Chartered Bank Vs. Andhra Bank Financial Services Ltd. & Ors  Insc 286
(5 May 2006)
Sabharwal, B. N. Srikrishna & P.P. Naolekar
Civil Appeal No. 2276 of 2002 SRIKRISHNA, J.
two appeals under Section 10 of the Special Courts (Trial of Offences Relating
to Transactions in Securities) Act, 1992 (hereinafter referred to as "the
Act") are against the judgments of the Special Court constituted under
Section 5 of the Act, by which judgments the Special Court dismissed Special
Court Suit No. 11/96 and allowed Misc. Petition No. 81/95, which had been
transferred to it. As a result of the said two judgments of the Special Court,
the claim made by the appellant-Standard Chartered Bank (hereinafter referred
to as "SCB") was negatived in dismissed Suit No. 11/96, and the
application made by Canara Bank as principal trustee of Canbank Mutual Fund
(hereinafter referred to as "CMF") for a direction to Nuclear Power
Corporation of India Ltd. (hereinafter referred to as "NPCL") to
register CMF as the owner of certain bonds and to pay the interest payable
thereon was allowed.
in December 1991, NPCL issued bonds of two series - 9% tax free bonds and 17%
taxable bonds. These bonds were permitted by the Controller of Capital Issues
to be sold to banks and financial institutions for private placement. On
24.2.1992 Andhra Bank Financial Services Ltd. (hereinafter referred to as
"ABFSL") made an offer to NPCL for placing Rs. 100 crores Rs. 50
crores in 9% tax free bonds and Rs. 50 crores in 17% taxable bonds. On
26.2.1992 NPCL wrote to ABFSL confirming the allotment of the 9% tax free bonds
and the 17% taxable bonds, as requested.
26.2.1992, NPCL issued a letter of allotment (hereinafter referred to as the
"LOA") confirming the allotment of 9% tax free bonds of the nominal
value of Rs. 50 crores (hereinafter referred to as the "suit bonds").
NPCL also said that intimation would be given in due course as to when the
allotment letter duly discharged may be exchanged for bond certificates, and
that the interest payable on the suit bonds would accrue from the date of
allotment, payable on half yearly basis. On the same day ABFSL sold the suit
bonds to SCB and in connection with the said sale issued its Cost Memo No. 057
dated 26.2.1992 indicating the particulars of the suit bonds and the cost at
which they were being sold i.e. @ 85.05 at the total cost of Rs.
42,52,50,000/-. Against the receipt of the said Cost Memo No. 057 from ABFSL,
SCB issued a Pay Order No. 246408 dated 26.2.1992 for the sum of Rs.
42,52,50,000/-. ABFSL, in turn, issued a Banker's Receipt (hereinafter referred
to as "BR") No. 23728 acknowledging receipt of the sum of Rs.
42,52,50,000/- from SCB towards the cost of the suit bonds and undertook to
deliver the suit bonds of the value of Rs. 50 crores, when ready, in exchange
for the said BR duly discharged, and assured that, in the meantime, the suit
bonds would be held on account of SCB. On 26/27.2.1992, ABFSL addressed a
letter to SCB requiring SCB to hand over its BR No. 23728 in lieu of the
original LOA in respect of the suit bonds as well as the 17% NPCL taxable
bonds, which were said to have been enclosed with the said letter.
to SCB, in April/May 1992, when the securities scam broke out, the officers of SCB
made an investigation of its records and found that SCB did not have in its
possession the original LOA, but only a photocopy.
20.5.1992, SCB wrote to NPCL alleging that though in ABFSL's letter dated
26.2.1992, it was stated that the original LOA was forwarded, SCB had found
that only a photocopy of the LOA had been enclosed. A copy of ABFSL's concerned
letter was also enclosed. SCB further stated that the original LOA purportedly
sent by ABFSL was not available, that a note may be made in NPCL's records that
the original LOA was missing and, therefore, due caution should be exercised by
NPCL. SCB also requested for issue of a duplicate allotment letter on the
undertaking to return the original, if received by it, and keeping NPCL
indemnified against claims, if any, arising out of issue of the duplicate. On
29.5.1992, SCB requested ABFSL to confirm to NPCL the fact of having sold the
suit bonds to SCB. On the same date, ABFSL addressed a letter to NPCL (with a
copy endorsed to SCB), confirming having sold the suit bonds to SCB on
26.2.1992. They also confirmed that they had no objection to NPCL issuing a
duplicate LOA to SCB.
8.6.1992 one Hiten P. Dalal (hereinafter referred to as "HPD"), who
was acting as a broker in a large number of securities transactions of banks
and financial institutions, was declared a 'notified person' under the
provisions of Section 3 of the Act. On 20.6.1992 SCB filed a First Information
Report ("FIR") against HPD and its own employees alleging that, as a
result of a conspiracy between HPD and its own employees, several securities
and monies had been misappropriated by HPD.
14.7.1992 CMF filled up a Transfer Deed dated 13.7.1992 and lodged it along
with the original LOA with NPCL seeking transfer and registration of the suit
bonds in its name. On 3.8.1992, NPCL wrote to SCB that the matter with regard
to issuance of duplicate LOA of the suit bonds was being considered in
consultation with its solicitors. On 17.8.1992, CMF wrote to NPCL claiming that
the suit bonds had been bought on 27.2.1992 from ABFSL through a broker, HPD,
and that the consideration therefor had been paid by certain adjustments
between itself and ABFSL. CMF claimed that it was the legitimate holder of the
suit bonds as it had received them against valid consideration. On 8.9.1992,
NPCL informed CMF that they had received a request for issue of a duplicate LOA
pertaining to the suit bonds from SCB, which was also claiming purchase of the
suit bonds from ABFSL. On 8.9.1992 by another letter, NPCL informed SCB that
CMF had lodged the original LOA for registration claiming to have purchased the
suit bonds from ABFSL on 27.2.1992. On 30.9.1992 NPCL asked ABFSL to confirm if
it had sold the suit bonds to SCB as NPCL had received the LOA and the transfer
deed in relation to the suit bonds duly endorsed by ABFSL in favour of CMF. On
30.9.1992 NPCL informed CMF that as early as on 20.5.1992 it had received a
letter from SCB conveying that the suit bonds had been transferred in SCB's
favour by ABFSL and enclosing a letter of ABFSL to evidence the transaction.
They also referred to another letter of 29.5.1992 by ABFSL confirming that
ABFSL had sold the suit bonds to SCB on 26.2.1992 and that it had no objection
to issuing/transferring the LOA/bonds to SCB. On 9.10.1992 SCB wrote to NPCL
stating that as the suit bonds had been issued to ABFSL, who had confirmed
selling the same to SCB, the LOA from CMF may be disregarded. By another letter
of 15.10.1992 from ABFSL to NPCL, ABFSL once again confirmed the selling of the
suit bonds to SCB and stated that as per market practice the suit bonds had
been sold with blank transfer deeds to SCB. On 6.11.1992 NPCL informed SCB
that, since there was a dispute over the ownership of the suit bonds between
SCB and CMF, the matter should be resolved between SCB and CMF, only after
which necessary action would be taken by it.
27.11.1992 SCB filed Suit No. 3808/92 on the Original Side of the Bombay High
Court against ABFSL, CMF and NPCL for a declaration that it was entitled to the
suit bonds and for an order directing NPCL to register the suit bonds in the
name of SCB and to hand over the same to SCB. A further declaration was sought
that CMF had no right, title and interest in the suit bonds; in the
alternative, SCB sought refund from ABFSL. The said suit came to be transferred
to the Special Court on 25.9.1996 and was re- numbered
as Special Court Suit No. 11 of 1996.
27.11.1992 CMF filed a petition before the Company Law Board (hereinafter
referred to as "CLB") under Section 111 of the Companies Act, 1956
seeking registration of the suit bonds in its name. The original respondents to
the petition were NPCL, ABFSL and HPD. SCB was subsequently joined as a party
respondent. In this petition, CMF alleged that it had purchased the suit bonds
from ABFSL on 27.2.1992 through HPD, who, according to CMF, had acted as a
broker/authorised agent of ABFSL in the transaction and that the payment of the
price of the suit bonds to ABFSL was made by netting of the amounts of three
other transactions between CMF and ABFSL made on the same day (i.e. 27.2.1992).
27.2.1993 NPCL contested the petition by denying the so called transaction
alleged by CMF and stating that the matter was sub judice since a suit was
already filed in the Bombay High Court with regard to the alleged suit bonds.
ABFSL also filed a reply to the petition denying that it had sold the suit
bonds to CMF and affirming their sale to SCB on 26.2.1992. SCB in its reply to
the petition pointed out that it had purchased the suit bonds from ABFSL after
paying consideration and that ABFSL had also confirmed that there had been no
sale or delivery of the suit bonds to CMF. SCB alleged that HPD had wrongly and
fraudulently diverted the suit bonds to CMF. On 16.3.1993 the CLB made an order
directing all the parties to disclose the role of HPD in the transaction.
6.3.1995 the petition by CMF before the CLB was transferred to the Special Court and re-numbered as Misc. Petition
No. 81/95. HPD had filed no affidavit in reply to the petition when the matter
was before the CLB.
14.6.1996, after the transfer of the petition to the Special Court, HPD filed
an affidavit in reply in Misc. Petition No. 81/95 stipulating that the contents
thereof and the documents referred to could not and ought not to be referred to
and relied upon or used against HPD in any proceedings as he could not be
compelled to be a witness against himself in any court of law, whether civil or
criminal. According to HPD's version, SCB had 'lent' the suit bonds and the 17%
NPCL bonds to him on 27.2.1992; that he had agreed to return the same with
interest; that on 9.5.1992 he had purchased the suit bonds from SCB and
adjusted the price payable by him to SCB against a sale by him of Cantriple
Units and further that, he had sold and delivered the suit bonds to CMF on
25.6.1996, SCB replied to HPD's affidavit and denied that it had any
transaction with HPD in respect of the suit bonds on 27.2.1992 and denied that
the suit bonds were sold by SCB to HPD on 9.5.1992, or that it had purchased
Cantriple Units from HPD. SCB also pointed out several inconsistencies and
contradictions in the stand taken by HPD in his affidavit.
27.11.1996, the Special Court dismissed Misc. Petition No. 81/95 by holding
that CMF had admitted through its counsel that it was not in a position to show
that it had paid any consideration for the suit bonds to ABFSL, and, as no
consideration was paid by CMF either to ABFSL or to SCB, CMF could claim no
title to the suit bonds, even assuming that HPD had acted as a mercantile agent
and appeared to have obtained possession of the LOA through/from SCB. In view
of this, the Special
Court concluded that
CMF could claim no right, title and interest in the suit bonds. However, in
view of the fact that SCB had already filed Suit No. 11/96, it was held that
SCB's title to the suit bonds could be decided in that suit.
23.12.1996, CMF preferred an appeal to this Court but failed to obtain any
interim relief except a direction from this Court that the Officer on Special
Duty, who was in possession of the suit bonds, would not part with the suit
bonds without notice to CMF and that the decision in Suit No. 11/96 would be
subject to the decision in the appeal.
10.1.1997, HPD took out Chamber Summons 1/97 in Suit No. 11/96 for being joined
as a party. The said Chamber Summons was opposed by SCB and by an order dated
20.3.1997, the Chamber Summons was dismissed by the Special Court taking the view that HPD was at
liberty to adopt appropriate substantive proceedings regarding his alleged
claim of having purchased the suit bonds from SCB on 9.5.1992.
30.9.1997, SCB applied for withdrawal of the Suit against CMF.
application was allowed. However, the Special Court took the view that CMF was a necessary party to the Suit in
spite of its earlier order holding that CMF could claim no right, title or
interest in the suit bonds and by an order made on 30.9.1997/ 1.10.1997 the
Suit was dismissed on the ground of non-joinder of CMF which was a necessary party.
SCB appealed therefrom to this Court.
both SCB and CMF, came in appeal to this Court against the orders made by the Special Court in Misc. Petition No. 81/95 as also
of dismissal of Suit No. 11/96. By the judgment and order dated 21.4.1998 made
in Civil Appeal No. 7 of 1997 etc., this Court allowed both the appeals filed
by SCB and CMF and remitted the matter to the Special Court for being tried de
novo. Accordingly, both, the Suit and the Misc. Petition came to be tried again
by the Special Court. By the judgment dated 17.1.2002,
Special Court Suit No. 11/96 was dismissed and Misc. Petition No. 81/95 was
allowed. Being aggrieved, SCB is in appeal against both the judgments.
the impugned judgments arise out of interconnected facts, it would be
convenient to dispose of both the appeals by a common judgment.
the judgment in Misc. Petition No. 81/95 merely follows the judgment in Special
Court Suit No. 11/96, it would be sufficient to deal with the judgment in
Special Court Suit No. 11/96, calling it the 'impugned judgment' hereinafter.
The Special Court raised the following issues in the
impugned judgment and answered them as under:
Does the Plaint
not disclose any cause of action against the Defendant No.2 ? In the
affirmative i.e. in favour of CMF and against SCB
plaintiffs were entitled to and continue to be entitled to the suit bonds as
alleged in para 8 of the Plaint ? In the negative i.e. in favour of CMF and
against SCB 2A. Whether the Plaintiffs prove the circumstances in which
Original BR was taken away from them as alleged in para (8) of the Plaint ? In
the negative i.e. against SCB and in favour of CMF.
alleged transaction dated 26/2/92 was a
transaction of Hiten P. Dalal as alleged in para 1(d) and 8 of the Written
Statement ? In the affirmative i.e. in favour of CMF and against SCB
alleged transaction dated 26/2/1992 was
under an arrangement with the Plaintiffs as alleged in paras 1(d) ,7, 8 and 9
of the Written Statement ? In the affirmative i.e. in favour of CMF and against
Plaintiffs are estopped from making any claim as alleged in para 1 read with
para 22 and 29 of the Written Statement? In the affirmative i.e. in favour of
CMF and against SCB.
Whether on 9th
May 1992 the Plaintiffs purchased Cantriple Units of the face value of Rs.45.50
crores for Rs.266.18 crores (approx.) and against which the Plaintiffs sold and
adjusted various securities including the suit bonds of the face value of Rs.
50 crores and whether the Plaintiffs have applied for and got the said
Cantriple units of face value of Rs.45.50 crores transferred in their name in
January, 1993 disclosing a sale consideration of about Rs.266.18 crores as
stated in para 14 and 15 of the Written Statement ? This issue is divisible in
to three parts
CMF has proved
that SCB has purchased cantriple units of the face value of Rs. 45.50 crores on 9/5/1992. To that extent, issue is answered
in the affirmative
However, CMF has
not proved that the said purchase was against sale of the suit bonds on 9/5/1992. To that extent the sub-issue is answered in the
CMF has proved
that in January, 1993 SCB applied for and have got the said cantriple units of
the face value of Rs. 45.50 crores transferred in their name.
to that extent, the sub- issue is answered in the affirmative.
Defendant No.2 purchased the bonds and received delivery thereof along with
Transfer Deed as alleged in para 22 and 29 of the Written Statement ? In the
affirmative i.e. in favour of CMF and against SCB.
plaintiffs deliberately by their act and or omission or negligence put
Defendant No.1 or Hitel P. Dalal in a position to deal with the LOA and the
Transfer Deed as they liked as alleged in para 21 and 29 of the Written
Statement ? In the affirmative i.e. in favour of CMF and against SCB.
Whether Hiten P.
Dalal was authorised to deal with and/or deemed to be authorised to deal with
the Bonds as alleged in paras 22 and 29 of the Written Statement ? In the
affirmative i.e. in favour of CMF and against SCB.
Whether the Plaintiff is entitled to
any reliefs and if so what As per final Order.
BETWEEN PLAINTIFF (SCB) AND DEFENDANT NO. 3 (NPCL) ISSUES ANSWERS
Court has jurisdiction to entertain and try this Suit ? In the affirmative.
Plaintiffs are entitled to and/or are the owners of the said securities without
having received the original Letter of Allotment ?
Defendants are entitled to a lien on the said Bonds for securing the repayment
of the deposit placed by them with the 1st Defnednats (sic) ? Answer for Issue
No. 2 and 3.
between SCB & NPCL were framed on 2/7/1997 i.e. after Judgment and Order of
Variava, J. (as he then was) dismissing Misc.
No. 81 of 1995 on 27/11/1996 (which judgment has been
subsequently overruled by the Apex Court).
As stated above, at one point of time, there were disputes between plaintiff
and NPCL which disputes do not survive in view of the subsequent stand taken by
SCB before this Court. Therefore issues nos. 2 and 3 do not arise for
Plaintiffs prove that these Defendants are bound to register any Bonds in the
name of the Plaintiffs or to issue the said Bonds and relevant interest
warrants to the Plaintiffs ? In the negative.
What Order ? As
per final Order.
issues framed in Misc. Petition No. 81/95 with the answers are as follows:
Petitioners are bonafide purchasers of value without notice of 9% NPCL Bonds
from Respondent No. 3 for consideration paid to Respondent No. 3 as set out in
the affidavit of S.
Ramaraj dated July 12, 1993 ? In the affirmative as answered in
the Judgment in suit No. 11 of 1996 i.e. in favour of the Petitioners and
Respondent No. 4 are entitled to object to registering transfer of 9% NPCL
Bonds in favour of the Petitioners ? In the negative i.e. against SCB and in
favour of the Petitioners.
Petitioners are entitled to have the suit LOA (for 9% NPCL Bonds f.v. 50 Crs.)
transferred to their name ? In the affirmative i.e. in favour of the
Petitioners and against SCB.
was collusion between Respondents Nos. 2, 3 and/or 4 as alleged by the
Petitioners in the affidavit of M. Nayak dated April 10, 1993 ? Does not arise.
What Orders on
the Petition? As per final order.
core issue in both proceedings pertains to 9% NPCL Tax Free bonds and whether
SCB or CMF is the owner of such bonds and entitled to be registered as such.
The Special Court held that SCB had proved that it
had purchased the suit bonds from ABFSL against payment of Rs. 42,52,50,000,
but it dismissed SCB's suit and allowed CMF's petition for the following
that under the
existing '15% Arrangment' between SCB and HPD, SCB had purchased the suit bonds
on behalf of HPD;
that HPD was
accordingly entitled to deal with the bonds, and
that HPD had
delivered and sold the bonds to CMF; and thus, CMF is actually the owner.
these findings are justified on facts and in law has been argued before us by
learned senior counsel appearing for the parties with great perseverance,
ingenuity and erudition.
the Suit and the Proceedings in the Misc. Petition:
The Special Court has taken the view that the suit
filed by SCB is basically a title suit. Originally in the suit, a money decree
in the alternative had been prayed for against ABFSL, but the monetary relief
was subsequently given up. Following upon this, the Special Court held that even if CMF failed to
prove the payment of consideration, SCB could not succeed in its suit as it was
a title suit. In the same vein, the Special Court held that the Suit had to fail because it was a title suit
and HPD was entitled to deal with the suit bonds in his own title. And since
the title suit failed, SCB could not prevent NPCL from transferring the bonds
in favour of CMF.
the Special Court concluded on this issue, that
non-payment of consideration by CMF, as submitted by SCB, could only be questioned
by HPD and not by SCB. The Special Court
also held that as the Suit was a title suit, SCB was required to prove its
title and could not succeed on the basis of the faults in the evidence of the
Jethmalani, learned counsel for the appellant, contended that the Special Court erred in taking the view that Suit
No. 11/96 was a title suit in which SCB failed to have its title established.
He submitted that on proper analysis, the suit of SCB was in the nature of a
declaratory suit falling within the ambit of Section 34 of the Specific Relief
Act, 1963, which corresponds to Section 42 of the Specific Relief Act, 1877
(hereinafter referred to as the "old Act"). He placed particular
emphasis on illustration (c) appended to Section 42 of the old Act and
contended that a declaratory suit under Section 42 of the old Act, or Section
34 of the present Specific Relief Act, need not be one for declaring the title
of the plaintiff, but may be one for declaring any other legal character of the
plaintiff. It is difficult to accept this contention of Mr. Jethmalani. As
rightly pointed out by Mr. Kapadia, learned counsel for CMF, SCB appears to
have all along claimed that its suit was a title suit. In the first place, the
prayer clauses in Special Court Suit No. 11/96 read as under:
"For a declaration that the
plaintiffs are fully entitled to 9% NPCL Tax free 'F' series Bonds (fifth
Issue) of the Third Defendants more particularly described in Exhibit 'G'
hereto and that the Third Defendant are bound and liable to register and (sic)
said Bonds in the Plaintiffs' name and to issue and deliver the said Bonds to
the Plaintiffs along with interest warrants in respect thereto.
For a declaration that the second
defendants have no right, title and interest whatsoever, in relation to the
said Bonds, more particularly described in Exhibit 'G' hereto and that the
Second defendants are not bonafide purchasers of the said Bonds for
value." The substantive prayers are for a declaration that the plaintiffs
"are fully entitled" to the suit bonds and certain reliefs which are
founded upon this declaration. A suit for such a declaration would certainly be
a title suit so far as the suit bonds are concerned.
even Grounds A28 and A30 of the present Civil Appeal No. 2275/02 by SCB read:
learned Judge erred in failing to appreciate that SCB having proved its title
on 26th February, 1992 its said title would prevail
against the whole world until a superior title of any party was established.
Judge erred in failing to appreciate that thereby SCB had established its prior
title to the Suit Bonds and had a better title thereto then (sic) CMF."
Thus, it is clear that the appeal has been brought on the footing that SCB had
fully proved its title to the suit bonds and that the Special Court had erroneously held against SCB.
Looked at from any point of view, we are not satisfied that the Suit was a mere
declaratory suit, it must be regarded as a title suit.
shall now turn to the nature of the proceedings in Misc. Petition No. 81/95.
This petition was presented under Section 111 of the Companies Act, 1956.
Section 111(1) provides for the power of refusal by a company to register the
transfer of debentures to a transferee. The transferor or the transferee has a
right of appeal to the Tribunal (then, the CLB) under sub- section (2) of
Section 111. The nature of proceedings under Section 111 are slightly different
from a title suit, although, sub-section (7) of Section 111 gives to the
Tribunal the jurisdiction to decide any question relating to the title of any
person who is a party to the application, to have his name entered in or
omitted from the register and also the general jurisdiction to decide any
question which it is necessary or expedient to decide in connection with such
an application. It has been held in M/s Ammonia Supplies Corporation (P) Ltd.
v. M/s Modern Plastic Containers Pvt. Ltd. and Ors. that the jurisdiction
exercised by the Company Court under Section 155 of the Companies Act, 1956
(corresponding to Section 111 of the present Act, before its amendment by Act
31 of 1988) was somewhat summary in nature and that if a seriously disputed
question of title arose, the Company Court should relegate the parties to a
suit, which was the more appropriate remedy for investigation and adjudication
of such seriously disputed question of title.
Kapadia, learned counsel for CMF, contended that as far as the petition of CMF
was concerned, it merely invoked the summary remedy under Section 111 of the Companies
Act. The only prayer made by CMF before the CLB was that it had purchased the
suit bonds from ABFSL and, therefore, it was entitled to be registered as the
owner of the suit bonds in the register of NPCL. Relying on Mannalal Khetan v.
Kedar Nath Khetan and Ors. he contended that the provisions of Section 108 of
the Companies Act, 1956 were mandatory and unless they were fulfilled, a
registration of the transfer of the bonds could not be done. Further, he relied
on the exemption granted from certain provisions of Section 108(1) in respect
of bonds issued by a Government company. He placed reliance on Notification
G.S.R. 1294 (E) dated 17.12.1986 issued by the Central Government in exercise
of its powers under Section 620(1)(a) of the Companies Act, 1956.
said Notification reads as under:
exercise of the powers conferred by clause (a) of sub- section (1) of section
620 of the Companies Act, 1956 ( 1 of 1956), the Central Government hereby
directs that the provisions of sub-section (1) of section 108 of the said Act,
in so far as it requires a proper instrument of transfer to be duly stamped and
executed by or on behalf of the transferor and by or on behalf of the
transferee, shall not apply with respect to bonds issued by a Government
company, provided that an intimation by the transferee specifying his name,
address and occupation, if any, has been delivered to the company along with
the certificate relating to the bond, and if no such certificate is in
existence, along with the letter of allotment of the bond, a copy of this
notification having been laid in draft before both the Houses of Parliament as
required by sub-section (2) of section 620 of the said Act." It is the
contention of Mr. Kapadia that the provisions of Section 108(1) of the Companies
Act, 1956 are conditionally excluded by reason of this Notification as the suit
bonds were issued by NPCL, which is admittedly a Government company. Thus,
according to him, the suit bonds would be transferable by endorsement and
delivery as long as the transferee gave intimation as contemplated under the
Notification. According to him, the terms of Section 108(1) as amended by the
aforesaid Notification had been fulfilled, and, therefore, there was an
obligation on the part of NPCL to register CMF as the registered holder of the
suit bonds. Emphasising that the intention of the legislature is to enable
transferability of bonds issued by Government companies with greater facility
and lesser formality, he referred to provisions of the Companies Act, 1956 and
the Transfer of Property Act, 1882 (hereinafter referred to as the "TP
Act"). Section 2(12) of the Companies Act, 1956 defines 'debenture' as
including debenture stock bonds and any other securities of a company, whether
constituting a charge on the assets of the company or not. Chapter VIII of the
TP Act deals with transfers of actionable claims. Section 137 of the TP Act,
however, provides that the provisions in Chapter VIII (Sections 130 to 136)
would not apply to stocks, shares or debentures. The argument is that the mode
of transfer of actionable claims specified in the TP Act (Sections 130 to 136)
has been specifically done away with. Even the mode of transfer under Section
108 of the Companies Act has been considerably relaxed insofar as bonds issued
by Government companies are concerned. So far as the nature of the proceedings
in the Misc. Petition are concerned, it is the submission of Mr. Kapadia that
the only issue to be considered is whether CMF is a transferee of the bonds,
and whether CMF has complied with Section 108 read with the Notification G.S.R.
1294(E) dated 17.12.1986 so as to be eligible for registration as the holder of
if the petition filed under Section 111 of the Companies Act, 1956 was only for
this limited relief of registering the petitioner-CMF as the holder of the suit
bonds, we cannot accept the contention of Mr. Kapadia for two reasons. In the
first place, whatever might have been the limited jurisdiction of the CLB under
Section 111 of the Companies Act, 1956, while entertaining the petition, the
fact that the said petition was transferred to the Special Court by an order of this Court needs to
be reckoned with. The order of this Court is specific and requires the trial of
Special Court Suit No. 11/96 along with Misc. Petition No. 81/95. The
limitation of the jurisdiction of the CLB, if any, does not apply to the Special Court, which is clothed with all the
jurisdiction of a civil court. Secondly, merely by filing a petition under
Section 111 of the Companies Act, 1956 and by placing reliance on Section 108
of the Companies Act, 1956 the petitioner-CMF cannot succeed.
would have to go further and prove that it is validly a transferee of the suit
bonds, if that question is put in issue. Thus, in our view, each of the two
contesting parties, i.e. SCB and CMF, would have to prove their rights and show
how they are entitled to the suit bonds before any relief could be granted
either in the Suit or in the Misc. Petition.
and Effect of 15% Arrangement:
Special Court has laid great emphasis on what it has called the '15%
arrangement' and concluded that because of this 15% arrangement HPD became
owner of the suit bonds, which he rightfully transferred to CMF for
consideration. The learned counsel for the appellant has severely criticised
this conclusion as totally contrary to the evidence on record.
the instructions of the Reserve Bank of India (hereinafter referred to as "RBI"), banks and financial
institutions were required to maintain a certain liquidity ratio of debt to
equity. They could have ready forward transactions in securities only with
other banks and only in respect of government and other approved securities.
The statutory liquidity ratio was maintained by sale and purchase of securities,
issued by Government companies and public sector institutions.
unhealthy practice had developed among all the banks and financial institutions
affected by the securities scandal, under which some securities were repeatedly
shown as bought and sold in order to advance finances to certain brokers. HPD
was one of them. The so called '15% arrangement' was an informal arrangement
with HPD under which SCB bought securities from other counter-parties, as
directed by HPD, and also sold them to such parties at such rates as designated
by HPD. A desired sale price was arrived at so as to ensure that SCB obtained a
return of 15% of the transaction. The evidence on record consisting of the
Janakiraman Committee Report (the report of a High Powered Committee appointed
by RBI to investigate into the irregularities in the funds management in
commercial banks and financial institutions, in particular in relation to the
dealings in Government securities) has examined this arrangement and reported
upon it in Paragraphs 8.1 to 8.7 of its Fourth Interim Report (March 1993),
particularly with regard to the way in which the arrangement operated in SCB.
The Joint Parliamentary Committee Report (hereinafter referred to as the
"JPC Report") (Exhibit-26) vide Paragraphs 8.49-8.51 has also
explained this arrangement. There is also the evidence tendered on record in
the form of replies to interrogatories in which SCB has explained the details
of the scheme and how the 15% arrangement worked. The agreement between HPD and
SCB was that, if SCB followed the instructions of HPD in the matter of which
securities are to be bought or sold, from or to which parties, at what rates
and when; SCB was assured of a net return of 15% of the outlay in the purchase
of the securities concerned. If the return was less than 15%, HPD would bear
the difference; if the return happened to be higher than 15%, HPD would be paid
the difference. The evidence on record clearly bears out that this is how the
15% arrangement worked between SCB and HPD.
Policy and Res Judiciata:
Jethmalani invited our attention to an earlier judgment of this Court in Canara
Bank and Ors. v.Standard Chartered Bank where the nature of the 15% arrangement
was carefully considered by this Court.
the said judgment was delivered in a dispute between the same parties and after
analysing the nature of the 15% arrangement, this Court categorically rejected
the argument that it was opposed to public policy. This Court upheld the
judgment of the Special
Court rejecting the
contention that the 15% arrangement was contrary to public policy. While
rejecting the contention that the 15% arrangement was opposed to public policy,
the Special Court had made the following findings:
object and consideration of the suit contracts are purchase/sale of the
securities and payment of price.
securities contracts are normally entered into by banks. These may be for SLR
purposes or in the normal course of business of the bank. It is the business of
the bank to try and make profit. Thus even if these were part of the 15%
arrangement, provided there was such an arrangement, would not make them
against public policy if it was a genuine security transaction. None of the
circulars relied upon by Mr. Salve prohibit such transactions. In my opinion
none of the circulars have any bearing on the point under consideration. The
suit transactions or transactions under the alleged 15% arrangement are not
against the subject matter of these circulars. They are also not even against any
policy laid down therein. I thus see no illegality." These were expressly
approved by this Court in the judgment. It appears to us that much of the
controversy about the nature of the 15% arrangement could have been avoided if
the judgment in the Canara Bank case (supra) had been kept in mind. We notice
from the impugned judgment that the decision of this Court in Canara Bank
(supra) was specifically brought to the notice of the Special Court, but it
appears to have been brushed aside on the grounds, first, that the doctrine of
res judicata would not apply as Section 13 of the Act had an overriding effect;
second, the exact scope of the 15% arrangement was not determined by evidence
in the previous suit; and third, that an arrangement by which banks and public
financial institutions are enabled to earn a return higher than what is
stipulated by the government/RBI, would cause inflation and the government
would not be able to control its deficit, hence it was opposed to public
policy. The Special
Court said: "In
the economic sense, they are not legitimate. On this point also, therefore,
there is no merit in the arguments advanced on behalf of SCB." We are
afraid that the Special
Court was wrong on
all the counts. On the question of res judicata, the Special Court failed to notice that the doctrine
of res judicata is not merely a matter of procedure but a doctrine evolved by
the courts in larger public interest. What is enacted in Section 11 of the
Civil Procedure Code ("CPC") is not the fountain-head of the doctrine,
but merely the statutory recognition of the doctrine, which rests on public
policy. (See in this connection Daryao and Ors. v. The State of U.P. and Ors. , Guda Vijayalakshmi v. Guda Ramachandra
Sekhara Sastry and Hope Plantations Ltd. v. Taluk Land Board, Peermade and Anr. ) In the
previous suit to which both SCB and Canara Bank were parties, the same issue
with regard to '15% arrangement' with HPD was urged by CMF as a non-suiting
factor, but was negatived both by the Special Court and by this Court. Issue
No. 10 in the previous suit was the relevant issue dealing with 15%
arrangement, which was as follows:
the suit transactions entered into by the Plaintiffs with the Canbank Mutual
Fund were in fact entered into by the plaintiffs on behalf of Hiten Dalal as
alleged in Para 5(d) of the Written Statement of Defendant No. 1?" This
was an issue raised by CMF which was defendant no. 1 in that suit (Special
Court Suit No. 13/94). The burden of proving this issue was on the defendant
and the Special Court answered the issue in the negative
and observed that the counsel for defendant no. 1 had admitted that there was
no evidence to support this issue. Consequently, the Special Court held that the issue was answered in
the negative i.e. against defendant no. 1. Since the Special Court findings
were finally upheld by this Court in the judgment reported in Canara Bank
(supra) and a review petition thereagainst was also dismissed, we are of the
view that it is not open for this Court to again raise the issue and take a
view contrary to what had already been decided in the previous suit,
particularly in view of the fact that there has been no new revelatory evidence
on this issue.
not in agreement with the view taken by the Special Court that Section 13 of the Act overrides the doctrine of res
judicata. Section 13 of the Act provides: "The provisions of this Act
shall have effect notwithstanding anything inconsistent therewith contained in
any other law for the time being in force or in any instrument having effect by
virtue of any law, other than this Act, or in any decree or order of any Court,
tribunal or other authority".
was certainly not intended to abrogate all the established principles of law,
unless they were directly in conflict with the express provisions of the Act
itself. There is nothing in the Act which is inconsistent with the doctrine of
res judicata, per se, as seems to have been assumed by the Special Court.
also unable to appreciate the thinking of the Special Court that there was something morally or economically
reprehensible in the arrangement which was brought about between HPD and SCB as
a result of which SCB was able to earn higher return.
evidence as to the nature of the 15% arrangement was SCB's replies to
interrogatories in previous suits, tendered by CMF as Exhibits 5, 6, 8 and 9 as
evidence in the present suit, the Janakiraman Committee Report and the JPC
Report, which recognise and explain the 15% arrangement.
is nothing in all the said evidence to suggest that by entering into such a
contractual transaction with HPD, HPD became the owner of the bonds.
evidence, on the other hand, clearly brings out that at all times the
securities transactions would be between SCB and the counter-party-banks, the
legal relationship always being between the said two parties. In our view,
therefore, the Special
Court grossly erred
in drawing a conclusion based on no evidence and attributing to the said
arrangement a legal character, which was not proved on record. It also erred in
ignoring the finding on the issue given in the previous Special Court Suit No.
13/94 as upheld by the judgment of this Court in Canara Bank (supra). The Special Court has also observed that under the
15% arrangement SCB was "maintaining broker's position". While this
may be appropriate jargon in a stock exchange, what exactly is the legal
implication, if any, of such an expression is unclear. We find no evidence on
record to suggest that merely because of the 15% arrangement the legal
ownership of the securities was transferred to HPD in any manner, since all the
transactions appear to be between SCB and counter-party-banks. This would be
evident from the fact that if the counter- party-banks failed to deliver the
securities or failed to pay for the securities delivered, the legal action
could only be between SCB and the counter- party-banks with which the
transaction took place and not by or against HPD.
unable to accept the conclusions drawn by the Special Court with regard to some of the documents produced by CMF as
defendant, about which no evidence by way of explanation was led by either
absence of proper explanation, it was not open to the Special Court to make inferences or assumptions with
regard to terms used in the documents, for example, SCB's securities ledger in
relation to the suit bonds (Exhibit-11), which pertains to the sale and
purchase of the suit bonds with different counter-parties. This document as
such does not contain the description 'portfolio', but the said appellation has
been given to it by the Special
Court on its own. The
Special Court has observed thereupon:
all such transactions were entered into by the bank on behalf of HPD.
Therefore, they were transactions of HPD. This is amply illustrated by
Exhibit-11. A portfolio represents stock held by SCB on behalf of HPD.
was entitled to enter into buy transactions and sale transactions in respect of
securities coming under that portfolio. The portfolio was built up by SCB by
purchasing securities at the instance of HPD. This is also called as building
up of position. The suit contract comes under Exhibit-11. By the suit contract,
the LoA came within the portfolio of HPD. He was allowed to deal with the LoA
under the portfolio." We are afraid that this inference is not readily
available ex facie from the document; nor was there any other evidence given by
any witness explaining the document, suggesting it.
the word 'loan' used in the Security Ledger (Exhibit-11) was seized upon by the
Special Court to draw an unwarranted inference.
The Special Court has held that this term shows "lending of scrip to
HPD" and has then gone on to hold as follows: "this word has to be
read while construing the entries in Exhibit-11 beginning from 27.2.1992. The
word "loan" must be read with the column "Book Value" and
the column "Profit and Loss" and "Balance". That, last
column "Balance" represents HPD's outstanding to SCB." There is
no warrant, whatsoever, for such an explanation to this document as no witness
has said so. Further, the word 'loan' also appears to have been used in the BR
issued by AB to SCB in respect of the suit bonds (BR no. 23728 dated
27.2.1992). There was no justification for giving an interpretation to the word
'loan' used in any of the documents without any explanation by a witness.
Special Court also makes a finding that the word 'Direct' used in SCB's ledger
showing transaction details of SCB from April 1991 to May 1992 (Exhibit-7)
suggests that such transactions were all under the 15% arrangement. This again
appears to be an inference which has been drawn by the Special Court without any supporting evidence
thereto. In the replies to the interrogatories as well as the evidence of the
witnesses no one has asserted that all transactions described as 'direct' were
necessarily covered by the 15% arrangement. Although, the reply to Question no.
43 of the interrogatories, in Suit No. 14/94, did suggest to the contrary, the
said reply not having been tendered in evidence and taken on record, does not
form part of the evidence before the Special Court. The Special
Court is, therefore,
not justified in drawing this conclusion for which there was no acceptable
Jethmalani contended that the chargesheet (Exhibit-4), FIR (Exhibit-3), SCB's
answers to interrogatories (Exhibits 5, 6, 8 and 9), details of SCB's
securities transactions during April 1991 May 1992 (Exhibit-7), security
ledger of SCB in relation to the suit bonds (Exhibit-11), SCB's deal slips
dated 9/5/92 (Exhibit-10), SCB's vouchers (Exhibit-12), and the Janakiraman
Committee Report (Exhibit-18) were all produced by CMF; and relying on the
judgments of this Court in P.C. Purushothama Reddiar v. S. Perumal and R.V.E.
Venkatachala Gounder v. Arulmigu Viswesaraswami & V.P. Temple and Anr. he urged that the contents of these documents
would be binding on CMF. The Special Court
has relied on these documents to arrive at a conclusion which does not arise
it may be true that the Special
Court has been given
a certain amount of latitude in the matter of procedure, it surely cannot fly
away from established legal principles while deciding the cases before it. As
to what inference arises from a document, is always a matter of evidence unless
the document is self-explanatory. We do not think that any of the documents
placed on record during the trial were self-explanatory; nor were they
explained by any competent witness on either side. In the absence of any such
explanation, it was not open to the Special Court to come up with its own explanations and decide the fate of
the Suit on the basis of its inference based on such assumed explanations. In
fact, these inferences run contrary to the oral evidence given by Kalyana Raman
(PW-1) in relation to the transaction of 26.2.1992.
The Special Court has also adversely commented on the
conduct of SCB in not leading evidence to prove what the 15% arrangement was.
We fail to see how a party could be called upon to lead evidence with regard to
an issue which was no part of its case. The 15% arrangement was brought on
record at the instance of CMF and the burden, if any, of proving its details
lay on CMF. Although, a number of documents were produced on record as called
for by CMF, there was no obligation on SCB to explain any of them.
counsel for CMF also contended that SCB failed to produce relevant documents
that would have established what the 15% arrangement was. For this failure, he
contended that an adverse inference should be drawn against SCB. For this
proposition, he relies on the judgments of this court in Hiralal & Ors. v.
Badkulal & Ors. , Gopal Krishnaji Ketkar v. Mohamed Haji Latif & Ors. ,
S. P. Chengalvaraya Naidu (dead) by L.R's. v. Jagannath (dead) by L.R's. &
Ors. and CitiBank N. A. v. Standard Chartered Bank & Ors. .
argument is met by learned counsel for SCB. An adverse inference is a
presumption which the court is entitled to draw under Section 114 of the Indian
Evidence Act, 1872 read with illustration (g) thereto. Mr. Jethmanlani
contended that the weight of the authorities would show that unless there are
some special circumstances making it obligatory for a party to produce
evidence, no adverse inference can be drawn unless a party has been called upon
to or ordered to produce evidence and fails to do so. Mr. Jethmalani relies on
Mt. Bilas Kunwar v. Desraj Ranjit Singh and Ors. , Ramrati Kuer v. Dwarika
Prasad Singh and Ors. and Smt. Indira Kaur and Ors. v. Shri Sheo Lal Kapoor .
Hiralal's case (supra), this court reiterated the observations of the Privy
Council in Murugesam Pillai v. Gnana Sambandha Pandara Sannadhi where the Privy
Council laid down the general rule of procedure that instead of relying on the
abstract doctrine of onus of proof a party to the suit "desiring to rely
upon a certain state of facts" ought not to withold from the court the
written evidence in his possession. In Gopal Krishnaji Ketkar's case (supra)
the observation in Murugesam Pillai (supra) was reiterated and it was observed:
"Even 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." S. P. Chengalvaraya Naidu (supra), was a situation of a
fraudulent litigant basing his case on falsehood and witholding vital
documents. Citibank (supra) merely relies on the observations made in Murugesam
Pillai (supra) and Gopal Krishnaji Ketkar (supra), both of which say that it is
not a sound practice for those "desiring to rely upon a certain state of
facts to withold from the court" the best evidence which is in their
other hand, the three authorities on which Mr. Jethmalani relied independently
take the view that unless a party is called upon to produce evidence or ordered
to do so by the court and fails to do so, no adverse inference can be drawn
against such party. Mr. Jethmalani distinguished the two apparently
contradictory lines of authorities by pointing out that in the authorities
relied on by Mr. Kapadia the facts showed that there was a special obligation
upon the party concerned to produce the relevant documents even without being
called upon or ordered to do so and that the party had failed to produce them.
Further he pointed out that the observations of the Privy Council originating
from Murugesam Pillai (supra) which have been reiterated in the subsequent
cases including Citibank (supra) would apply only if the party is
"desiring to rely upon a certain state of facts". He rightly contends
that the 15% arrrangement was neither any part of SCB's case, nor was SCB
desiring to rely on the said state of facts. In the circumstances there was no
obligation upon SCB to produce any documents to prove the case put forward by
CMF; there was no situation in which adverse inference could be drawn against
SCB. Finally, Mr. Jethmalani also urged that irrespective of what the parties
did, the Special Court could have, if it was so minded,
invoked its power under Section 165 of the Indian Evidence Act, 1872 and
directed production of all documents it considered relevant instead of relying
on adverse inference which was doubtful in the circumstances. This is
particularly so with regard to the argument of CMF that the computer spread
sheets had not been produced, as paragraph 7 of the written statement of CMF
indicates that CMF was aware of the existence of such sheets and yet failed to
call upon SCB to produce it or seek an order for production thereof from the Special
whole thrust of the impugned judgment is that the transactions between SCB and
the counter-party-banks, which were covered by the 15% arrangement were sham
transactions, making HPD the owner of the suit bonds. Where a transaction
results in rights and obligations, it can never be treated as a sham
transaction. (See in this connection Chow Yoong Hong v. Choong Fah Rubber
Manufactory .) It was nobody's case that in any of the transactions under the
15% arrangement, HPD could have been sued for enforcement of any right arising
therefrom between SCB and ABFSL.
No. 5 framed by the Special Court was whether SCB was estopped from making any
claim to the suit bonds by denying the authority of HPD to deal in the suit
bonds, as SCB had actually, ostensibly or negligently permitted HPD to deal
with the suit bonds. Although, the Special Court answered the issue in the affirmative i.e. in favour of CMF
and against SCB, there does not seem to be any specific discussion on this
issue nor any reason supporting the said finding. It is however true that the
Special Court took the view that the direct fallout of the 15% arrangement was
that HPD became the owner of the suit bonds and had the right to deal with the
suit bonds as he pleased; and since this was done to the knowledge of and by
acquiescence of SCB, SCB was estopped from denying that HPD had acquired any
such right to deal with the suit bonds or to transfer them to any other person.
Special Court has taken the view that the transactions reflected in the
Security Ledger (Exhibit-11), indicated funding of the broker by SCB and that
it was something like a 'running account' of HPD in the books of SCB, which had
opened with an entry of 26.2.1992 and was settled on 9.5.1992. It then observed:
"Under Exhibit-11, the suit scrip of 9% NPCL bonds was made available to
HPD for raising finances either by sale, pledge or Ready Forward. It was bought
for HPD as he had assured a fixed return to SCB. The (sic) HPD was entitled to
trade. He was entitled to take position in the market on the suit bonds bought
for him as he has assured a fixed return.
entitled to take a position on suit bonds. He took that position through SCB.
Therefore, SCB had taken his position under Exhibit-11.
the above arrangement, SCB could claim return of the security or equivalent
money value only from HPD as the transactions in Exhibit-11 are under 15%
Arrangement. Therefore, SCB cannot claim any relief against CMF. They can only
claim relief against HPD. SCB is estopped from claiming any relief against CMF.
SCB, therefore, has no right to object to the transfer of bonds by NPCL in
favour of CMF." Learned counsel for SCB however criticised the impugned
judgment of the Special
Court on the ground
that this finding, though not made specifically, but diffusedly over the
impugned judgment arises from a misapprehension as to the exact nature of the
doctrine of estoppel. Learned counsel contended that estoppel would require a
representation by SCB, by acting upon which CMF should have altered its
position to its prejudice.
the burden of proving the issue was on CMF, CMF had to show what the
representation was, to whom it was made, how CMF had altered its position as a
result of such representation and what prejudice it had suffered.
contended that no evidence was led by CMF on any of these aspects and,
therefore, the Special
Court had no material
whatsoever before it to make any finding on the issue of estoppel other than
pure conjecture and speculation based upon its understanding of the 15%
arrangement. Further, learned counsel contended that if HPD had obtained the
suit bonds by theft or by committing any other offence, then there would be no
question of estoppel of SCB from denying the title of HPD or of any one else
who claimed to have obtained title to the suit bonds from HPD. In Mercantile
Bank of India Ltd. v. Central Bank of India Ltd. , it was observed:
estoppel has been described as a mere rule of evidence, it may have the effect
of creating substantive rights as against the person estopped. Of the many
forms which estoppel may take, it is here only necessary to refer to that type
of estoppel which enables a party as against another party to claim a right of
property which in fact he does not possess. Such estoppel is described as
estoppel by negligence or by conduct or by representation or by a holding out
of ostensible authority." "that it must be the neglect of some duty
that is owing to the person led into that belief, or, what comes to the same
thing, to the general public of whom the person is one, and not merely neglect
of what would be prudent in respect to the party himself, or even of some duty
owing to third persons, with whom those seeking to set up the estoppel are not
privy." "There is a breach of the duty if the party estopped has not
used due precautions to avert the risk. The detriment may entitle the innocent
third person either to prosecute or to defend a claim. His identity may be
ascertainable only by the event, in the sense that he has turned out to be the
member of the general public actually reached and affected by the conduct,
negligence, representation or ostensible authority." It was thus held that
a plea of estoppel could not be availed of if there was no duty owed by the
person sought to be estopped, nor any representation made by such person. In
New Marine Coal Co. (Bengal) Pvt. Ltd. v. The Union of India,
this Court had occasion to examine the doctrine of estoppel and cited with
approval the following observations in Halsbury's Law of England : "before
any one can be estopped by a representation inferred from negligent conduct,
there must be a duty to use due care towards the party misled, or towards the
general public of which he is one", that, it was required that "the
negligence on which it is based should not be indirectly or remotely connected
with the misleading effect assigned to it, but must be the proximate or real
cause of that result ." The judgment of the Privy Council (supra) was
approvingly cited by this Court, which also observed, "before invoking a
plea of estoppel on the ground of negligence, some duty must be shown to exist
between the parties and negligence must be proved in relation to such
duty." Mr. Jethmalani, therefore, is justified in his submission that
there was no such duty owed by SCB to CMF. At any rate, none was shown to have
existed. Hence, there is no substance in the plea of estoppel raised by CMF.
Benami Transactions (Prohibition) Act, 1988:
the arguments canvassed before us by Mr. Jethmalani was on the effect of
Section 4(2) of the Benami Transactions (Prohibition) Act, 1988 on the defence
of CMF in the Suit. The argument was that CMF has contended, though not in
precise terms, that the suit bonds did not belong to SCB at any point of time
because the 15% arrangement was only a funding transaction under which the real
owner was HPD, though the suit bonds were ostensibly held by SCB. Mr.
Jethmalani contends that this contention of CMF is specifically barred by Section
4(2) of the Benami Transactions (Prohibition) Act, 1988. The learned counsel
for CMF, however, relies on Section 3(3) of the Act, which reads thus:
anything contained in the Code and any other law for the time being in force,
on and from that date of notification under sub-section (2), any property,
movable or immovable, or both, belonging to any person notified under that
sub-section shall stand attached simultaneously with the issue of the
notification." The force of the words "belonging to any person
notified" used in sub-section (3) of Section 3 of the Act are wide enough
to result in attachment of the property which belongs to the notified person
irrespective of in whose name the property stands. The provisions of Section 13
of the Act give an overriding effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force. Even assuming
that the argument of Mr. Jethmalani based on Section 4(2) of The Benami
Transactions (Prohibition) Act, 1988 is a plausible one, we are of the view
that the combined effect of Sections 3(3) and 13 of the Act would give an
overriding effect to the provisions of the Act. It is rightly urged by Mr.
Kapadia, learned counsel for CMF, that, if that were not so, then the whole
purpose of the Act would be defeated since the objective of the Act was to
reach out and attach the property in whichever hands it was, irrespective of in
whose names the property stood, as long it was property belonging to a notified
person. Thus, the contention based on Section 4(2) of the Benami Transactions
(Prohibition) Act, 1988 has been rightly rejected by the Special Court.
was said by the learned counsel for CMF about the manner in which SCB has
hedged its replies. The learned counsel criticised the attempt of SCB to hide
the true facts and contended that SCB kept on changing its stand from time to
time. He highlighted that the stand taken by SCB in the Suit, the stand taken
by it in the reply to the Petition and the stand taken by it before this Court
was wholly inconsistent and, therefore, urged that the claims of SCB should
fail. We think that this is a classic case of the pot calling the kettle black.
When we look at the defence taken by CMF, the same criticism can be validly
levied against it. CMF started by saying that it had bought the suit bonds from
ABFSL. When it found that the evidence was against it, it shifted its stand and
said it had bought them from HPD with HPD acting on behalf of ABFSL or SCB as
the broker, or on his own behalf.
not think that on the question of bona fides and consistency, there is anything
to choose between SCB and CMF. Since both parties are tarred by the same brush,
the issue will have to be resolved purely on the basis of what the legal evidence
get any title to the suit bonds:
the case of SCB that it had the title to the suit bonds as it obtained the suit
bonds under a contractual agreement by paying consideration for the suit bonds.
This transaction is based on documentary evidence on record.
Cost Memo (Exhibit-B) dated 26.2.1992 issued by ABFSL evidences that the suit
bonds were offered to SCB at the consideration indicated in the document. The
Cost Memo indicates the details of the transactions such as the description of
the bonds, the number of bonds sold, the rate at which they were sold and the
total consideration payable. This is accompanied by a BR. Against this, there
is a pay order dated 26.2.1992 issued by SCB in favour of ABFSL in the sum of
Rs.42,52,50,000/- evidencing that such consideration had been paid. The BR No.
23728 dated 26.2.1992 evidences that upon receipt of the agreed consideration,
being the cost of the suit bonds sold to SCB, the BR was issued to undertake
that bonds of the face value of Rs. 50 crores would be delivered when ready, in
exchange for the BR duly discharged and that in the meantime the suit bonds
would be held on account of SCB. The letter dated 26.2.1992 from ABFSL to SCB
shows that the LOA of the suit bonds was forwarded to SCB inter alia with a
request for discharging the corresponding BR No. 23728 on receipt of the LOA.
The register of SCB shows that with reference to BR No. 23728, the bonds had
been received, although, the word 'photocopies' appears to have been inserted
therein. It is the case of SCB that one of its employees, Mulgaonkar, had acted
fraudulently by inserting this word and causing misappropriation of the suit
bonds. We find that this part of the case was not part of the pleadings of SCB
either in its plaint or in the written statement filed in reply to CMF's
petition. There was also no reference to it at any time when evidence was led
by the parties. The first time this part of the case appears is in the copy of
the chargesheet filed by CBI against certain employees of SCB and HPD for
several criminal offences. Mr. Jethmalani contended that since this chargesheet
was produced on record at the instance of CMF, the averments in the chargesheet
must be taken to have been proved before the court. Even assuming Mr.
Jethmalani is right in characterising the charge sheet as a public document
within the meaning of Section 35 of the Indian Evidence Act, 1872, we cannot
accept all that is stated in the charge sheet as having been proved. All that
we can say is that it is proved that the police had laid a chargesheet in which
such allegations have been made against the accused. We need not delve further
into it since the criminal proceedings against HPD and others are still pending
and it will be up to the appropriate court to decide the correctness or
otherwise of the charges in the chargesheet. All that can be said at this stage
is that there were serious allegations that the original LOA went out of the
possession of SCB by some nefarious means.
counsel for CMF contended that even as on 26.2.1992 SCB had no title to the
suit bonds since the suit bonds were under the 15% arrangement and that under
the 15% arrangement the transaction was one merely of funding; in other words,
that there was no real buyer or seller and it was mere paper work intended as a
cover for lending money to HPD. We are unable to accept this argument for more
than one reason. The documents which we have referred to above clearly evidence
a transaction of sale and purchase of the suit bonds by SCB upon payment of
ABFSL, who was the other party to the transaction, has come forward and
accepted the transaction unhesitatingly. There is no reason why all this
evidence should be discarded by choosing the chimera of the 15% arrangement
theory. We, therefore, hold that SCB validly acquired title to the suit bonds
as a result of the transaction entered into between itself and ABFSL on
26.2.1992. And that the suit bonds were in fact handed over to SCB although, it
is not evident as to how the suit bonds went out of the possession of SCB.
Therefore, the contention of CMF that SCB never acquired title to the suit
bonds cannot be accepted. Even the Special Court finds that the contract of 26.2.1992 with regard to the
suit bonds had been proved by the evidence on record. However, the Special Court goes on to say that merely proving
the suit contract was not sufficient because it had to be further proved that
the suit bonds had been acquired by SCB, as, in its view, the mystique of the
15% arrangement made HPD the real owner of the bonds.
Jethmalani rightly urged that the title of any person acquiring property would
depend upon the antecedent title of the person from whom the property is
acquired. In the instant case, the suit bonds were validly acquired by ABFSL
from the original issuer, namely, NPCL and as a result of the transaction dated
26.2.1992, SCB in its turn acquired them by payment of consideration, from
ABFSL. He relied on the judgments in Vasudev Ramchandra Shelat v. Pranlal
Jayanand Thaker and Ors. and L.I.C. of India v. Escorts Ltd. and Ors. in support of this proposition. The title of
SCB arises from antecedent ownership of ABFSL, and it is proved that the suit
bonds transaction was in accordance with law.
Kapadia, learned counsel for CMF, contended that the evidence on record showed
that SCB had acquired no title at all to the suit bonds even on the initial
date of transaction i.e. 26/27.2.1992. He contended that the property in the
suit bonds had never passed to SCB as there was no evidence of endorsement or
delivery of the suit bonds. He extensively referred to the pleadings in the
plaint in Suit No. 11/96 and highlighted the fact that what was pleaded in the
plaint was non-delivery of the suit bonds. The only prayer made was for a
decree against NPCL, which was holding the bonds as a bailee for CMF, since CMF
had forwarded the original LOA to NPCL and sought registration of its name as
holder of the suit bonds. He further highlighted the fact that a decree had
been sought against only NPCL, as a bailee, though CMF was in constructive
possession being holder of the receipt for lodging with NPCL. He also pointed
out that the plaint sought the relief of refund of money from ABFSL as an
alternative relief. It is his contention that, at the most, the frame of the
Suit could have been as a suit for specific performance, but since it was
framed as a suit on title, it must fail. Further, he urged that even the
alternative prayer of money claimed against ABFSL was given up during the trial
and, therefore, the Suit must necessarily fail in its entirety.
also pointed out that both the 17% NPCL bonds and the 9% NPCL bonds (suit
bonds) were bought in the same manner, on the same day, as part of the same
transaction, and a suit is filed for 17% NPCL bonds also being Suit No. 3809/92
only against ABFSL and only for a money decree. In his submission, it is
somewhat surprising that with respect to the two claims - in respect of 9% NPCL
bonds and 17% NPCL bonds - which were transacted on the same date under the
same circumstances, while the Special Court Suit No. 11/96 pertaining to the
suit bonds seeks a declaration of title, the suit in respect of the 17% NPCL
bonds being Special Court Suit No. 3809/92 is for a money claim for refund of
the consideration paid. He also referred to the details of the evidence and
pointed out that while SCB came to the court alleging that it had never
received the original LOA, which was its consistent stand in its pleadings in
the Suit and also in the Petition, after the CBI submitted the charge sheet,
SCB came out with the story of conspiracy of Mulgaonkar with HPD. Even this
contention was not argued in the trial court at all, nor was any evidence led
that SCB had made any reasonable enquiry to find out how the original LOA went
into the hands of HPD. There is also no pleading or evidence to show
endorsement and delivery of the concerned bonds. Relying on the decisions of
this Court in Nagindas Ramdas v. Dalpatram Iccharam alias Brijram and Ors. ,
Thiru John v. Subramhanyam v. The Returning Officer & Ors. and Bharat Singh
and Ors. v. Mst. Bhagirathi, Mr. Kapadia contended that there were admissions
galore by SCB both in the pleadings and thereafter in the evidence, and as such
they could not be permitted to change their stand. He pointed out that on
2.7.1997 the money decree claim against ABFSL was specifically given up and on
the next day the officer of ABFSL, Kalyana Raman (PW-1), gave evidence for the
plaintiff-SCB and the stand that the original LOA was not received by SCB was
conveniently given up by SCB.
also contended that the documents on which reliance is placed by SCB were not
proved. The evidence of the plaintiff's witness, Kalyana Raman, employee of
ABFSL, shows that only two persons, namely, himself and another officer of
ABFSL, R.V. Shenoy, had dealt with such transactions. But neither officer
claimed any personal knowledge of the suit bonds transaction. Further, that
Kalyana Raman gave evidence that the dealers were mainly dealing with one Shiv
Kumar, another officer of SCB, who might be in the know of the suit bonds
transaction. Although, SCB took out a Chamber Summons for examining the said
Shiv Kumar as he was posted at Singapore at
the material point, the Chamber Summons was not pursued and Shiv Kumar was not
examined. Thus, according to Mr. Kapadia, there is no evidence worth reliance
placed on record to show how the deal was struck and the contract of the
purchase of the bonds was brought about, as the documents placed on record were
hardly worth credence. That during the cross examination of Kalyana Raman, SCB
was specifically called upon to produce on record the document showing HPD's
involvement in the transaction and the learned counsel for SCB stated that
there were no such documents in existence at all. Mr. Kapadia, therefore,
submitted that no evidence could be considered contrary to the pleadings of
SCB, for which he strongly relied on Siddik Mohamed Shah v. Mt. Saran &
Ors. , Bhagatsingh & Ors. v. Jaswant Singh and Shri Venkataramana Devaru
& Ors. v. State of Mysore. For all these reasons, Mr. Kapadia
submitted that SCB had failed to prove that it had acquired title to the suit
bonds even on 26/27.2.1992.
counsel for SCB, however, laid emphasis on the principle that SCB's title
arises from the antecedent right of ownership of its transferor, namely, ABFSL,
about whose title there is no dispute at all. The suit bonds are nothing but
debentures within the meaning of Section 2(12) of the Companies Act, 1956. A
debenture is an actionable claim. However, Section 137 of the Transfer of
Property Act exempts debentures inter alia from the provisions of Sections 130
to 136 of the TP Act. Thus, with respect to debentures, there is no prescribed
mode of transfer of property under the TP Act. According to Mr. Jethmalani, an
act between the transferor and transferee is sufficient to convey all rights of
ownership, except the right to have the bonds registered, for which the
requirements of the Companies Act, 1956 have to be followed. In his submission,
the Suit and the Misc.
were nothing but rival claims made for being placed on the register of NPCL,
and the party which had legitimately acquired the ownership rights by reason of
transfer from the antecedent owner of the suit bonds, would be entitled to be
placed on the register of NPCL as the registered holder of the bonds. His
reliance on the judgment of Controller of Estate Duty v. Godavari Bai in
support of the proposition is justified. Section 9 of the TP Act recognises
even an oral transfer made in every case in which a writing is not expressly
required by law. Mr. Jethmalani submitted that the transfer in the instant case
would be valid even without execution of any kind of instrument in writing and
without actual delivery of the suit bonds.
justified in relying on the Cost Memo, which is part of the evidence, as being
sufficient to evidence the contract of transfer of the bonds, since it is
signed by the transferor, names the transferee, indicates the details of the
suit bonds, the amount of consideration, the mode of its payment and delivery
of the BR as evidence of the holding of the bonds by ABFSL on behalf of SCB.
Mr. Jethmalani is right in his submission that this transfer has been accepted
even by the Special
Court. Mr. Jethmalani
went to the extent of contending that even formal delivery of the original LOA
was not an essential requisite to complete the transaction so as to effectuate
the transfer of property in the suit bonds to SCB and whether the BR was duly
discharged would hardly be a material fact, since the BR does recognise SCB's
right and declares that the bonds were being held on behalf of SCB.
are, therefore, satisfied that there was transfer of the property in the suit
bonds to SCB and the evidence on record is sufficient to arrive at such a
conclusion. It was wholly unnecessary for SCB to go further and prove how the
BR was discharged and how the LOA went out of its possession, which were the
facts emphasised on behalf of CMF. Nor was it necessary for SCB to lead
evidence as to how HPD had intercepted the original LOA, when and in what
to the argument that SCB could not be permitted to make an argument
inconsistent with the pleadings on record, we need to see an order dated
2.7.1997 made by the Special
Court. On that day
the learned counsel for SCB made a statement that he was not pressing for
relief of monetary claim in terms of prayer (b) of its plaint. While settling
the issues between SCB and CMF and SCB and NPCL, the learned counsel for SCB
made a statement that he would not be pressing the contention that the original
LOA had not been received by SCB. In view thereof, the Special Court did not permit the issue proposed
to be raised by CMF on the said point. CMF proposed another issue as to whether
SCB was not aware of the circumstances in which the original LOA was taken away
from it. This issue was held by the Special Court to be irrelevant for the purposes of the Suit on the ground
that, as the plaintiff was not pressing the contention that they have not
received the original LOA; it was not necessary.
Jethmalani rightly contended, that when these admissions were placed on record
formally, there was no objection by CMF to these admissions being taken on
record, nor was there any challenge by CMF to the ruling given by the Special Court, overruling the framing of the
aforesaid two issues. In the circumstances, he submits that it is not open to
CMF to raise an objection at this stage. Apart therefrom, Mr. Jethmalani also
relied on Order XII Rule 1 of the Civil Procedure Code to contend that it is
open to a party at any time to give notice, by his pleading, or otherwise in
writing, that he admits the truth of the whole or any part of the case of any
other party. This was precisely what happened during the trial on 2.7.1997.
because such a situation arises, the rest of the case does not get affected and
has to be tried in accordance with law. In Bhagwati Prasad v. Chandramaul,
while dealing with the argument that it would not be open to a party to sustain
a claim on a ground which is entirely new or not pleaded, this Court rejected
the contention and held that it was a general doctrine which could not be
applied irrespective of the facts of the case on hand and observed thus (vide
in considering the application of this doctrine to the facts of the present
case, it is necessary to bear in mind the other principle that considerations
of form cannot over-ride the legitimate considerations of substance. If a plea
is not specifically made and yet it is covered by an issue by implication, and
the parties knew that the said plea was involved in the trial, then the mere
fact that the plea was not expressly taken in the pleadings would not
necessarily disentitle a party from relying upon it if it is satisfactorily
proved by evidence. The general rule no doubt is that the relief should be
founded on pleadings made by the parties. But where the substantial matters
relating to the title of both parties to the suit are touched, though
indirectly or even obscurely, in the issues, and evidence has been led about
them, then the argument that a particular matter was not expressly taken in the
pleadings would be purely formal and technical and cannot succeed in every
case. What the Court has to consider in dealing with such an objection is: did
the parties know that the matter in question was involved in the trial, and did
they lead evidence about it? If it appears that the parties did not know that
the matter was in issue at the trial and one of them has had no opportunity to
lead evidence in respect of it, that undoubtedly would be a different matter.
To allow one party to rely upon a matter in respect of which the other party
did not lead evidence and has had no opportunity to lead evidence, would
introduce considerations of prejudice, and in doing justice to one party, the
Court cannot do injustice to another." We respectfully concur with the
said observations and reject the contention of Mr. Kapadia that SCB could not
be permitted to rely on its changed stand.
is one minor issue with regard to the date of the letter written by ABFSL,
namely, whether it was 26.2.1992 or 27.2.1992. The evidence of Kalyana Raman
makes it clear that mentioning the date of the letter as 26.2.1992 was a
mistake and that the actual date of the letter was 27.2.1992.
lose title to the suit bonds at any time before the suit was filed?
large portion of the impugned judgment is devoted to an analysis of the
Securities Ledger (Exhibit-11) and raising inferences thereupon. There is no
doubt that Exhibit-11 is a securities ledger maintained by SCB in respect of
the suit bonds. Ex facie, the Securities Ledger shows the date on which the
transaction took place, the counterparty to the transaction, whether the
transaction was a sale or purchase, face value of the transaction, rate of the
transaction, book value, interest paid/received, profit/loss of the transaction
and the balance. The document as such does not give rise to an inference that
in any of the transactions HPD had become the owner of the suit bonds. The Special Court, on account of a misreading of the
evidence pertaining to the 15% arrangement, drew a conclusion from this
Exhibit-11 that HPD became the owner of the suit bonds right from 26.2.1992 and
thereafter all the transactions were those of HPD, the losses or gains being
credited to the account of HPD. We have already seen the evidence on record as
to the 15% arrangement. No part of that evidence can legitimately give rise to
the inference that in respect of securities transacted under the said
arrangement, any person other than SCB or the counterparty become the owner of
these securities. We have already seen that the suit bonds were purchased by
SCB legitimately on 26.2.1992 by payment of consideration to ABFSL, which fact
is even accepted by the Special
Court. However, on
analysis of certain documents on record, the Special Court has come to the conclusion that on 9.5.1992 the suit bonds
were sold by SCB to HPD. The transaction dated 9.5.1992 thus becomes crucial
and has to be scrutinised to see if this inference is correct.
The Special Court laid great emphasis on Exhibit-7
(details of SCB's securities transactions during April 1991 May 1992), which
purportedly shows that on 9.5.1992 the suit bonds were sold to Andhra Bank
(hereinafter referred to as "AB"). There is also SCB's deal slip no.
10729 showing that there was a sale of the suit bonds of the face value of Rs.
50 crores @ Rs. 91.00 to AB. According to SCB, entries in the deal slips from
nos. 10727 to 10735 were sham entries made in order to account for a large
amount of money which HPD admitted to be owed to SCB and paid up by
transferring Cantriple Units worth about Rs. 205 crores. SCB's explanation is that
it had to show in its books, the receipt of this Rs. 205 crores and, therefore,
a number of sham entries were recorded in deal slip Nos. 10727 to 10735 and
were also indicated in Exhibit-7, AB being shown throughout as the counterparty
and all such transactions being shown as 'direct'. The learned counsel for SCB
contended that these were sham entries in order to take into the books of SCB
the large amount of Rs. 205 crores.
to the FIR which is exhibited by CMF on record, by about 30.4.1992, the
officers of SCB discovered that there had been a series of transactions in
securities conducted through HPD, as a result of which, securities to the tune
of about Rs. 300 crores remained unaccounted for, as neither securities nor BRs
pertaining to them had been received by SCB.
Ravi Iyer, Director, Local Currency Group of SCB made some preliminary inquiry
and confronted HPD about this fact. HPD admitted on 10.5.1992 to Ravi Iyer that
in respect of payments made by SCB for purchase of securities, there was a very
substantial shortfall of securities, as the securities or BRs pertaining to
them had not been handed over to SCB by HPD. HPD promised that he would hand
over BRs/securities for the shortfall already identified and on 11.5.1992 he
delivered a letter promising to deliver further securities to fill the gap that
had been noticed. SCB had relied on the chargesheet and recital in the
chargesheet as an admission on the part of CMF, since the charge sheet was
produced as CMF's evidence.
there is evidence of M.Q. Askari (PW-3), an officer of AB in terms denying that
there was any sale or purchase transaction between SCB and AB during the period
1.5.1992 to 10.5.1992. In fact, Askari produced the purchase register of AB in
which there was no entry showing purchase of the suit bonds by AB from SCB on
9.5.1992. Mr. Jethmalani contended rightly that the evidence of Askari had
remained totally unchallenged, particularly with reference to the absence of
any purchase of the suit bonds by AB. Mr. Jethmalani criticised the impugned
judgment of the Special
Court as having
singularly failed to consider any part of this crucial evidence of the officer
of AB. We think that this criticism is justified. While the Special Court's
inferences are based upon its understanding of what the 15% arrangement was and
its analysis of Exhibit-11, it totally fails to give any reason as to why the
evidence of a witness from AB about there being no such transaction on
9.5.1992, backed by the purchase register of AB, should be rejected. In our
view, in the face of the positive evidence of AB that no such transactions were
there, there was no justification for not accepting the stand of SCB that entry
dated 9.5.1992 pertaining to the suit bonds was a sham entry intended to introduce
the money into the books of SCB to cover a wide gap.
Janakiraman Committee Report is also clinching on this issue of the so called
sale of the suit bonds on 9.5.1992 to ABFSL. Both sides have relied on the
Janakiraman Committee Report, which is admitted in evidence as Exhibit-18. In
the Fourth Interim Report dated March 1993, in Paragraph 3.1(h) there is a
discussion of this entry in the Report. The Janakiraman Report says:
On 9.5.1992, Stanchart as per deal slip purchased units of Cantriple of face
value of Rs. 45.5 crores @ Rs. 58.50 per unit from Andhra Bank for an aggregate
cost of Rs. 266.18 crores. There is no record of this transaction in the books
of Andhra Bank nor are there any cost memos available and no securities were
received from Andhra Bank. On the same day, Stanchart as per deal slips sold
PSU bonds aggregating Rs. 266.12 crores to Andhra Bank. (Refer paragraph 3.4
below). There is no record of these transactions in the books of Andhra Bank
and no securities were delivered. A pay order No. 257131 for the difference of
Rs. 0.06 crore was prepared but not delivered to Andhra Bank. These
transactions appear to have been put through merely to cover up a gap in
respect of various earlier purchase deals for which neither securities nor BRs.
were available. The details of these earlier transactions are explained in
paragraphs 3.3 and 3.4 below." Admittedly, the Janakiraman Committee was a
committee of experts appointed by the RBI to investigate the securities scam.
There is also no dispute that the Janakiraman Committee had full authority
backed by the RBI order and did investigate by meticulously going into the
account books of all the banks concerned, including AB. This report also
supports the stand of SCB that the entries pertaining to the sale of the suit
bonds on 9.5.1992 were sham entries and that there was really no transaction of
sale of the suit bonds to AB on the said date. In the face of this evidence, it
was not open to the Special
Court to reject the
story of bogus entries by merely indulging in speculative analysis of the
entries in Exhibits 7 and 11 against the background of what it understood to be
the 15% arrangement. One more fact, which the Special Court considered as proving the genuineness of the entries
pertaining to 9.5.1992, is about the purchase of Cantriple Units deposed to in
the evidence of Waseem Akhtar Saifi (Exhibit-14) in the previous Suit No.
17/94. Mr. Jethmalani criticised this finding as wholly erroneous. In the first
place, according to him, Saifi was examined in the previous proceedings in Suit
No. 17/94 only for the purpose of showing that a letter dated 11.5.1992 written
by HPD to SCB was not under coercion as alleged in that suit. What was placed
on record in the present suit by CMF was only the cross-examination from pages
45-53 after SCB had waived formal proof and accepted that Saifi did make such a
statement. Mr. Jethmalani submitted that not only was the said evidence
irrelevant, but also had been misread by the Special Court to arrive at an erroneous conclusion.
evidence could be admissible only to show what fact was sought to be proved in
the previous Suit No. 17/94 and secondly, such evidence is wholly hearsay with
regard to the transaction of Cantriple Units on 9.5.1992. He also criticised
the finding of the Special
self-contradictory on this issue.
The Special Court has laid emphasis on the failure of
SCB to explain by cogent evidence how HPD got possession of the original LOA
and transfer deed. In our view, this is an irrelevant issue, although according
to the charge sheet, HPD had obtained possession of the original LOA and the
signed transfer deed by misappropriation in conspiracy with some officers of
SCB. Mr. Jethmalani also relied on the affidavit filed by HPD before the CLB in
which he had stated that he had borrowed the suit bonds from SCB.
view, that affidavit has no meaning as the deponent refused to submit himself
to cross-examination and the evidence given in the affidavit was not tested by
cross-examination. We need not delve further into the issue as we have already
stated that the issue is immaterial.
the stand of CMF that SCB lost its title to the suit bonds as a result of sale
of the suit bonds on 9.5.1992 as consideration for its purchase of Cantriple
Units worth Rs. 205 crores. While answering issue no. 6, the Special Court has clearly held that purchase of
the Cantriple Units on 9.5.1992 had been proved but CMF had not been able to
prove that the said purchase was against sale of the suit bonds on 9.5.1992. In
the face of this finding, the argument of CMF that SCB lost title because it
had sold the suit bonds in lieu of which it purchased Cantriple Units, has been
rejected by the Special
these reasons, we are clearly of the view that whatever might have been the
conjectures on the part of the Special Court, whatever might have been the
suspicion generated on account of sham entries made by one or the other party,
when it came to the crux of the issue, the Special Court has correctly answered
it and negatived the case of CMF that SCB lost title of the suit bonds because
the suit bonds were sold in consideration of purchase of Cantriple Units.
get title to the Suit Bonds ?
the question that needs to be considered is whether CMF as defendant acquired
title to the suit bonds.
urged on behalf of CMF on this issue that CMF is in possession of the suit
bonds, and by reason of Section 110 of the Indian Evidence Act, 1872, the
presumption is that the possessor of the property is the owner unless SCB
dislodges this presumption by showing a superior title. It is contended that
only a person with a better title than the party in possession could succeed.
Mr. Kapadia relied on the rule as to burden of proof as to ownership under
Section 110 of the Indian Evidence Act, 1872 and contended that as far as the
rule enunciated in Section 110 is concerned, it makes no exception with respect
to incorporeal property like debts or bonds.
submission, while a debt may be a chose in action, the evidence of the debt may
be by way of tangible property, namely, the paper evidencing it and, therefore,
that paper would itself be a chattel to which the rule of burden of proof in
Section 110 would apply, even on the assumption that the suit bonds were choses
in action. He relied on passages in Halsbury's Laws of England and the
discussion thereunder to show that debentures of companies were also choses in
action. Relying on the same authority, he also urged that the strictness of the
common law rule against the assignment of choses or things in action had been
relaxed by various statutes. He, therefore, contended that as far as transfer
of the suit bonds was concerned, it was governed by the practice in the market,
read with the provisions of Section 108 of the Companies Act, 1956 in the light
of the Notification issued by the Central Government under Section 620 of the Companies
Act, 1956, governing the transfer of the suit bonds. In the submission of Mr.
Kapadia, debentures strictly fall within the description of 'chattel personal',
and by the applicable statute, namely, the Companies Act, 1956 they have been
made capable of being dealt with as chattel. He relied on another passage in
Halsbury's Law of England in support thereto. Relying on Jagdish Narain v.
Nawab Said Ahmed Khan he further contended that since the Suit is one on title,
the plaintiffs could succeed only on the strength of their own title; the
defendants were not obliged to plead any possible defects in the title and they
were entitled to avail themselves of any defect that such title showed
subsequently. To similar effect were cited the decisions of this Court in Moran
Mar Basselios Catholicos and Anr. v. Most Rev. Mar Poulose Athanasius and Ors.
, Brahma Nand Puri v. Mathra Puri and Anr. and L.J. Leach and Co. Ltd. and Anr.
v. Messrs. Jardine Skinner and Co. Strong reliance was also placed on the
observations of this Court in Chuharmal Takarmal Mohnani v. Commissioner of
Income Tax in relation to Section 110 of the Indian Evidence Act, 1872.
these arguments, Mr. Jethmalani contends that Section 110 is contained in
Chapter VII of the Indian Evidence Act, 1872, which deals with the burden of
proof. As a matter of fact, Section 110 merely enunciates the burden of proof
as to ownership. He rightly submits that any rule of burden of proof is
irrelevant when the parties have actually led evidence and that evidence has to
be considered. Reliance is placed by him on Sita Ram Bhau Patil v. Ramchandra
Nago Patil and Anr. for the proposition that when the entire evidence is before
the court, the burden of proof becomes immaterial. Even assuming that the rule
of burden of proof in Section 110 is relevant, Mr. Jethmalani contended that
Section 110 would be applicable only to a 'thing', which is capable of being
possessed. He rightly submits that a chose in action is not a 'thing', as, by
definition, it is not in the possession of someone, but that possession has to
be acquired by some action which is why it is called a chose in action. He
rightly distinguished the judgment of this Court in Chuharmal Takarmal (supra)
as wholly inapplicable to a situation of a chose in action. In the said
judgment, the possession was with respect to certain wrist watches, which were
obviously not choses in action. According to him, Section 137 of the TP Act
makes Section 132 inapplicable to debentures but the principles of common law
and equity must surely govern even such transactions of transfer of debentures.
Jethmalani further contended that although the suit bonds were excluded from
the definition of 'goods' under Section 27 of the Sale of Goods Act, 1930 and
Section 27 does not apply to the situation, the general rule of transfer of
property, that a transferee acquired no better title than the transferor, holds
good and applies even in the case of the suit bonds. Thus, according to Mr.
Jethmalani, in a situation like this, where there is a defect in the title of
the antecedent transferor, the transferee got no title. In his submission, the
general principle of the legal maxim nemo dat quod non habet must govern all
transactions. Relying on the judgment of the Chancery Division in France v. Clark, he contended that this rule is not derogated from under
Section 108 of the Companies Act, 1956. The provisions of the Companies Act,
1956 for registration in the name of a transferee merely give complete effect,
provided there is already a prior valid transferor. A mere registration cannot
effectuate a document which was, as between the alleged transferor or
transferee, inoperative and of no effect. Relying on the judgment of the
Chancery Division (supra) he contended that even when a blank transfer form is
signed, there is no notice that the transferor is the owner and if the
circumstances are such that the transferee is put on enquiry as to the bona
fides of the transfer or the circumstances are such that the transferee must be
deemed to have been put on such enquiry, then the transferee would not be a
purchaser for value without notice of defect in the title of the transferor. He
contended that even assuming CMF came into possession of the original LOA of
the suit bonds together with blank transfer deeds, there would be clear notice
that the transfer deeds were signed by someone other than the original owner of
the suit bonds; if CMF had made the slightest enquiry, it would have learnt
that the original owner (SCB), was not intending to transfer them to CMF. Thus,
in his submission, CMF cannot be said to be a purchaser for value without
notice. At all points of time, it had notice that whoever was delivering the
original LOA with the blank transfer deed was not a person with full title to
the suit bonds. Referring to the defence of CMF, he contended that CMF
initially took the stand that the suit bonds had been acquired by it from ABFSL
through HPD, subsequently changed its stand and alleged that HPD must have
acted as a broker either for ABFSL or for SCB or on his own behalf. According
to Mr. Jethmalani, this is a situation where CMF is unable to say as to who was
the person with the antecedent title who could have transferred the title to
CMF for bona fide purchase for value without notice. He criticised the impugned
judgment of the Special
Court for brushing
aside the principle in France v. Clark (supra) on the ground that HPD was the owner of the suit
bonds. He pointed out that the principle in France v. Clark (supra) has been reiterated and
applied in India also and has been followed in V.S.
Venkata Subbiah Chetty v. A. Subha Naidu and Ors. and Govt. of the United States of Travancore and Cochin v. Bank of Cochin Ltd. . In his
submission, a transferee of an actionable claim gets no better title than that
of the transferor and he would take it subject to all the liabilities and
equities to which the transferor was subject. On the basis of the pleadings of
CMF, it acquired the right to the suit bonds from HPD. HPD could not confer a
better title than he himself had to the suit bonds. It is the case of SCB that
HPD had got the bonds by theft, misappropriation or some other offence and,
hence, it could not pass any title to CMF. He, therefore, contended that even
if the case of CMF is to be accepted, CMF got no title to the suit bonds.
only exception would be the case of a bona fide purchaser for value without
notice. He seriously questioned both the bona fides and lack of notice, on the
part of CMF. He contended that the so called acquisition of the suit bonds by
CMF was neither bona fide nor was CMF a purchaser for value, as no
consideration had been paid by CMF and, in any event, CMF had or ought to have
had notice of the lack of title on the part of its antecedent title holder.
the bona fides of the transaction by which CMF claimed to have acquired the
suit bonds, Mr. Jethmalani points out that although CMF took up the initial
stand that the suit bonds had been purchased from ABFSL, it later shifted its
stand. In its petition before the CLB, CMF claimed that it had purchased the
suit bonds from ABFSL by paying it consideration. In its written statement in
the Suit, CMF took up the stand that it had purchased the suit bonds from HPD,
who was acting on behalf of ABFSL or SCB. In its supplementary written
statement, it contended that it bought the bonds from HPD acting for himself or
ABFSL or SCB. Learned counsel contended that such a plea coming from a
financial institution, which had entered into a transaction worth about Rs. 45
crores was utterly absurd and unbelievable. At no point of time did CMF state
on record as to what was the representation made by HPD when he allegedly sold
the suit bonds to CMF on 27.2.1992. It was not as if ABFSL was an unknown
party, for the record shows that there were at least 23 transactions between
CMF and ABFSL in November 1991 and 4 transactions even on 27.2.1992. Even after
HPD filed his affidavit alleging that the suit bonds had been 'lent' by SCB,
CMF did not care to deny the contents of HPD's affidavit. As a banker, CMF knew
that no transaction in securities could take place without a cost memo, or some
other kind of documentation. This was a case where CMF has been unable to
produce any credible documentation to support its plea that the suit bonds were
purchased from/through HPD on 27.2.1992. A document relied upon as evidencing
the alleged transaction is the letter dated 27.2.1992 issued by HPD to CMF in
which he had asked for a bankers' cheque in the sum of Rs. 46,01,23,287.67 in
favour of AB. The deal slip pertaining to this transaction bearing date
27.2.1992 showing that the suit bonds of the value of Rs. 50 crores had been
bought from ABFSL through HPD, was an internal document of CMF suggesting
purchase of the suit bonds from ABFSL through HPD as broker. Thus, the evidence
led by CMF was that it had bought the suit bonds from ABFSL with HPD as the broker.
point of time did it seek or obtain a cost memo for this transaction.
Shenoy (PW-2), ABFSL's employee, denies that any such transaction had taken
place by which the suit bonds were sold by ABFSL to CMF with HPD as a broker or
otherwise, and there is no cross-examination on this aspect. Interestingly,
even the Special Court does not hold that there was any
transaction on 27.2.1992 in which CMF had bought the suit bonds from ABFSL. The
Special Court glossed over the matter by stating
that the 15% arrangement made HPD the owner of the suit bonds and, therefore,
it was a transaction between HPD and CMF.
evidence was led by CMF as to which employee of CMF had transacted the deal in
which the suit bonds were purchased from ABFSL ostensibly, through HPD as the
broker, on 27.2.1992. Affidavit of one Satish was filed as a witness of CMF who
claimed knowledge about the transaction, but the said Satish was not examined.
The only witness of CMF, Nandita Rao, frankly admitted that she had no personal
knowledge of the suit transaction whatsoever. No other documents were produced
by CMF to show that such a transaction was entered into between itself and
ABFSL with HPD as the broker, as a result of which it came into possession of
the suit bonds as an owner. It is impossible to believe the story of CMF that,
a financial institution could have entered into a deal of such magnitude
without a scrap of document. That is the reason why even the Special Court does not hold that there is any
evidence on record from which a conclusion can be drawn in favour of CMF acting
bona fide. The evidence on record does not appear to support the story of CMF
that it had entered into a contract under which it purchased the suit bonds
from ABFSL on 27.2.1992 with HPD as the broker.
Kapadia, learned counsel for CMF, relied on the judgment of a learned Single
Judge of the Bombay High Court in Fazal D. Allana v. Mangaldas M. Pakvasa in
support of his contention that, it is common practice in the share market that
shares are transferred by mere delivery with a transfer deed signed in blank
and that in such a situation there was no question of CMF being put to notice
that there was anything irregular in the LOA of the suit bonds delivered to CMF
by a transfer deed signed in blank by ABFSL. He, therefore, contends that this
was a bona fide transfer consistent with the market practice. As a result of
the Bombay High Court judgment, the authority of France v. Clark (supra) was shaken, is the
submission of the learned counsel. Relying on the judgment of this Court in
Vasudev Ramchandra Shelat v. Pranlal Jayanand Thaker and Ors. it is pointed out
that a transfer of property in securities, which is recognised by the TP Act,
may be antecedent to the actual vesting of all or the full rights of ownership
of shares and exercise of the rights of a shareholder in accordance with the
provisions of company law. The antecedent transfer of title in the security
results in the equitable right of the transferee to be registered by the
company. Learned counsel contended that as a result of delivery of the original
LOA accompanied by the blank transfer deed, CMF acquired ownership rights
including the equitable right as against NPCL to have its name registered as
the owner. Strongly refuting the argument of Mr. Jethmalani, Mr. Kapadia
contended that since delivery of securities accompanied by a blank transfer
deed was a common practice in the trade, there was no occasion for alarm bells
ringing merely because the original LOA accompanied by blank transfer deed was
delivered to CMF. In our view, notwithstanding the market practice of delivery
of securities accompanied by a signed blank transfer deed, the property in the
securities can only be transferred if there is bona fide purchase of the same
crucial question in the present case is: did CMF purchase the suit bonds for
value from the antecedent title holder? This brings us to the last limb of the
argument of Mr. Jethmalani that CMF can never be said to be a purchaser for
value, as there is no evidence to show that any consideration was paid by CMF
for acquisition of the suit bonds.
the matter was first tried by Variava, J. as the Special Court, the learned counsel appearing for CMF categorically
admitted that there was no evidence by which it could be established that CMF
had paid consideration for acquisition of the bonds. It is true that this
judgment was subsequently set aside by this Court and the matter was remanded
for trial along with the Misc. Petition. But this is a significant fact which
the Special Court could not have overlooked in
appreciation of the evidence.
stand taken by CMF is that on 27.2.1992 it purchased the suit bonds and the 17%
NPCL bonds for a total sum of Rs. 46,01,23,287.67, of which, Rs. 46 crores was
the purchase price and Rs. 1,23,287.67 was the accrued interest on the bonds
for one day i.e. from 26.2.1992 to 27.2.1992.
claimed that the consideration for acquisition of the suit bonds and 17% NPCL
bonds was paid by two sales of 13% NLC bonds and 13% MTNL bonds. In other
words, according to CMF, there were two purchases and two sales on 27.2.1992.
CMF alleged that on 20.11.1991 there were 19 sales and four purchases. The four
purchases included the 13% NLC bonds and 13% MTNL bonds, which formed part of
the consideration for purchase of the suit bonds on 27.2.1992. The evidence in
support of its alleged purchase of 13% NLC bonds and 13% MTNL bonds is again
somewhat convoluted. The Special Court held that out of the so called 19 sales
alleged on 20.11.1991, 10 had been proved by the evidence led by CMF and jumped
to the conclusion that thereby all 19 must be taken to have been proved. The Special Court observes: "The important point
which the Court has to bear in mind is whether the Court should reject all the
10 sales which stands proved because the remaining 9 sales could not be proved.
The answer is in the negative. The evidence in the form of 7 BRs; the evidence
in the form of Andhra Bank Purchase Register, the evidence in the form of
Andhra Bank Sale Register, and the evidence in the form of Exhibit-H as well as
the evidence of PW-2 cannot be thrown overboard as bogus. These 10
transactions, as proved, shows that CMF is right in saying that they had sales
on 20.11.1991 with HPD who had received the securities from CMF. In the
circumstances, I hold that payment of consideration for four purchases dated
20.11.1991 stands proved." This finding, in our view, is wholly untenable.
is no warrant for the conclusion that if some transactions are proved, all
transactions on the same day are to be held to be proved.
erroneously held thus, the Special Court finds that after adjusting the
transactions, there was a netted amount of Rs. 3,87,46,575.35 which was payable
by HPD to CMF, which was paid to CMF as evidenced by HPD's letter dated
26.2.1992 giving instructions to AB to pay the amount to CMF and debit the
aforesaid amount to his account.
Jethmalani justifiably criticised these findings of the Special Court. In the first place, the transactions
of 20.11.1991 and the transactions of 27.2.1992 appear to between CMF and HPD.
Assuming they are proved, as held by the Special Court, and the netted amount of Rs. 3,87,46,575.35 was paid by
HPD to CMF, it does not prove that the consideration of the suit bonds was paid
to ABFSL/SCB, who alone could have been the antecedent owner of the suit bonds.
It is the erroneous inference of the Special Court that HPD had become the owner of the suit bonds that has
misdirected it into assuming that CMF had paid considerations for purchase of
the suit bonds.
is merit in this contention. One of the documents relied upon in support of the
story of sales made on 20.11.1991 is a letter from HPD dated 20.11.1991
addressed to the Manager, AB advising him to issue a bankers' cheque in favour
of CMF for Rs. 2,75,18,571.04. CMF's witness, Nandita Rao (DW-1), was
specifically asked in cross-examination as to how much of the amount was
payable by CMF to ABFSL as a result of the transactions dated 20.11.1991. She
answered that it was an amount of Rs. 21,77,01,565.98 and claimed that it was
the difference between the amount paid and received. She also stated that, in
addition to the aforestated amount, an amount of Rs. 4,75,55,205.51 also became
payable as sundry creditors.
also stated that she had arrived at the figure after taking into account all
the purchases and sales of 20.11.1991 and also from the RBI Cash Book.
according to the evidence led by CMF, CMF had to pay to ABFSL on 20.11.1991 a
large sum as a result of their deals which took place on 20.11.1991.
Surprisingly, instead of CMF paying ABFSL the aforesaid amount, on the same
day, two sums of Rs. 2,75,18,571.04 and Rs. 4,56,70,000.00 as evidenced by
letter dated 20.11.1991 written by HPD to AB, came to be paid to CMF by HPD. It
is evident that some of the existing documents with regard to various deals
have been put together by CMF to patch up the story of consideration put
forward by it.
strange document which shakes the credibility of the story of consideration set
up by CMF is the letter dated 26.2.1992 from HPD to AB instructing AB to issue
a bankers' cheque in favour of CMF for a sum of Rs. 3,87,46,575.35 and debit
his account. The actual number of the cheque is also shown on the document as
143941 dated 27.2.1992. There is also a statement of the RBI account of HPD
with AB showing the debit of the aforesaid amount to the books of HPD in AB.
The Special Court relies on this letter as evidencing
the netting of the transactions between CMF and HPD on 27.2.1992. Mr.
Jethmalani legitimately criticised the story of consideration put forward by
CMF by urging that, if the aforesaid amount of Rs. 3,87,46,575.35 was the
amount after netting, which had been arrived at on 27.2.1992, it was impossible
to believe that HPD had the prescience on 26.2.1992 to know the exact amount
that would be arrived at after netting of transactions including the purchase
of the suit bonds on 27.2.1992.
SCB raised this point in the arguments and pointed out that this letter belies
the stand of CMF, the Special
Court brushed it
aside by saying that it did not find any merit in the argument and observing:
"merely because letter is dated 26.2.1992 one cannot assume that HPD knew
about the transactions one day prior to 27.2.1992. The remark indicating pay
order number and the date of 27.2.1992 shows that the instructions were
specifically given on 27.2.1992." Moreover, if we accept the finding of
the Special Court that the transaction of the suit
bonds between HPD and CMF on 27.2.1992 did take place, then there is no
explanation for the suit bonds being sold to and purchased from other parties
during the period 27.2.1992 to 9.5.1992 as shown in Exhibit-11.
pleadings of CMF on the issue of consideration appear to be most confusing and
shifty. The exercise carried out by the Special Court of analysing several
transactions and discharge of BRs, shows transactions of payments back and
forth between CMF and HPD. The ledger folio produced by CMF in support of its
stand is also hardly reliable. The ledger entry pertaining to the purchase of
13% NLC bonds discloses a very curious state of affairs. The entry pertaining
to 20.11.1991 is hand written after the entry of 30.11.1991. When the witness
of CMF, Nandita Rao (DW-1), was cross- examined as to how the entry of
20.11.1991 could have been written in the ledger folio after the entry of
30.11.1991, she had hardly any explanation for that except professing
ignorance. The said witness was also asked as to whether she came across any
document from ABFSL in support of the transactions of 20.11.1991 on the basis
of which she had prepared the vouchers and ledger entries. She admitted that
she had not seen any document from ABFSL on the basis of which such entries
were made. Under cross-examination, the said witness also stated that she did
not remember whether any documents were received from ABFSL in support of the
four general vouchers dated 27.2.1992 and she further admitted that,
irrespective of whether a cheque was received or not, it was a routine practice
to write "RBI cheque received from ABFSL" in the transactions with
the evidence as a whole, it appears that the initial stand taken by the learned
counsel of CMF in the first round of the litigation, that there was no credible
evidence on which payment of consideration by CMF could be proved, was fully
justified. The attempt of CMF on picking up and putting forward some of the
documents, out of the several transactions entered into by them to patch up the
story of consideration, in our opinion, has miserably failed. There was no
cause for being charitable to CMF by saying that they could prove only a part
of the consideration, ergo, rest of the transactions must be deemed to have
been proved. We are of the view that every one of the arguments put forward by
SCB to impugn the story of CMF that it had paid consideration is justified and
the Special Court was wrong in rejecting the
arguments of SCB on this count. We, therefore, hold that CMF has utterly failed
to prove its story that it had paid consideration for purchase of the suit
bonds on 27.2.1992.
it appears that there is not much to choose between the two contending banks,
namely, SCB and CMF. Both the banks have been tarred by the same brush by the
Janakiraman Committee Report about fudging their accounts. However, it appears
to us that the issue of the ownership of the suit bonds could not have been
decided on any basis other than what the legal evidence showed. The situation
is somewhat like a game of musical chairs; the one who is sitting on the chair
when the music stops, wins.
the situation before us. Once we eliminate the conjectural findings, we find
that all the material evidence on record shows that SCB had purchased the suit
bonds from NPCL by paying good money. The original LOA for purchase of the suit
bonds along with the transfer deed was handed over to SCB. As to how it went
out of its possession, it appears to be the subject matter of the FIR filed by
SCB. SCB alleges that, it was pilfered or misappropriated by some officer in
conspiracy with HPD, but that is a matter which will be tried by an appropriate
to the other side of the story, CMF claims acquisition of the suit bonds on 27.2.1992
by paying consideration for them. It is not shown as to who was the
counter-party from whom the purchase was made, as CMF's stand on its
counter-party keeps changing from beginning to end. The documents produced on
record do not bear out the stand of CMF. In spite of exercise of our
imagination, we are not able to support the conclusion that CMF had paid
consideration for acquisition of the suit bonds from HPD; or that HPD became
the owner of the suit bonds merely because of the existence of the 15% arrangement,
the details of which were thoroughly analysed by the Janakiraman Committee
Report and the Joint Parliamentary Committee Report. That such an agreement was
not against public policy was clearly held by the previous judgment of this
Court in Civil Appeal No. 4456/95 .
these circumstances, we are not satisfied that the evidence on record proves
that HPD became the owner of the suit bonds or that CMF legitimately acquired
the suit bonds from HPD or any other person by paying bona fide purchase value
for them. Consequently, we must hold that CMF acquired no right, whatsoever, to
the suit bonds. The suit bonds always remained the property of SCB irrespective
of how they found their way into the hands of CMF.
result, we allow both the appeals and set aside the impugned judgments of the
Special Court in Special Court Suit No. 11/96, and Special Court Misc. Petition
No. 81/95 and hold that SCB as the owner of the suit bonds is entitled to be
registered as such in the register of NPCL.
the Suit is decreed in terms of the prayers in Civil Suit No. 3808/92 and Misc.
Petition No. 81/95 is dismissed.
that both parties are in pari delicto in the matter of fudging their accounts
and indulging in transactions which have facilitated the securities' scam, we
do not think it fit that SCB should be awarded costs, although it has succeeded
in the appeals.
appeals are accordingly allowed with no order as to costs.