Aggarwala & Co. Vs. Canbank Financial Services Ltd. & ANR.  INSC
339 (5 May 2010)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.5173 OF
2004 NARESH K. AGGARWALA & CO. ...APPELLANT(S) VERSUS
SINGH NIJJAR, J.
This Statutory First Appeal under Section 10 of the Special Court
(Trial of offences relating to Transactions in Securities) Act, 1992 (in short
the `Special Court Act' ) is directed against the judgment and decree dated
15.4.2004 passed by the Special Court at Bombay in Suit No.4 of 1998.
The aforesaid suit was initially filed by the appellant in the
High Court of Delhi at New Delhi on its original side being Suit No.1827/1993.
It was transferred to the Special Court in view of the appellant being notified
on or about 17.6.1997 under the provisions of the Special Court and thereafter
the suit was numbered as Suit No.4/98 before the Special Court.
appellant had prayed for money decree in the amount of 1 Rs.3,18,06,868/-
together with interest at the rate of 24%.
No.1, Can Bank Financial Services Limited, had opposed the claim and also
lodged a counter claim, claim and decree in the amount of Rs.2,53,75,000/- from
the appellant with interest w.e.f. 22.4.1992. The appellant claims to be a
stock broker, being a sole proprietory concern of Mr. Naresh K.
The respondent No.1, Can Bank Financial Services Limited, is a wholly owned
subsidiary of Canara Bank.
The appellant had prayed for a decree against respondent No.1 in
respect of net amount payable arising out of two sets of transactions in shares
i.e.; (i) two transactions in the shares of Reliance Industries Limited (RIL)
(ii) one transaction in respect of Steel Authority of India Limited (SAIL). It
is claimed that on 14.2.1992 a contract was entered into between the appellant
and Can Bank for purchase of one lakh shares of RIL at a price of Rs.154 per
share inclusive of all charges. On 23.3.1992 another contract was entered into
by the appellant with Can Bank for purchase of one lakh shares of RIL at a
price of Rs.375 per share net. On 27.2.1992 another contract was entered into
by the appellant for purchase of five lakh shares of SAIL at a price of Rs.51
per share net and a contract note was issued. In the plaint it was averred that
of the two lakh RIL shares purchased by the appellant only one 2 lakh shares
were delivered by respondent No.1. These shares according to the appellant were
appropriated towards the contract dated 14.2.1992. It was the case of the
appellant that the balance one lakh RIL shares pursuant to contract dated
23.3.1992 have not been delivered by respondent No.1.
to the appellant, respondent No.1 had been wrongly claiming that the entire two
lakh shares had been duly delivered to the appellant. The appellant claims that
this fact is amply borne out from the various letters written by respondent
No.1 to the appellant wherein respondent No.1 claims to have delivered one lakh
shares to its Bombay office and the remaining one lakh shares allegedly to a
broker/one Mr. Hiten P. Dalal. The appellant states that on inquiry Mr. Dalal
has sated that no such shares had been delivered on behalf of respondent No.1.
In communication dated 07.08.1992 respondent No.1 acknowledges only one
delivery and seeks intimation whether his broker, Mr. Hiten P. Dalal, on their
account has delivered one lakh shares or not. Therefore respondent No.1 is, in
fact, aware that no such delivery had been made.
No.1, in fact, in its communication dated 15.09.1992 acknowledges the factum of
both the contract notes. In letter dated 28.09.1992, the appellant reiterated
that at no stage it had received any share from Mr. Hiten P. Dalal on account
of respondent No.1. It was also stated that Mr. Hiten P. Dalal 3 had confirmed
that he had not given any Reliance shares on account of respondent No.1 to the
appellant. It was also averred that in spite of assurances having been given by
respondent No.1 from time to time, the balance one lakh shares were not
4. It was
further claimed by the appellant that on 27.07.92 respondent No.1 was requested
that the transaction with regard to the SAIL shares should have been squared up
at the time when the shares were purchased. They were priced at Rs.51 per
share. The market rate, according to the appellant, on 27.7.1992 was Rs.130 per
share. Therefore appellant asked the respondent No.1 to credit Rs. 79 per share
for five lakh shares of SAIL to the account of the appellant-company. The
appellant claimed that by letter dated 17.09.1992 respondent No.1 resiled from
the contract regarding sale of shares of SAIL. The appellant therefore by
letter dated 19.09.1992 once again requested for the cooperation of the
respondents as the delivery had to be effected within reasonable period of time
to avoid substantial losses. In this letter the appellant reiterated that one
lakh shares only had been delivered and no other delivery had been made in
respect of Reliance shares.
contract note dated 14.02.1992 Rs.1,54,000/- was 4 credited to the account of
respondent No.1 but the respondent No.1 reiterated its stand in the letter
appellant further stated that on 27.05.1993 respondent No.1 issued a notice
demanding an amount of Rs.2,56,25,000/- on the basis of account maintained up
to 08/02/1992. By letter dated 14.06.1993 the appellant informed the respondent
No.1 that after reconciliation of the account, the appellant was liable to be
paid by respondent No.1 an amount of Rs.2,59,75,000/-. It was further claimed
that according to the statement of account of the appellant as on 31.7.1993 an
amount of Rs.3,18,06,868/- is due to the appellant from respondent No.1.
According to the appellant, respondent No.1 is liable to pay this amount to the
appellant with interest at the rate of 24 % per annum.
Respondent No.1 in his written statement took a preliminary objection stating
that the suit is wholly misconceived and a fictitious claim has been put
forward solely with the intention of delaying or avoiding payment of a sum of
Rs.2,53,75,000/- and interest thereon to the answering respondent No.1. It was
also stated that along with the written statement respondent No.1 is preferring
a counter claim against the appellant for the recovery of the aforesaid amount.
averments made in paragraph 1 to paragraph 6 of the plaint were admitted by the
regard to the other averments, it is however stated that as averred by the
appellant in the plaint both the parties were maintaining running accounts with
regard to the business transactions with each other. The contracts dated
14.2.1992 and 23.3.1992 are admitted. It is however claimed by the respondents
that the contract dated 14.2.1992 was cancelled rescinded by the appellant on
the very day, namely, 14.2.1992.
also claimed that the claim made by the appellant with regard to the running
account is not correct. The running account maintained by respondent No.1 shows
a sum of Rs.2,53,75,000/- as due from the appellant on 31.3.1993. Hence the
counter claim had been preferred in the written statement itself. It is
however, claimed that since the contract dated 14.2.1992 was cancelled, there
was only one contract in existence i.e. contract dated 23.3.1992 against which
delivery had been made. Therefore, nothing is payable by respondent No.1 to the
appellant on account of this contract. The version of the communication between
respondent No.1 and Shri Dalal as given by the appellant is denied. The query
dated 7.8.1992 was necessitated to make sure that no wrong delivery or excess
delivery was made by the broker, Shri Dalal, in respect of the 6 cancelled
contract dated 14.2.1992. The appellant has tried to take undue advantage of
the query made by respondent No.1 for the purpose of keeping the record
straight. The appellant had admitted the non-existence of the contract dated
14.2.1992 and did not show the amount as outstanding. This position is
confirmed by the appellant in the statement of account signed on 17.7.1992 and
again reconfirmed on 24.8.1992. It is only after the inquiry by respondent No.1
dated 15.9.1992 about the position of one lakh shares that appellant got the
mala fide idea of seeking illegal advantage of the cancellation entry having
been recorded in respondent No.1 books. This is particularly so because by then
the share prices had gone up.
these circumstances the appellant submitted a revised statement of account on
19.9.1992. According to respondent No.1 the averments made in the plaint by the
appellant do not convey the true position. Once the contract dated 14.2.1992
was cancelled, the question of delivery did not arise.
nothing is payable by respondent No.1 to the appellant on account of the
contract dated 14.2.1992.
regard to the contract in relation to SAIL shares, the fact that the appellant
entered into a deal with respondent No.1 on 27.2.1992 for purchase of five lakh
shares of SAIL at the price of Rs.51 is admitted. It was however denied that a
7 contract note was issued to evidence the transaction. It is stated that the
contract note was neither in accordance with the prevalent practice, nor in
accordance with the rules and bye-laws of the Delhi Stock Exchange and the
contract note is also opposed to the law including the Securities Contracts
(Regulation) Act, 1956 and hence void ab initio. It is further stated that the
irregularity of the contract note was admitted by the appellant himself in his
letter dated 27.7.1992. It is submitted that the contract itself being contrary
to law, no amount could be claimed by the appellant against this contract.
9. In the
counter claim it was pleased that the appellant has admitted in paragraph
8(a)(i) that on 23.3.1992 a contract was entered into between respondent No.1
and the appellant whereunder the respondent No.1 agreed to sell and the
appellant agreed to purchase one lakh shares of Reliance Industries Limited on
23.3.1992 at Rs.375 per share. This averment is affirmed by respondent No.1.
According to the respondent No.1 the aforesaid one lakh shares were delivered
by respondent No.1 to appellant on 22.4.1992. This delivery has also been
admitted by the appellant. It is further stated that appellant had wrongly
contended after a long lapse of time that this delivery was in respect of
another alleged contract dated 14.2.1992. The appellant, according to
respondent No.1, has 8 illegally and wrongly accounted for its liability to pay
to respondent No.1 in respect of one lakh shares sold on 23.3.1992 only at
Rs.154 per share instead of Rs.375 per share. Thus the difference between the
rate per share at Rs.375, which was the actual contract rate, and the rate at
which the appellant has accounted for i.e. Rs.154 per share comes to
to respondent No.1 this amount is payable by the appellant to the respondent
No.1 with interest. It is accepted that there were dealings between the
appellant and respondents and the accounts were settled periodically. Therefore
on 31.3.1993 the statement of mutual account between the parties shows that a
sum of Rs.2,53,75,000/- is due and payable by the appellant to the respondent
No.1. The interest at the rate of 24% from 22.4.1992 till 31.5.1994 amounts to
Rs.1,28,47,397.26/- which is also due and payable.
its replication the appellant has reiterated the averments made in the plaint.
It is stated that the counter claim is frivolous and is to delay and avoid
payment of the contractual obligations, of respondent No.1. The appellant
reiterates that the only one lakh shares of RIL were delivered against contract
dated 14.2.1992. It is denied that the contract dated 14.2.1992 was cancelled
by the appellant. It is further reiterated that the respondent No.1 is liable
to make 9 delivery of the remaining one lakh shares; contract is to be
purchased by the appellant vide contract note dated 23.3.1992.
further stated that the appellant is still ready and willing to perform his
part of the contract but the respondents are trying to wriggle out of their
the basis of the pleadings the Special Court framed the following issues:
Whether Plaintiffs prove that Rs.2,59,75,000/- money is due from and payable by
Defendant No.1 on account of transactions undertaken on behalf of or with
Defendant No.1 after accounting for all transactions in the running account as
alleged in para 7 of the Plaint?
Whether Plaintiffs have correctly appropriated one Lac shares delivered towards
the contract note dated 14.2.1992 (i.e. for Reliance Industries Ltd. shares)
purchased @ of Rs.154/- as alleged in para 8a (ii) of the Plaint?
Whether the Plaintiffs prove that no shares were received from the broker of
Defendant No.1 towards the Contract dated 23.3.1992 as averred by the
Plaintiffs in para No.8a (iv) of the Plaint?
Whether the Plaintiffs have correctly given credit of Rs.154/- per shares for
one Lac shares delivered and since one Lac shares have not been delivered as
alleged in para 8a (v) of the Plaint?
Whether the Contract dated 14th February 1992 for purchase of 1,00,000 shares
at the rate of Rs.154/- per share of M/s. Reliance Industries Ltd. placed by
the Plaintiffs on Defendant No.1 was cancelled/ rescinded as alleged by
Defendant No.1 as alleged in paras 8 and 9of the Written Statement? 10
Plaintiffs' contract note dated 27.2.1992 (SAIL) had been issued as per
prevalent practice as alleged in para 8b (ii) of the Plaint?
Whether Defendant No.1 by its letter dated 17.9.1992 has resiled from its
contractual obligations as alleged in para 8b (vi) of the Plaint?
Whether the Plaintiffs are entitled for a decree or Rs.3,18,08,868/-?
Whether the Plaintiffs are entitled for interest at the rate of 24% per annum?
Whether Defendant No.1 is entitled to payment of Rs.2,53,75,000/- with interest
as claimed in paras 1 to 4 and 8 of the Counter Claim? 11. What orders and
Special Court notices that both the parties have filed documents. On behalf of
the appellant one witness has been examined. The respondent No.1 has not led
any evidence. It is also noticed that some documents have been admitted in
evidence by consent of the parties. Issues Nos.2 to 5 were taken up together as
they relate to the transactions in RIL shares. All these issues have been
decided in favour of respondent No.1 and against the appellant. It is further
held that the transaction dated 27.2.1992 was illegal and therefore is not
capable of being enforced. Therefore issues No.6 and 7 have also been decided
against the appellant. Issues Nos. 1, 8 and 9 have also been decided against
the appellant. It has been held that the appellant is not entitled to make any
claim neither in relation to RIL shares nor in relation to SAIL shares. So far
as issue 11 No.10 is concerned, the Special Court has clearly held that the
counter claim of respondent No.1 succeeds and is allowed.
a decree in an amount of Rs.2,53,75,000/- with an interest at the rate of 12%
per annum from 22.4.1992 till the date of realisation is passed against the
appellant. The appellant was also directed to pay costs entitled to the
present appeal has been filed by the appellant being aggrieved by the aforesaid
judgment and decree. Mr. Rupinder Singh Suri, learned Senior Counsel for the
Appellant, had made elaborate submissions in Court which have been reiterated
in the written arguments, filed later. He submits that the impugned judgment in
addition to being totally contrary to the facts, records and law in general, is
a classic case wherein the prejudice against the appellant is writ large, owing
to the fact that he is a notified person. The Special Court has totally
disregarded the evidence adduced by the appellant in support of its case. The
counter claim has been erroneously decreed merely on surmises and conjectures.
It is also submitted that the interest at the rate of 12% w.e.f. 22.4.1982 till
realisation has been illegally granted without there being any evidence in
support. In support of his submission, Mr. Suri, has relied on numerous
documents which were on the 12 record. Mr. Suri has placed heavy reliance on
the letter dated 7.8.1992 which pertains to the statement of account between
the parties for the period 1.4.1991 to 25.7.1992. According to the learned
counsel this letter will show that only one lakh shares of RIL had been
delivered. Therefore, respondent No.1 was seeking confirmation that only one
lakh shares had been received by the appellant. This letter would also show
that respondent No.1 had intimated that suitable decision with regard to contentions
of the appellant on SAIL shares will be given in due course. He then made a
reference to letter dated 15.9.1992 written by one Ashok Kumar Kini, Executive
Vice- President of respondent No.1 wherein he stated that there were two
contract notes. This letter shows that even according to respondent No.1 the
physical delivery of one lakh shares at Rs.375/- was made by the office of
respondent No.1 at Bombay and one lakh shares at Rs.154/- of RIL were delivered
Dalal on its behalf. The appellant had replied to the aforesaid letter on
19.9.1992 and reiterated that only one lakh shares had been received. According
to Mr. Suri on 21.9.1992 respondent No.1 wrongly claimed that appellant had all
along been maintaining that there was only one deal.
appellant through letter dated 28.9.1992 reiterated its stand that on checking
its account there seemed to have been no record of receipt of any share from
Hiten P. Dalal.
Suri further submitted that in the written statement in paragraph 8 respondent
No.1 had wrongly claimed that the contract dated 14.2.1992 had been cancelled.
In fact there was no evidence led by respondent No.1 on issue No.5 which was
relevant to this claim. In support of this learned counsel relied on extract of
the account for the period 1.4.1991 to 31.3.1992 which shows the existence of
both the transactions.
according to Mr. Suri the respondent No.1 has wrongly claimed that contract
dated 14.2.1992 was cancelled. Finally it is submitted by Mr. Suri that one
lakh shares were adjusted against the contract dated 23.3.1992 on the basis of
trade practice. As the appellant is a broker he has corresponding commitments
to every client. Mr. Suri submits that the Special Court has wrongly concluded
that it was for the appellant to prove that the contract dated 14.2.1992 was
not in existence.
further submitted that learned Special Court has wrongly concluded that the
contract with regard to SAIL shares being itself illegal could not be enforced
in law. In fact respondent No.1 had all along maintained that contract note
dated 27.2.1992 would be honoured in due course. It is only on 17.9.1992 that
respondent No.1 for the first time tried to wriggle out of the contract by
stating that the transaction was against law and hence void and unenforceable.
According to Mr. Suri this plea is not acceptable and there is no bar in law
for 14 entering into such a contract. The reliance placed by the Special Court
on the circular dated 27.6.1969 is totally misplaced and contrary to the facts
of the case. According to learned senior counsel, Mr. Suri, the circular would
not be applicable to sale/purchase of securities on a contract for cash. It was
for this reason that statement of account of respondent No.1 would show that the
contract was alive till at least 31.3.1992 when it was reversed in the books of
according to Mr. Suri, was just a ploy on the part of respondent No.1 to escape
its liability under the contract dated 27.2.1992. Mr. Suri submitted that the
bias of the Special Court is evident from the manner in which only selected
pieces of evidence have been used to decree the counter claim of respondent
No.1. The evidence, which was in favour of the appellant, had been ignored by
the Special Court. According to Mr. Suri this was clearly due to the undue
importance attached by the Special Court to the facts that appellant is a
notified person under the Act. It is further submitted by Mr. Suri that there
was no legal justification for awarding 12% interest to respondent No.1 w.e.f.
22.4.1992 as there was no evidence in support of such a claim. In any event the
Special Court could only grant interest from the date of the filing of the
counter claim and not from an earlier date. Mr. Suri submitted that the Special
Court also erred in law in coming to the conclusion 15 that the requisite
averments to constitute a suit for damages are absent in the present case.
According to Mr. Suri a perusal of the plaint would clearly show that it is a
case for damages arising out of breach of contract on the part of respondent
No.1. Mr. Suri then submitted that the Special Court has wrongly drawn an
adverse inference against the appellant on account of non-production of the
to the learned senior counsel the sauda books were not at all relevant for
proving the case of the appellant.
ample evidence on record to show that respondent No.1 was guilty of breach of
contract. Therefore, respondent No.1 was liable to make good the damages
suffered by the appellant.
appellant having produced the best evidence available, it was not necessary to
produce the sauda books at all. Therefore the learned Special Court has wrongly
concluded that the best evidence rule would be applicable in the facts of the
the other hand, Mr. Bhushan, learned senior counsel, submits that the findings
of the Special Court are based on clear and cogent evidence. He has also made
reference to the correspondence between the parties and submitted that the
entire claim of the appellant is based on a deliberate misreading of the same.
Learned senior counsel relied on 16 letter dated 17.7.1992 which shows that by
that time the Reliance shares were not on issue. This letter has been written
by the appellant to respondent No.1 and talks only of the SAIL shares. In this
letter appellant has, in fact, admitted that the contract with regard to SAIL
shares was technically incorrect since contract relating to unquoted shares
would be outside the purview of Delhi Stock Exchange Rules, By-Laws and
Regulations. It is also admitted that the shares at the relevant time were not
quoted at any centre.
admission is reiterated in the letter dated 18.8.1992 seeking to make
clarification in response to the letter dated 7.8.1992. It was confirmed by the
appellant that only one lakh shares of RIL had been received from the Bombay
office of respondent No.1 and that no delivery was received from H.P. Dalal. By
letter dated 20.4.1992 it was clearly stated that barring the outstanding
transaction of five lakh shares of SAIL there is nothing outstanding. Mr.
Bhushan submits that the letter dated 15.9.1992 is being misinterpreted by the
appellant which is merely an observation made by respondent No.1.
to Mr. Bhushan by that time the scam had been discovered, a new management had
taken over and the letter had been written on going through the records. Hence
it was observed that against two sale contracts of RIL, for one lakh shares
each, physical delivery had been given of one lakh 17 shares by Hiten P. Dalal.
To take advantage of the aforesaid letter, the appellant writes the letter
dated 19.9.1992 stating that there were two contracts for two lakh RIL shares.
Against these two lakh shares, appellant had received only one lakh shares
which had been credited against the contract dated 14.2.1992. The appellant
further claimed delivery of one lakh shares under contract dated 23.3.1992.
Having taken this stand in its letter dated 14.6.1993 the appellant does not
claim any damages on account of non-delivery of one lakh shares against the
contract note dated 23.3.1992 at the rate of Rs.375/- per share. The only plea
is that delivery of one lakh shares has been credited against the contract
dated 23.3.1992. Therefore, credit due to respondent No.1 would be only
Rs.1,54,00,000/- and not Rs.3,75,00,000/- as shown by the respondent No.1 in
its account. Mr. Bhushan further submits that even if the plea of the appellant
is accepted that the transaction has been shown in the account as being
incomplete, it still had to be reflected in the sauda books. However during the
course of the trial sauda books were not produced and therefore an adverse
inference has been drawn against the appellant. With regard to the SAIL shares,
Mr. Bhushan submits that the contract was contrary to law. The appellant was
aware of this legal position and admitted the same in the letter dated
consideration of the submissions made by the learned counsel for the parties we
have examined the material on the record. It is not disputed before us that
there were, in fact, two transactions with regard to RIL shares dated 14.2.1992
and 23.3.1992. The Special Court notices that the appellant claims to have
adjusted the delivery of one lakh shares of RIL against the contract dated
14.2.1992 which is said to have been cancelled by respondent No.1. The Special
Court also notices that if the case of the appellant that the contract dated
14.2.1992 was alive is accepted, then the transaction will remain incomplete
and unfulfilled. The Special Court further observed as follows:
my opinion, even without recording any finding as to whether the contract dated
14-2-1992 was cancelled on the same day or not, the Plaintiff cannot be granted
any relief in relation to the contract dated 14-2-1992, assuming it to be
outstanding because the only relief that might have been claimed by the
Plaintiff if the contract dated 14-2-1992 was unfulfilled contract was relief
for damages for breach of contract."
Special Court also upon reading of the plaint concludes that it is not a suit
filed by the appellant for a decree in the amount of damages for breach of
contract. In our opinion, the aforesaid findings cannot be said to be erroneous
or based on no evidence. In fact in paragraphs 6 and 7 of the plaint the
appellant had stated as follows:
"6. The plaintiff and defendant No.1 have been doing regular business over
a fairly long period of time and are maintaining running accounts respectively.
present suit is in respect of recovery of money which is due from the defendant
No.1 on account of transactions undertaken on behalf of with the defendant No.1
after accounting for all the transactions in the running accounts and the
amount whereof has not been paid to the plaintiff in spite of requests for the
the face of these averments, we find it a little difficult to appreciate the
submission of Mr. Suri that the findings on these issues are erroneous or not
supported by any evidence. The Special Court also notices that the appellant
had, in fact, adjusted the delivery of shares towards the contract dated
23.3.1992. It is true that in the examination- in-chief appellant had stated
that he had made the claim against respondent No.1 on the basis of difference
in price of Reliance shares as on 14.2.1992 and as on 23.3.1992, i.e.,
Rs.375-Rs.154 for one lakh shares. In our opinion, the Special Court has
correctly observed that in the absence of pleadings the statement made by the
appellant had to be ignored. We are also unable to accept the criticism of Mr.
the burden of proving the continuance of the contract dated 14.2.1992 was not
on the appellant. We may notice here that respondent No.1 had taken a
categorical plea that contract dated 14.2.1992 was cancelled by appellant on 20
the same day. The conduct of the appellant showing delivery made on 22.4.1992
as delivery against the contract dated 23.31992 indicated that he was also
treating the contract dated 14.2.1992 to be cancelled. Had that not been so, he
would have made entries in the books of account to show that the delivery of
shares were against the contract dated 14.2.1992. In our opinion Mr. Bhusan,
has rightly pointed out that till 27.7.1992, the reliance shares were not in
letter written by the appellant to the Respondent No 1 talks only of the SAIL
shares. Therefore it was for the appellant to produce documentary evidence to
show that in his books of accounts the contract had been shown as incomplete.
appellant failed to produce the necessary evidence, which led the Court to
burden was on the plaintiff to prove that the contract dated 14.2.1992 remained
incomplete. In my opinion, therefore, it was for the plaintiff to produce
documentary evidence to show that in his Books of Accounts the contract is
shown as incomplete. It becomes necessary for the plaintiff to produce the
document to show that the transaction in his Books of accounts is shown as
incomplete. The conduct of the plaintiff of showing delivery made on 22.4.1992
as delivery made on 23.3.1992 indicates that he was also treating the contract
dated 14.2.1992 as cancelled. Had that not been so he would have made entries
in the Book of account to show that the delivery of shares were against
contract dated 14.2.1992. "
21 In our
opinion the view expressed by the special Court is an acceptable view, and does
not call for any interference.
regard to issues no 6 & 7, we again do not find any merit in the
submissions of Mr. Suri. Admitted position is that on the date when the
contract with regard to the SAIL shares was entered into, the shares were
unlisted. It is also the admitted position that on that day, the circular dated
27.6.1969 issued under Section 16 of the Securities Contract Regulation Act
1956 was in existence and in force. Relevant portion of the afore said circular
reads as follows:
S.O. 2561 In exercise of the powers conferred by sub-section (1) of Securities
Contract (Regulation) Act 1956 (42 of 1956) the Central Government being of
opinion that it is necessary to prevent undesirable speculation in securities
in the whole of India, hereby declares that no person in the territory to which
the said Act extends shall save with the permission of the Central Government
enter into any Contract for the sale or purchase of securities other that such
Spot delivery contract or Contract for cash or Hand delivery or Special
Delivery in any securities as is permissible under the said act and the rules,
bye laws and regulations of a recognized Stock Exchange."
thus clear from the circular that after issuance of these Circular,
transactions into securities by (i) Spot delivery contract; (ii) Contract for
cash; (iii) Hand delivery and (iv) 22 Special Delivery are only permitted. The
term `spot delivery' is defined in Section 2 (i) of the Act, which reads as
under:- "Spot delivery contract means a contract which provides for :- (a)
actual delivery of securities and the payment of a price therefore either on
the same day as the date of the contract or on the next day, the actual period
taken for the dispatch of the securities or the remittance of money therefore
through the post being excluded from the computation of the period aforesaid if
the parties to the contract do not reside in the same town or locality;
of the securities by the depository from the account of a beneficial owner when
such securities are dealt with by a depository; "
of the aforesaid definition would show that spot delivery contract is the
contract where actual delivery of the securities and the payment of price is
either on the same day or on the next day. Admitted position is that the
contract note issued by the appellant in relation to this transaction shows
that it was not a spot delivery contract.
regards the other types of contracts, the terms, contract for cash, hand
delivery or special delivery are not defined by the Act. Therefore in terms of
the circular dated 27.6.1969 quoted above, if the rules made under the act, bye
laws and regulations of a recognized Stock Exchange permit contract for cash,
hand delivery or special delivery, those types of transactions would also be
permitted by the circulars.
provisions of the bye-laws of Delhi Stock exchange clearly permits spot
delivery transaction, hand delivery transaction and special delivery
transaction. It was noticed by the Special court that "It was not even the
case of the Plaintiff that the transaction into SAIL shares in relation to
which contract note has been issued by the plaintiff was hand delivery, spot
delivery or special delivery contract."
argued before the Special Court that the transaction was a cash delivery
contract. The Special Court negated such contention, observing as follows:
there are no pleadings to that effect.
no evidence to that effect and there is no provision to that effect either in
the Act, rules framed by the Delhi Stock Exchange.
cash delivery contract unless it is permitted by the Act, bye laws and
regulations of the Stock Exchange is prohibited by the circulars."
appellant was aware of the illegality of the transaction. It is evident from
the letter dated 27th of July, 1992 written by the appellant to the respondent
No.1 wherein it is clearly stated that "technically this was incorrect
since contracts relating to unquoted shares would be outside the purview of
Delhi Stock Exchange rules, bye-laws and regulations." In the face of such
an dmission, the Special Court, in our opinion, has correctly concluded, as
noticed 24 above. In our opinion the view expressed by the Special Court does
not call for any interference.
contention that the circular did not apply to unlisted securities was duly
considered and rejected by the Special Court. The Special Court thoroughly
considered the term `securities' as defined in Section 2(h) of the Act. It
reads as under:- "2(h) Securities include- (i) shares, scrips, stocks, bonds,
debentures, debenture stock or other marketable securities of a like nature in
or of any incorporated company or other body corporate;
units or any other instrument issued by any collective investment scheme to the
investors in such schemes.
such other instruments as may be declared by the central Government to be
securities; and (iii) rights or interests in securities; "
of the above quoted definition shows that it does not make any distinction
between listed securities and unlisted 25 securities and therefore it is clear
that the Circular will apply to the securities which are not listed on the
Stock Exchange. Admittedly the contract note issued in relation to this
transaction by the appellant does not show that it was a spot delivery
contract, therefore the transaction was clearly contrary to the circular.
Consequently in terms of the provisions of Sub-section(2) of Section 16 the
transaction was illegal and is not capable of being enforced.
regard to issues no 1,8 & 9, it was correctly observed by the Special Court
that the Plaintiff i.e.
herein is not entitled to make any claim either in relation to the Reliance
Industries Shares nor in relation to contract for SAIL shares. Further as the
appellant is not entitled to claim any amount from the respondent on account of
the aforesaid transactions, there is no question of the appellant being
entitled to any interest.
Issue No.10, Mr.Suri has submitted that the Special Court has illegally allowed
the counter claim of respondent No.1. It was submitted that the Special Court
has come to a contrary conclusion even though the fact situation was identical
in the claim put forward by both the parties. We are unable to accept the
submissions made by the learned senior 26 counsel. Once it is concluded that
the appellant is not entitled to claim any amount from respondent No.1 in
relation to the aforesaid three transactions i.e. contract dated 14.2.1992,
contract dated 23.3.1992 for one lakh RIL shares each and contract dated
27.2.1992 relating to one lakh SAIL share. It needed to be determined as to
whether the appellant in fact needed to compensate respondent No.1. In the
counter claim, the respondent No.1 clearly stated that the appellant had agreed
to purchase one lakh shares of RIL on 14.2.1992 @ Rs.154/- per share, but this
contract was cancelled by the appellant on the very same date. Thereafter, the
appellant had intimated about another contract for purchase of one lakh shares
of RIL on 23.3.1992 @ Rs.375/- per share. Against the aforesaid contract, the
delivery of one lakh shares was made by the respondent No.1 to the appellant on
22.4.1992. After the receipt of a letter dated 15.9.1992 when the Management of
respondent No.1 had changed, the appellant started claiming that the delivery
of one lakh shares on 22.4.1992 had been adjusted against the cancelled
contract dated 14.2.1992. The respondent No.1 had based the counter claim on
the difference of price in shares between two periods of contract i.e. 14.2.1992
and 23.3.1992. The difference of amount of Rs.2,21,00,000/- was claimed as the
amount due from the appellant to the respondent No.1. A perusal of the letter
27 dated 27.5.1993, which contains a statement of account with the subject
"settlement of outstanding" clearly shows that the respondent No.1 is
claiming a sum of Rs.2,56,25,000/- as outstanding against the appellant from
various transactions as per the details given therein. Against the entry dated
4.3.1992, there is a clear entry with regard to the sale of one lakh RIL shares
@ Rs.375/- per share given a total consideration of Rs.3,75,00,000/-. The
respondent No.1 had clearly requested the appellant to settle account by paying
Rs.2,56,25,000/- immediately. In the letter dated 14.6.1993, the appellant
offered its comment on the statement of account for payment by respondent No.1
on 27.5.1993. Herein, the appellant states that the credit claimed by the
respondent No.1 should be Rs.2,21,00,000/- instead of Rs.2,56,25,000/-.
balance was claimed by the appellant on the ground that the credit claimed by
respondent No.1 of Rs.3,75,00,000/- has to be reduced by Rs.1,56,00,000/- i.e.
the difference in price of shares of the two contracts dated 14.2.1992 and
appellant also claimed that a sum of Rs.2,95,00,000/- was also required to be
adjusted in respect of SAIL shares. The appellant had claimed the difference in
contract price of shares of SAIL @ Rs.51/- per share against the official
quotation of the Delhi Stock Exchange @ Rs.110/- per share.
had claimed that respondent No.1 was liable to pay for 28 the difference of
Rs.59/- per share (Rs.110/-Rs.51/- per share amounting to Rs.2,95,00,000). It
was held by the Special Court, which finding has been affirmed by us, that the
contract with regard to SAIL shares being contrary to law was void ab initio.
Therefore, the appellant could not possibly claim anything against the
aforesaid SAIL shares on account of any difference in the contracted rate and
the rate when the same were listed on the Delhi Stock Exchange. Therefore, the
irresistible conclusion was that the appellant was liable to pay to respondent
No.1 for the RIL Shares @ Rs.375/- per share, the contract dated 14.2.1992
having been cancelled.
Special Court, in our opinion, correctly concluded that the appellant was
liable to pay to the respondent No.1 the amount of Rs.2,53,75,000/-. In view of
the above, we find no reason to interfere with the findings of the Special
Court on Issue No.10 also.
also do not find any cogent reason to interfere or to reduce the amount of
interest awarded by the Special Court in the peculiar facts and circumstances
of this case.
Mr.Suri had submitted that the entire approach of the Special Court was biased
against the appellant simply because the sole proprietor of the appellant was
duly notified under 29 the Special Courts Act. We are of the considered opinion
that the aforesaid submission has to be merely stated to be rejected. The
allegations of bias and mala fide had to be proved by cogent and clear
evidence. In the present case, apart from the bald submissions made by Mr.Suri,
no material was placed on the record to indicate that the judgment of the
Special Court was coloured, let alone being affected by any bias. It seems to
have become a common practice these days for the losing party after receiving
an unfavourable verdict, to make allegations of bias against the Presiding
Officer. We decline to give any credence to such wild and bald submissions
without any factual basis.
view of the above, we find no merit in this appeal and the appeal is dismissed.
No order as to costs.
.......................J. [B.Sudershan Reddy]