. 8 crores. Citi Bank had issued
two Banker's receipts promising to deliver the 11.5% GOI 2009 Bonds when ready
with the stipulation that on delivery of the Bonds SCB would return the two BRs
duly discharged. A letter dated 19th September, 1991 was written by the SCB
requesting the Citi Bank to give SGL of CMF in exchange of the two BRs (1)
Rs.42 crores and (2) Rs.8 crores issued by the Citi Bank stipulating to give
11.5% GOI 2009 Bonds of that value. The two BRs issued by the Citi Bank were
returned to it by the SCB and SCB accepted the SGL of CMF for the sum of
Rs.44,58,05,000/- and another SGL of the Citi Bank for the sum of
Rs.5,41,95,000/-. The latter was duly encashed by the SCB and there is no
dispute regarding the same.
basis of these facts Shri Andhyarujina, learned senior counsel appearing for Citi
Bank in Civil Appeal No. 7941 of 1995 contended that SCB on its own asked for
and voluntarily accepted the two SGLs from Citi Bank as satisfaction which it
deemed fit in exchange for Citi Bank's obligation to deliver the 11.5% GOI 2009
Bonds of the face value of Rs.50 crores under the two BRs. That SCB voluntarily
and unconditionally accepted the SGL of CMF knowing full well that under such
SGL it could not obtain Bonds from PDO. That SCB accepted the SGL of CMF
knowing full well that it had been dishonoured by the Reserve Bank of India and it is not transferable. That
these admitted and established facts clearly bring the case of Citi Bank under
Section 63 of the Indian Contract Act. That SCB asked for and accepted the SGL
of CMF as satisfaction which it deemed fit for the obligation of the Citi Bank
to deliver GOI bonds of the face value of Rs.44,58,05,000/- and therefore the Citi
Bank stood discharged from its obligation to deliver the Bonds under Section 63
of the Indian Contract Act.
the contention of the SCB that SGLs were 'useless or worthless' was not tenable
as it accepted the dishonoured SGLs of CMF without any protest and also
received interest from an undisclosed third party thus treating itself a
beneficial owner of SGL which clearly points that SGL was not 'useless or
worthless' as is being sought to be made out now. The letter of 8th October, 1991 written to CMF asking to give SGL
in favour of SCB also shows that SCB knew that the securities could not be
delivered on the strength of SGL form taken by it from Citi Bank. Plea put
forth that Citi Bank had given 'useless or worthless' SGL by playing a fraud is
an after thought after the unscrambling of the infamous securities scam.
Another fact emphasised was that SCB kept quiet for almost 9 months for which
no satisfactory explanation has been given. That an adverse inference be drawn
against SCB as it had failed to disclose the material facts in the suit and
also failed to explain the delay of 9 months in approaching the Citi Bank. It
is his contention that the Special Judge fell in error in accepting the
contention of SCB that the present case would be governed by Section 41 of the
Indian Contract Act. According to him Section 63 of Indian Contact Act would be
more appropriately applicable. That the Citi Bank as per decree was required to
pay the value of the securities along with interest whereas it has been given
in return the bonds of the face value of Rs.44.8505 crores the value of which
at that time in the market was at a discount and in this process the Citi Bank
incurred a loss of Rs.12,94,66,022.41 p.
against this Shri R.F.Nariman, the learned Senior advocate appearing for the
SCB in Civil Appeal No. 7941 of 1995 contended that an implied warranty must be
read in the transaction asking for and accepting the SGL of CMF. Principles of
contractual interpretation mandate that construction placed on the terms be
reasonable and consistent with the natural and probable course of human
conduct. That the courts will not adopt an interpretation out of context in
commercial dealings between the parties and in a manner unknown to trade and
commerce. That admittedly SCB had paid Rs.50 crores to Citi Bank for 11.5% GOI
2009 Bonds. SCB having established that it did not receive securities worth
Rs.50 crores despite having paid the consideration, the onus to prove novatio
and/or discharge by substitution and/or satisfaction was on the Citi Bank which
it had failed to discharge.
in the absence of oral evidence, SCB's letter dated 19th September, 1991 to Citi
Bank falls for consideration. This letter does not state that SCB required 'the
dishonoured SGL of CMF in favour of Citi Bank'. Admittedly, such an SGL could
not have been used by SCB for delivery of securities. There is no reason why
SCB did or could have asked for the said SGL. What SCB wanted was the SGL of
CMF in favour of SCB. That SCB's letter dated 19th September, 1991 should be interpreted in the above context and the
following points emerge from a plain reading of the letter and establish that
SCB required a SGL of CMF in favour of SCB and not the one in favour of Citi
Bank. That the BRs were enclosed with the letter and therefore SCB gave them
first and only thereafter received the SGLs. The BRs were for Rs.50 crores and
not for Rs.44.58 crores; latter was the value of the SGL of CMF. By return of
the BRs of Rs.50 crores, SCB cannot be understood to have asked for a dishonoured
third party's SGL of Rs.44.58 crores. That the word "SGLs" in plural
shows that SCB did not want the single dishonoured SGL of CMF. That the words
"issued by you" in the letter referring to Citi Bank's BR are not
followed by the words "in our favour". Similarly, SCB's request for SGLs
of CMF is not followed by the words "in our favour". The words
"in our favour" are obviously intended in both situations and ought
to be read into the letter.
the letter does not show SCB had knowledge of CMF's SGL in favour of Citi Bank.
That the words "in exchange" only shows that SCB was substituting one
"step in aid" for another "step in aid" of delivery of
securities. That the Citi Bank's obligation to deliver bonds is nowhere
discharged. Only the BRs are substituted with SGLs. Both are merely promises to
deliver bonds. That the words "SGLs of CMF" only imply that SCB was
willing to look to CMF for performance. This could have been achieved only if SGLs
of CMF were issued in favour of SCB and bonds consequently transferred to SCB.
Since the offer of SCB to get performance by CMF was not satisfied, the letter
does not vitiate Citi Bank's contractual obligation to deliver securities to
SCB. That Citi Bank clearly understood the letter as above i.e. its obligation
to deliver bonds continued and did not cease. That for this reason Citi Bank
gave its own SGL of Rs.5,45 crores which gave securities to SCB.
next contended that acceptance of the SGLs transfer form was only a conditional
discharge of performance and not as an absolute discharge. Relying upon a few
reported decisions it was contended that where a cheque, pronote or banker's
receipt is received or accepted "in satisfaction", there is a
presumption that such acceptance was only as a 'conditional discharge' of
performance and not as an 'absolute discharge'.
conditional discharge having failed, the SCB could fall back on the original
consideration. That Section 63 of the Indian Contract Act was not applicable.
That mere signatures or endorsement on the BRs, without receipt of bonds which
the BRs promised, can never discharge the Citi Bank of its main obligation of
delivering the bonds. That receipt of the interest by SCB from a third party
was of no consequence. That this point was not raised by the Citi Bank or the
CMF in its submissions made before the Special Court. This point has also not
been taken as a ground in the Citi Bank's appeal. That merely because SCB
received some money/interest from the third party does not lead to an inference
that the SCB had discharged Citi Bank of its obligation to deliver the
securities. He further argued that in order to do complete justice between the
parties the SCB could be asked to make good the loss if any suffered by the Citi
Bank. The CMF should not be unduly benefited.
learned senior advocate, appearing for the SCB in Civil Appeal No. 8340 of 1995
additionally contended that in case both the decrees in Suit No. 22 and 20 of
1994 were reversed, CMF would be unduly enriched and SCB would lose Rs.45 crores
apart from the interest accrued thereon. Such a result would be contrary to all
notions of justice. Under the circumstances irrespective of any view this Court
may form, in order to do complete justice between the parties, in exercise of
its power under Article 142 of the Constitution of India the Court should
maintain the decree in favour of SCB and if need be the SCB can be made to
reimburse the Citi Bank to the extent of Rs.12,94,66,022.41p. That this Court
in exercise of its power under Article 142, keeping in view the practicality
and reality of the situation, should see to it that nobody is allowed to have
its own pound of flesh unjustly against the other.
counsel for the parties have been heard at length.
stipulation in the BRs the Citi Bank had agreed to deliver 11.5% Government of
India 2009 Bonds when ready "in exchange for this receipt duly discharged
and in the meantime the same will be held on account of Standard Chartered
Bombay." On the same day, i.e., on 19th September, 1991 SCB wrote a letter
returning the two BRs with a request "to give us SGLs of Canbank Mutual
Fund in exchange of the same".
in the BRs was to deliver 11.5% GOI 2009 Bonds in exchange of BRs duly
discharged; SCB in exchange of the BRs asked for and received SGLs of CMF. Case
of Citi Bank is that BRs are duly discharged with the result that Citi Bank was
relieved of its obligation to deliver the Bonds under the BRs. That the SCB
substituted the satisfaction referred to in the BRs (11.5% GOI 2009 Bonds) by
asking for and taking the SGL of CMF. As against this the case of SCB is that BRs
were never discharged.
were returned to the Citi Bank in exchange of SGL of CMF. The Citi Bank was not
discharged of its obligation under the BRs to deliver the 11.5% GOI 2009 Bonds.
The first question which needs to be determined is whether the BRs were duly
discharged by the SCB. The fact that the two BRs were duly discharged was
accepted by the SCB before the Special Judge. The judgment in suit 20 of 1994
records this fact as follows:
Mr. Tulzapurkar submitted that it is an admitted position that in pursuance of
this letter the two Banker Receipts issued by the plaintiffs were returned to
the plaintiffs duly discharged by defendant No.2 and defendant No.2 accepted
the SGL of Canbank Mutual Fund and another SGL of the plaintiffs. The fact is
also not being denied.
Mr. Cooper reiterates that the facts as set out are admitted." [Note: Mr. Tulzapurkar
was the counsel for the Citi Bank whereas Mr. Cooper was the counsel for the
SCB in the Special Court.] This finding has not been challenged. Further the
return of two BRs with the stamp of the SCB on its reverse duly signed by the
officer of the SCB also amounts to discharge of the BRs. This was the mode of
discharge of BRs. The discharged BRs being in possession of the Citi Bank would
raise a presumption in law under Section 114 illustration (i) of the Evidence
Act, 1872 that the BRs stood duly discharged. Section 114 provides that the
Court may presume the existence of any fact which it thinks likely to have
happened regard being had to the common course of natural events human conduct
and public and private business, in their relation to the facts of the
particular case. Illustration (i) provides that Court may presume 'that when a
document creating an obligation is in the hands of the obligor, the obligation
has been discharged'. The two BRs were in the custody of the Citi Bank. The
possession of two BRs with the Citi Bank would raise a rebuttable presumption
of discharge of the two BRs. Onus to rebut the presumption was upon the SCB.
SCB has failed to rebut the presumption by leading any evidence that the
obligation under the two BRs did not stand discharged. Finding recorded by the
Special Court that there was nothing on the record to show that there was an
absolute discharge granted by the Citi Bank to the SCB cannot be accepted
because the two BRs were returned with the stamp of SCB duly signed by an
officer of the SCB authenticating that it had been discharged.
is the effect of production of documents by promissor from its Mandir Das,
[L.R. 39 Indian Appeals 184]. In the said case, a suit was filed on the basis
of mortgage deed for the recovery of Rs. 62,000/- by way of sale of the
mortgage premises. At the time of institution of the suit the plaintiff
produced only a copy of the document, alleging that the original had been lost.
The defendant in his written statement admitted the execution of the document
but alleged that the debt has been discharged. In support of this allegation he
produced the original document containing the endorsement of payment by the
plaintiff. The Privy Council overruling the decision of the Judicial
Commissioner held that in view of the presumption under Section 114 of the
Evidence Act the onus was upon the plaintiff to show that the debt was still
subsisting which the plaintiff had failed to discharge by producing any
evidence. It was held that production of the document by the defendant from his
custody raised a rebuttal presumption of the discharge of the debt.
view, the law has been correctly stated in the aforesaid case and applying the
same ratio, we hold that production of two BRs by the Citi Bank raised a rebuttable
presumption that Citi Bank had discharged its obligation under the two BRs
which the SCB failed to dislodge by pleading/leading any evidence to show the
circumstances under which the two BRs were returned. In the absence of any
explanation by the SCB either in its plaint in Suit No. 22 of 1994 or the
written statement filed by it in Suit No. 20 of 1994 whatsoever as to why it
had asked for and took dishonoured SGL of CMF in exchange of two BRs raises a
presumption under Section 114, illustration (i) that Citi Bank was discharged
of its obligation under the BRs i.e. to deliver the Bonds.
in its plaint in Suit No. 22 of 1994 or in the written statement filed by it in
Suit No. 20 of 1994, failed to gave any explanation whatsoever as to why it had
asked for and taken dishonoured SGL of CMF which could not have given it any
security. It did not plead or give evidence as to why it accepted "useless
or worthless SGLs", as stated by it in its plaint, when it knew that it
would not be even transferable. SCB has not disclosed any particular or even
the name of the person from whom or the circumstances under which it obtained
interest for half year in the sum of Rs.2,56,33,787.50 on 25th November, 1991
on the bonds of the value of Rs.44,58,05,000/-. It is not SCB's case that the
interest was either received from the Citi Bank or the CMF or from Government
of India or from a person actually holding the Government of India bonds who
may have paid the interest to SCB after receiving it from the Government of
India. Shri Andhyarujina is right in submitting that on the facts and in the
circumstances an adverse inference should be drawn against the SCB to the
effect that if these facts were disclosed it would have been proved that SCB
had taken the SGL of CMF for its own benefit or at the behest of the third
person from whom it had received the interest. That third person treated the
SCB as the beneficial owner of Bonds and therefore entitled to interest on it.
(g) of Section 114 of the Indian Evidence Act provides that Court may presume
'that evidence which could be and is not produced would, if produced, be unfavourable
to the person who holds it'. Privy Sannadhi & Ors., [AIR 1917 PC 6], held:
practice has grown up in Indian procedure of those in possession of importance
documents or information lying by, trusting to the abstract doctrine of the
onus of proof, and failing accordingly to furnish to the courts the best
material for its decision. With regard to third parties, this may be right
enough; they have no responsibility for the conduct of ,the suit; but with
regard to the parties to the suit it is, in their Lordship's opinion, an
inversion of sound practice for those desiring to rely upon a certain state of
facts to withhold from the court the written evidence in their possession which
would throw light upon the proposition...." Jainandan Prasad, Civil Appeal
No. 941 of 1965, decided on 15.4.1968, and 1968 SC 1413] in which it was held:
if the burden of proof does not lie on a party the Court may draw an adverse
inference if he withholds important documents in his possession which can throw
light on the facts at issue. It is not, in our opinion, a sound practice for
those desiring to rely upon a certain state of facts to withhold from the Court
the best evidence which is in their possession which could throw light upon the
issues in controversy and to rely upon the abstract doctrine of onus of
proof." An adverse inference has to be drawn against the SCB. Had the
facts referred to in the previous paragraph been disclosed, it would have
proved that SCB had taken the SGL of CMF for its own benefits or at the behest
of the third person from whom it had received the interest. Failure on the part
of the SCB to show from whom it had received the interest would raise a
presumption that the SCB had failed to disclose/produce a material piece of
evidence which would have thrown much light on the issue in controversy.
raised by Shri Nariman that there was only one contract between SCB and Citi
Bank and that was to deliver the 11.5% GOI 2009 bonds for which it had paid
valuable consideration or that the BRs issued by the Citi Bank were not
independent of the main contract to supply 11.5% GOI 2009 bonds cannot be
accepted. SCB had taken the SGLs of Canbank with the clear intention that it
wanted to exchange the BRs of Citi Bank with SGLs of Canbank. SCB was to get
11.5% GOI 2009 Bonds in exchange of two BRs but SCB instead substituted that
satisfaction by asking for and taking unconditionally the SGL of CMF. The
obligation to deliver the bonds under BRs, in our opinion, was substituted by
delivery of SGL of CMF.
are dated 18th and 19th September, 1991, respectively, and on 19th September,
1991 the SCB wrote a letter returning the two BRs and asking of SGLs of Canbank
Mutual Fund from the Citi Bank. Proximity of these two dates, clearly indicates
that the intention of the SCB was to buy the SGLs of Canbank Mutual Fund
otherwise they would not have written the letter on 19th September, 1991
itself. Proximity of these two dates and the manner in which whole transaction
was completed indicates that it was done with a purpose or a design. It has not
been explained as to how did SCB know that the Citi Bank had in its possession
the SGL of CMF. SCB must have known, being a big banking business company, that
the SGL issued by the CMF in favour of the Citi Bank was non-transferable. It
could not provide any security to them. It had also been dishonoured. Still SCB
asked for and accepted the dishonoured SGL of CMF. If the SGL given to them by
the Citi Bank was 'useless' and 'worthless' then why did SCB gladly accept the
same without any protest. If it was their case that the SGL of CMF given to
them was 'useless' or 'worthless' it should have refused to accept it; far from
doing so, the SCB not only accepted it but also acted upon it. It received
interest from the third party. It has not been explained as to why third party
paid interest of the SCB. Basically, it was for the SCB to explain and answer
all these questions which it has failed to do.
its letter dated 8th October, 1991 wrote to CMF that SCB had bought from Citi
Bank 11.5% GOI 2009 Bonds in the sum of Rs. 50 crores, for which, the Citi Bank
gave its two BRs. Significantly, it was stated in the letter - "We
understand that the same stock has been sold by you to Citi Bank. Therefore, we
returned their BRs in exchange of your SGL for Rs.44,58,05,000. We now request
you to issue a fresh SGL in our favour for the same amount to enable us to
lodge it urgently." This clearly indicates that SCB has taken the SGL of Canbank
with the clear understanding that it wanted to exchange the BRs of Citi Bank
with SGLs of Canbank. The argument now raised that SCB only wanted 11.5% GOI
2009 Bonds is belied by this letter. It is specifically stated in this letter
that it had known that Canbank had given its SGL in favour of Citi Bank which
the SCB wanted to secure. In order to secure it, it had returned the BRs in
exchange of SGL of Canbank in the sum of Rs. 44,58,05,000. It asked the CMF to
issue fresh SGL in their favour of the same amount to enable it to lodge it
urgently. This letter clearly indicates that the SCB wanted the SGL of CMF and
it had exchanged it with the two BRs knowingly, consciously and voluntarily.
The submission now made that SCB at all point of time was insisting on the
delivery of 11.5% GOI 2009 Bonds cannot be accepted.
this letter has not been formally proved as the same has been denied by the CMF
but since this was pleaded by the plaintiff-SCB and the document was attached
with the plaint, SCB cannot disown this document.
bound by its own case set up in the Court.
face of letter dated 19th September, 1991 written by the SCB to the Citi Bank
asking for the SGLs of Canbank Mutual Fund in exchange of BRs and the
subsequent letter dated 8th October, 1991 written by the SCB to the CMF to
issue fresh SGLs in their favour of the same amount clearly indicates that the
SCB substituted its satisfaction in place of 11.5% GOI 2009 Bonds for and
taking unconditionally SGL of CMF.
their letter dated 17th June, 1992 the SCB did not say that a trick or fraud
had been played on them by delivering useless and worthless dishonoured SGL as
has been pleaded by it in its plaint or argued before us.
to that it was stated in the letter:
clients returned the aforesaid two Bank Receipts and in exchange for the same
you gave to our clients
SGL for Rs.5,41,95,000/- and
SGL of Canbank Mutual Fund for Rs. 44,58,05,000/- drawn in your favour.
understand that when the aforesaid SGL for Rs.44,58,05,000/- had been presented
by you earlier on 27th May 1991 the same was dishonoured by the Reserve Bank of
clients accepted documents at (a) and (b) above..." [emphasis supplied]
The words "our clients accepted documents A and B" clearly indicate
that the SGLs were accepted in the exchange of two BRs without any protest
thereby relieving the Citi Bank of its liability to give the 11.5% GOI 2009
Bonds. Another point which needs to be highlighted from this letter is that the
Citi Bank feigned its ignorance of having written the letter dated 19th
September, 1991 asking for the SGL of CMF in exchange for two BRs. It has not
been denied that such a letter was written but it was stated:
note that you have failed to produce a copy of this letter, but even assuming
that it exists we fail to see how this carries the matter further as the debt
owed to our clients is not affected." Nothing hinges on it but this just
shows as to how their mind was working.
Bank has pleaded and contended that as SCB had of its own, asked for and taken
unconditionally the SGL of CMF and returned the two BRs of Citi Bank duly
discharged. It was under no obligation to either pay any sum or any security
much less the refund the money. The obligation was substituted by the SCB for
delivery of SGL of CMF. The SCB substituted the obligation to deliver the bonds
under two BRs by delivery of SGL thereby accepted the satisfaction in terms of
Section 63 of the Indian Contract Act.
light of these facts, let us now consider the effect of Section 41, 62 and 63
of the Indian Contract Act, 1872. The same are reproduced hereunder for ready
Effect of accepting performance from third person.- When a promisee accepts
performance of the promise from a third person, he cannot afterwards enforce it
against the promisor."
Effect of novation, rescission, and alteration of contract.- If the parties to
a contract agree to substitute a new contact for it, or to rescind or alter it,
the original contract need not be performed." "63. Promise may
dispense with or remit performance of promise.- Every promisee may dispense
with or remit, wholly or in part, the performance of the promise made to him,
or may extend the time for such performance, or may accept instead of it any
satisfaction which he thinks fit." In para 63 of the judgment, the Special Court has recorded a finding to the
this case the third party i.e. Canbank Mutual Fund had not consented to the SGL
transfer form being transferred. Therefore, there is no discharge under alleged
contract and there is no Novatio." Novatio, rescission or alteration of a
contract under Section 62 of the Indian Contract Act can only be done with the
agreement of both the parties of a contract. Both the parties have to agree to
substitute the original contract with a new contract or rescind or alter. It
cannot be done unilaterally. Special Court was right in observing that Section
62 would not be applicable as there was no novatio of the contract. Further it
is neither Citi Bank's nor CMF's case nor even SCB's case that there was a
tripartite arrangement between the parties by which CMF was to accept the
case of novatio does not arise for consideration. Shri Andhyarujna, the learned
senior counsel for Citi Bank has also not seriously pressed for the Citi Bank's
case being considered by reference to Section 61 abovesaid.
Bank pleaded in paras 8 & 9 of its plaint (in Suit No.22 of 1994) that it
was discharged of its obligation to deliver the bonds on the delivery of SGLs
of CMF to SCB at its own request and therefore ceased to be liable to SCB in
respect of the agreement to deliver 11.5% GOI 2009 bonds. Learned Special Court in para 62 held that there was no
unconditional discharge pleaded by the Citi Bank and for this reliance was
placed on the contents of para 9 of the plaint. In para 9 Citi Bank has stated
that SGLs of CMF were taken by the SCB voluntarily and unconditionally at their
own request and returned the BRs issued by the Citi Bank, duly discharged, and,
therefore, the remedy of the SCB, if any, is against the CMF or its trustees
and not against the Citi Bank. That the Citi Bank was filing the suit to
safeguard its interest so that in the event a decree is passed against the Citi
Bank in the suit filed by the SCB then the Citi Bank will be entitled to claim
relief against the CMF. It is true that Citi Bank in para 9 has not pleaded
complete discharge from its obligation but the Special Court failed to consider
the averments made in para 8 of the plaint which categorically raises the plea
that liability of the Citi Bank to deliver the bonds stood discharged and Citi
Bank ceased to be liable to SCB. It is stated in this paragraph that the SGLs
of CMF were handed over to SCB at their own request on return of the two BRs,
duly discharged, which completely discharges the Citi Bank and the Citi Bank
ceased to be liable to the SCB to deliver 11.5% GOI 2009 bonds.
averment is to the following effect:
the premises, the liability of the plaintiffs to deliver the said securities
stood discharged and the plaintiffs ceased to be liable to the defendant No.2
in respect of the agreement mentioned in para 7 above." It is true that Citi
Bank in its plaint did not specifically mention Section 63 of the Indian
Contract Act but overall reading of the plaint makes it clear that Citi Bank
was relying upon the terms of Section 63 in pleading that it stood discharged
of its obligation to deliver the bonds under the two BRs on the delivery of SGL
Section 63, unlike Section 62, a promissee can act unilaterally and may i)
dispense with wholly or in part, or ii) remit wholly or in part, the
performance of the promise made to him, or iii) may extend the time for such
performance, or iv) may accept instead of it any satisfaction which he thinks
It is Citi
Bank's case that SCB of its own asked for and voluntarily accepted two SGLs
from Citi Bank as satisfaction which it deemed fit in exchange for the Citi
Bank's obligation to deliver GOI bonds of the face value of Rs.50 crores under
the two BRs. Such a plea would fall under Section 63. Special Court concluded
that provisions of Section 41 of the Contract Act would be applicable to the
facts of the case because the CMF had failed to deliver the GOI's bonds to the
SCB and, therefore, the SCB could claim it from the Citi Bank. In our opinion,
the Special Court fell in error in applying Section
41 of the Indian Contract Act to the facts of the case. Section 41 of the
Indian Contract Act only provides that the promisee cannot have double
satisfaction of its claim i.e. from the promisor as well as third party. It
does not give a cause of action to the promisee, but, to the promisor, to
contend that the promisee who has accepted satisfaction from the third party
cannot insist of the satisfaction of its claim from the promisor as well. No
case under Section 41 of the Contract Act has been pleaded by the Citi Bank. It
no where pleaded that CMF had delivered the bonds to SCB and, therefore, SCB
cannot enforce its demand for delivery of bonds against the Citi Bank. Privy
Council in Har Chandi Lal and Others vs.Sheoraj Singh and others [AIR 1916 PC
68] held that Section 41 of the Contract Act applies only where a contract has
in fact been performed by some person other than the person bound thereby. What
is required by Section 41 is actual performance of the original promise and not
a substituted promise. In Chegamull Suganmull Sowcar vs. V.Govindaswami Chetty
& Others, [AIR 1928 Mad. 972], it was held that actual
performance has to be there for importing the applicability of Section 41. It
more than a bare promise is necessary under the Section. What is contemplated
is actual performance of the original promise.
to the section, performance "by a stranger, accepted by the promisee,
produces the result of discharging the promisor, although the latter has
neither authorised nor ratified the act of the third party..." The learned
Special Court fell in error in holding that
Section 41 of the Contract Act would be more appropriately applicable. Section
41 for the reasons set out above would not be applicable to the facts of the
present case. It also fell in error in holding that Citi Bank did not plead
complete discharge from performing its obligation in terms of Section 63. In
our opinion, Citi Bank has specifically pleaded that it stood discharged from
the performance of the original obligation on the delivery of SGLs to the SCB,
which were asked for and accepted by SCB for reasons best known to it.
instead of the original satisfaction accepted another satisfaction, deemed fit
by it, in terms of Section 63 of the Indian Contract Act.
of Shri Nariman, learned senior counsel appearing for the SCB is that there has
been only one contract between the Citi Bank and the SCB and that is to give
11.5% GOI 2009 Bonds for which the SCB had paid valuable consideration to the Citi
Bank. That BRs are not independent of the contract. As the bonds were not ready
with the Citi Bank it gave instead the BRs with the understanding that bonds
would be handed over as and when available. SGL of CMF were taken by the SCB as
a step-in-aid for the delivery of bonds. The acceptance of SGL of CMF should
not be taken as satisfaction in substitution to deliver the bonds as had been
agreed upon originally. It was contended that implied warranty must be read in
the transaction asking for and accepting of SGL of CMF. That principles of
contractual interpretation mandate that interpretations adopted be reasonable
and arise out of natural and probable course of human conduct.
courts will not adopt an interpretation out of context with the commercial
dealings between parties and in a manner unknown to trade and commerce. SCB has
established that it did not receive the bonds in spite of having paid full consideration,
heavy burden should be put on the Citi Bank to show that it has discharged its
original obligation by substituting it with supply of SGL of CMF to the SCB.
That it would be contrary to the normal, natural and probable course of banking
business to deduce that SCB would be satisfied with neither the bonds nor the
monies thereof, but with SGLs which admittedly had no value or significance.
According to him the interpretation put on the letter dated 19th September, 1991 be interpreted in a commercial
sense so that it serves the commercial purpose. To substantiate this, he placed
reliance upon paragraphs 777, 782, 921, 951, 952, 953 and 955 of Halsbury's
Laws of England, 4th Edition, Vol. 9, wherein it has been observed that the
courts can interpret the mercantile contracts in a way that it makes good
commercial sense or to give efficacy to a contract to emancipate one side from
all the chances of failure, and to make each party to perform its parts of the
promise. He has relied upon certain observations made in Hillas & Co. Ltd.
vs. Arcos Ltd. [1932 All ER 494], Investors Compensation Scheme Ltd. vs. West
Bromwich Building Society [1998 (1) All ER 98], Stocznia Gdanska SA vs. Latvian
Shipping Co. & Others [1998 (1) All ER 883], Antaios Cia Naviera SA vs. Salen
Rederierna AB [1984 (3) All ER 229] and Union of India vs. D.M.Revri & Co.
[1977 (1) SCR 483 at 487].
not find any merit in this submission.
soon after the payment of Rs. 50 crores and receiving the BRs from the Citi
Bank acknowledging its liability to deliver the bonds writes a letter dated 19th September, 1991 asking for and accepting the SGL of
CMF. Admittedly, SGL of CMF was not honoured by the PDO twice and an
endorsement to that effect had been made on the SGL. As to why a creditor like
SCB had asked for and accepted the instrument which was on the face of it
unrealizable from the debtor which is even described by it as 'useless and
worthless'? It owed a duty of explanation to the Court as to why did it ask for
or accepted the delivery of such an instrument. SCB has conspicuously and
completely failed to give any explanation either in its plaint or even in
evidence. It is difficult to import an implied condition or warranty, as was
sought to urged at the hearing, in the absence of such an explanation by the
SCB. Contention that the words "in our favour" be read as introduced
by necessary implication in the SCB's request for SGL of CMF and the expression
- "We now request you to give us SGLs of Canbank Mutual Fund in exchange
of the same" be read as "We now request you to give us SGLs of Canbank
Mutual Fund in our favour in exchange of the same" to give it a commercial
sense cannot be accepted. Such a re- writing of SCB letter of request of 19th September, 1991 and imposing a qualification in the
acceptance of the Canbank SGL by SCB is not permissible. The clear intention of
SCB was to ask for and take the SGL of Canbank which was in possession of the Citi
Bank. The said SGL was in favour of Citi Bank. SCB as a business house was
clearly aware of the terms of an SGL of CMF from Citi Bank when it asked Citi
Bank for it and accepted and retained it. For getting the SGL of CMF in its own
favour it need not have routed its request through the Citi Bank. It could have
straight away approached the Canbank for either buying the 11.5% GOI 2009 Bonds
in its favour or for getting the SGL of CMF drawn in its favour. A term can
only be implied by way of sense to give efficacy to the transaction which is
intended by the parties. Implied terms in law are founded on the presumed
intention of the parties. In this case, the intention of the SCB was clear and
unambiguous. SCB for its own reasons wanted to take the SGL of CMF in
possession of the Citi Bank. The subsequent receipt of interest on the face
value of the price of bonds mentioned in the SGL is clear pointer to the fact
that the SCB had taken the SGL of CMF from Citi Bank for its own purpose or at
the behest of an undisclosed third party who paid interest to SCB. In the
absence of any explanation as to how the SCB knew that Citi Bank was in
possession of SGL of CMF; as to why it had asked for an instrument which on the
face of it was unrealizable by it from the debtor; why did it accept and act
upon the same, and, further treating itself as a beneficial owner and receiving
interest on it, the implied condition or warranty such as it sought to be urged
on behalf of SCB cannot be imported in the transaction.
plea of implied warranty is one made in desperation and is clearly an after
plea of implied warranty is also negated by the fact that SCB had pleaded in
its plaint in Suit No. 22 of 1994 that Citi Bank has "expressly and
impliedly warranted to SCB that Canbank would on the SCB's request transfer the
stock" Issue No. 3, namely, "Whether Defendant No. 1 gave any express
or implied warranty of the nature alleged in para 13 of the plaint." was
framed on this plea. The onus of proving this issue was on the SCB. Far from
adducing any evidence the SCB simply instructed its counsel to not to press the
issue. Thus the plea of implied warranty was expressly given up before the Special Court. It is not open to SCB to take up
the plea of express or implied warranty now before us in the appeal.
on facts we have found that the SGL of CMF were taken by the SCB voluntarily
knowing and understanding the consequences flowing from it and the fact that
plea of express or implied warranty was given up before the Special Court, we
are unable to accept the contention of Shri Nariman that there was an implied
condition/warranty by the Citi Bank to give the Bonds on the SGL being dishonoured.
next contended by Shri Nariman that the acceptance of SGL of Canbank by SCB was
a conditional discharge. Actual delivery of 11.5% GOI 2009 Bonds could only
discharge the liability of the Citi Bank and not the mere delivery of SGL. On
failure to get the 11.5% GOI 2009 Bonds or return of the amount paid the SCB
could fall back and sue on the original 215. In Parman Nand & Anr. Case
(supra) it was held that it was a question of fact to be decided in each
particular case as to whether the parties intended the subsequent Hundi to be
an absolute or conditional payment of the original debt. On the facts of the
case the learned Judges came to the conclusion that Hundis were given as a
conditional payment of the original debt and therefore the plaintiffs could
revert to the original consideration and based a claim thereon. In Brijbhusan Pande
& Ors and Lingam Narayan Das cases (supra) the name of the payee was not
mentioned in the promissory note. It was held that in the absence of the name
of the payee in the promissory note the document was not a promissory note and
therefore no decree could be passed on the basis of such an instrument. Where a
plaintiff sues on a defective headnote, then, on the failure of the headnote
the plaintiff was entitled to sue on the loan itself. In Lingam Narayan Das
case (supra) it was held that where a creditor takes a bill, note or cheque in
payment he may either accept it in complete satisfaction of the debt, or may
accept as a conditional payment only. The presumption in the absence of a clear
indication to the contrary is, that the payment by means of bill, note or cheque
is a conditional payment only. The defendant upon whom the burden lay of
establishing such an intention did not choose to lead any evidence on the point
and in the absence of any material on the record It was not possible to come to
the conclusion that there was such an intention. In Subramniam Chettiar case
(supra) the facts were that defendant executed two pronotes A and B and
subsequently executed third pronote C for a sum which was total of A and B and
endorsing on A and B that in view of C the sums due under A and B have been
discharged. Pronote C was insufficiently stamped. It was held that instrument C
was invalid and inadmissible in evidence and therefore the promisee could rely
on the original cause of action and claim the recovery of the amount. None of
these cases would be applicable to the facts of the present case.
well settled that where an instrument, a cheque or negotiable instrument, is
given by the debtor and accepted by the creditor , the question whether the
instrument was taken as an absolute payment or a conditional payment is one of
the fact depending on the intention of the parties. When the creditor takes an
instrument by way of absolute satisfaction of the debt then the creditor cannot
fall back on the original transaction and is restricted to the terms of that
instrument only. In the present case the SCB asked for and accepted an SGL of Canbank
payable to the Citi Bank in absolute satisfaction of the Citi Bank's original
obligation to give to SCB bonds of the face value of Rs. 44.58 crores. SCB
asked for the SGL of Canbank which was in possession of the Citi Bank and
accepted the same voluntarily and unconditionally indicating to the fact that
SGL was taken as satisfaction deemed fit within the meaning of Section 63 of
the Contact Act. There was no intention of the parties that taking of the SGL
was conditional, i.e., that if SCB did not get the bonds from CMF, the SCB
would hold Citi Bank liable for the bonds. Under the circumstances, the
authorities cited by the SCB of conditional acceptance of the pronote are not
also contended that asking for and acceptance of SGL from the Citi Bank is not
proof of acceptance of the condition that SCB had given up its claim for the
original consideration. For this he placed reliance on Firm Basdeo Ram Sarup
vs. Firm Dilsukharai Sewak Ram [AIR 1922 Allahabad 461], Shyamnagar Tin Factory
Private Ltd. vs. Snow White Food Product Co. Ltd. [AIR 1965 Cal. 541] and Union
of India vs. Narayan Lall [AIR 1953 Patna 152]. In Firm Basdeo Ram Sarup's case
and in Shyamnagar Tin Factory Private Ltd.'s case the debtor sent the money on
the terms that it is to be taken in satisfaction of a larger claim towards the
total amount due and would not be entitled to the balance of the amount.
accepted the cheque and thereafter filed the suit for the balance amount. It
was held that sending of a cheque for a smaller amount along with a letter to
the effect that it was in full and final settlement of the debt did not amount
to a discharge of the entire debt, nor does it amount to payment or tender of
the amount on any condition that acceptance of the amount is in full and
complete discharge of the entire debt. Acceptance of the cheque was not
conclusive in law. The entire matter was a question of fact which the court has
to determine keeping in view the true character of the transaction. It would be
seen that in these two cases the debtor had sent the cheque unilaterally and it
was not the creditor who had either remitted or accepted the lesser amount in
satisfaction of the entire amount. Section 63 of the Indian Contract Act, as
was rightly held, did not have any applicability in such cases. Similarly in
Union of India's case (supra) the railways in order to meet the claim of the
plaintiff by damages for non- delivery of railway consignment sent a cheque for
lesser amount with an express stipulation in the letter accompanying the cheque
that in case the plaintiff was not prepared to accept the amount he should
return the cheque, but, the plaintiff encashed the cheque and brought the suit
against the railways for the balance amount. Plea of the railways that
acceptance of the lesser amount was evidence of accord and satisfaction was not
accepted and, in our view, rightly so. The principle applied was the same as in
the earlier two cases, referred to above. In the present case, as stated in the
foregoing paragraphs, the SCB had substituted its original satisfaction by
asking for and taking the SCB of CMF as deemed fit for its own reason which
have not been disclosed to the Court. The cases cited by Mr. Nariman referred
to in this paragraph under the circumstances would have no applicability.
next submission is that even if the court comes to the conclusion that as a
matter of fact Citi Bank is discharged under Section 63 of the Contract Act,
the decree should not be reversed and should only be modified by this Court in
exercise of its special jurisdiction under Article 142 to do complete justice
between the parties. In case both the decrees in Suit No.20 of 1994 and 22 of
1994 are reversed, CMF would be unjustly enriched and SCB would lose Rs. 45 crores
with interest and such a result would be contrary to all notions of justice. It
was contended that irrespective of any view this Court may take on documents,
the Court has the power to do complete justice between the parties under
Article 142 of the Constitution of India by maintaining the decree in favour of
SCB. That even if the court comes to the conclusion that decree in favour of
SCB is liable to be set aside, it need not direct setting aside of the decree
but may instead do substantial and complete justice between the parties by
giving appropriate directions. We do not find any substance in this submission.
No. 22 of 1994 and Suit No. 20 of 1994 were back to back suits and the
enforcement of decree in Suit No.20 of 1994 was contingent upon a decree being
passed in Suit No.22 of 1994. Acceptance of the submission of the SCB would be
that this court would be passing a decree against CMF indirectly. Result would
be that the amount received by Citi Bank from CMF would be allowed to be retained
by SCB, despite the fact that SCB's suit did not succeed. SCB's contention is
based on the presumption that SCB had received neither securities nor money and
on the other hand CMF has received the money and has unjustly enriched itself.
CMF in both the suits has not only denied the allegations to this effect but
has in fact pleaded a specific case to the contrary. Once the court comes to
the conclusion that Citi Bank has discharged its obligation under Section 63 of
the Indian Contract Act then there is no warrant or justification on the part
of the Court to pass any order or decree or maintain a decree in favour of SCB.
Suit No.20 of 1994 is a contingent suit and, therefore, the said suit is not
even liable to be tried much less decreed, if it is found that Citi Bank has
discharged its obligation and is not liable to SCB. The submission of SCB that
since a decree has been passed in the contingent suit, to the extent of decretal
amount paid in the contingent decree, SCB's suit should be decreed cannot be accepted.
Firstly it is to be decided in SCB's own suit (22 of 1994) whether it is
entitled to a decree or not. If that suit is dismissed then the question of
passing any decree in Suit No.20 of 1994 which is a contingent suit would not
arise. Acceptance of the submission of the SCB would mean that though SCB's
suit does not deserve to succeed but still it be maintained by passing a decree
in the contingent suit which cannot be done. It would be travesty of justice
rather than doing justice. The submission is, therefore, rejected.
the reasons stated above Civil Appeal No. 7941 of 1995 filed by the Citi Bank
is accepted. Judgment and decree passed by the Special Court in Suit No. 22 of 1994 is set aside and the suit is ordered
to be dismissed with costs throughout.
consequence to the aforesaid, Citi Bank becomes entitled to restitution of the
total amount paid by it to Standard Chartered Bank (principal and interest)
along with interest @ 12% p.a. from the date of receipt of payment by SCB
provided it is paid on or before 30th November, 2003 and in default to pay the
interest @ 15% p.a. from the date of receipt of payment till it is repaid by
the Standard Chartered Bank. The Citi Bank would also be entitled to receive
back the amount of costs it had paid to Standard Chartered Bank under the
decree of the Special
Court but the same
would not carry any interest. Though the appellant had prayed that the interest
be granted at the same rate at which it was granted by the Special Court (i.e.20% p.a.) but we have reduced
the same keeping in view that interest rates have come down substantially in
the recent years.
in this appeal are assessed at Rs. 40 lakhs. Citi Bank would also be entitled
to the costs before the Special Court of the equivalent amount which were
awarded against it by the Special Court
while decreeing the suit against it.
Appeal No. 8340 of 1995 This appeal has been filed by the CMF against the
decree passed against it in Suit No. 20 of 1994. In Civil Appeal No. 7941 of
1995 we have recorded a finding that Suit No. 20 of 1994 filed by the Citi Bank
was a back to back suit to save itself in case a decree was passed against it
in the suit filed by the Standard Chartered Bank in Suit No. 22 of 1994. In
other words, it was a contingent suit based on the result in Suit No. 22 of
learned senior counsel appearing for the CMF had addressed arguments at length
supporting the submissions made on behalf of Citi Bank against the Standard
Chartered Bank. He did not say much against the decree passed in favour of the Citi
Bank. We need not deal with the contentions raised by Mr. Kapadia as we have
accepted the Civil Appeal No.7941 of 1995 and set aside the decree passed
against the Citi Bank in Suit No. 22 of 1994. The consequence of the acceptance
of the said appeal would be that this appeal has to be accepted which arises
from a contingent suit. Accordingly, the appeal filed by the CMF is accepted
and the decree passed against it in Suit No. 20 of 1994 is set aside and the
suit is ordered to be dismissed with costs throughout.
consequence to the aforesaid CMF becomes entitle to restitution of the total
amount paid by it to the Citi Bank (principal and interest) along with interest
@ 12% p.a. from the date of payment provided it is paid on or before 5th
December, 2003 and in default to pay the interest @ 15% p.a.
the date of payment till it is repaid by the Citi Bank. Though the appellant
had prayed for interest @ 20% p.a.(which had been awarded by the Special Court) but we have reduced the same
keeping in view that interest rates have come down substantially in the recent
years. In Civil Appeal No.7941 of 1995 also we have granted interest @ 12% p.a.
CMF would be entitled to receive the amount of costs it had paid under the
decree of the Special
Court but without
interest. Costs in this appeal are assessed at Rs. 20 lakhs. CMF would be
entitled to the costs before the Special Court of the equivalent amount which
were awarded against it by the Special Court
while decreeing the suit against it.
the appeals stand allowed in the aforesaid terms.