Hiten P. Dalal Vs. Stardard Chartered
Bank & Ors  INSC 230 (18 April 2000)
The Reserve Bank of India noticed large-scale
irregularities and mal-practices in transactions in both the Government and
other securities indulged in by some brokers in collusion with the employees of
various banks and financial institutions. The said irregularities and
mal-practices had led to the diversion of fund from banks and financial
institutions to the individual accounts of certain brokers.
With a view to deal with this situation and
in particular to ensure speedy recovery of the huge amounts involved, the
Special Court (Trial of Offences relating to transactions in securities)
Ordinance, 1992 was promulgated on 6th June, 1992. The said Ordinance has now
been replaced by an Act known as Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 (hereinafter referred to as the Act).
Section 3 of the Act enables the Central Government to appoint one or more
Custodian for the purposes of the Act. The Custodian has power under sub-
section 2 of Section 3 to notify the name of any person in the official
gazette, who has been involved in any offence relating to transactions in
securities after the first day of April, 1991 and on/or before 6th June, 1992.
The effect of a person being so notified was that according to sub-section 3 of
Section 3, notwithstanding anything contained in the Code of Criminal Procedure
or any other law for the time being in force, any property, movable or
immovable or both, belonging to any person notified under that sub-section
stands attached simultaneously with the issue of the notification. The property
so attached is to be dealt with by the Custodian in such manner as the Special
Court may direct.
The Special Court is established under
Section 5 of the Act to be presided over by a sitting Judge of a High Court.
The Special Court is to take cognizance of or to try such cases as are
instituted before it or transferred to it.
It is this Court which, under Section 9A, has
the jurisdiction to exercise such power and authority which was exercisable
before the commencement of the Act by a Civil Court in relation to any property
standing attached under sub- Section 3 of Section 3 or in relation to any
matter or claim arising out of transactions in securities entered into after
first day of April, 1991 and on/or before 6th day of June, 1992, in which a
person notified under Section 3(2) is involved as a party, a broker,
intermediary or in any other manner.
On 8th June, 1995, respondent No. 1 the
Custodian, who had been appointed under the Act, notified Hiten P. Dalal
(respondent no. 2 in Civil Appeal No. 762 of 1999 and appellant in Civil Appeal
No. 1878 of 1999) under Section 3(2) of the said Act. The Custodian then got to
know that some shares and securities, which belonged to respondent no. 2, were
in the possession of the appellant bank. It also came to the knowledge of the
Custodian that the appellant bank had got some of the shares transferred to its
name. Correspondence was then exchanged between the Custodian and the appellant
bank whereunder the appellant bank was called upon by the Custodian to either
hand over the shares and securities to the Custodian or the bank should obtain
an appropriate direction from the Court in case the appellant bank was claiming
any title to the said shares The demand of the Custodian requiring the
appellant bank to hand over the said shares which it had obtained from the
notified party led the appellant bank, which is incorporated under the laws of
England and Wales and has its Head Office at 1, Aldermanbury Square, London,
and the second appellant which is an existing company under the Companies Act, 1956
and is a wholly owned subsidiary of the Ist appellant, to file a suit No. 1958
of 1993 in the Bombay High Court. On transfer to the Special Court, the suit
was numbered as Suit No. 3 of 1994. On 29th June, 1994, the appellants withdrew
suit No. 3 of 1994 with liberty to file a fresh suit. It is thereupon that the
appellants filed suit No. 17 of 1994 from where the present appeal arises.
The case of the appellants in the plaint,
inter alia, was that on 30th April, 1992, one Mr. Arvind Lal, an employee of
the Bank, informed one Mr. R. Iyer, a Director of the Local Currency Group,
Investment Banking Division in the bank, that approximately Rs. 800 crores of
investments made by the appellant bank appellant through Hiten Dalal were not
backed by securities or banker receipts. How this shortfall happened, was not
known to the higher officials of the appellant bank till 10th May, 1992.
Thereafter enquiries were made by the appellant bank to ascertain the short-
fall and efforts were made to recover the same.
According to the appellants the shortfall was
ascertained to be in the region of approximately Rs. 1300 crores. It was
alleged that there were meetings between the officials of the appellants and
Hiten Dalal wherein the said notified party admitted and acknowledged his
liability and he had given various proposals for re-payment and delivery of
various stocks in which there was a short-fall. According to the appellants
Hiten Dalal did not fulfill his commitments to deliver cash or stock. Hiten
Dalal is alleged to have agreed to and deliver, between 11th May 1992 and 13th
May, 1992, various shares, securities, bonds and debentures (hereinafter
referred to for the sake of convenience as shares). On 14th May, 1992 the
Manager, Legal Services of the Bank, advised that a letter should be obtained
from Hiten Dalal in order to eliminate the possibility of his subsequently
claiming that the said shares had been delivered by way of safe custody. A
letter containing the understanding between the parities was drafted by the
in-house lawyer of the appellant bank and was given to have it transcribed on
his note paper. On 18th May, 1992 Hiten Dalal brought the draft to the office
of the Bank where it was typed and signed by the Hiten Dalal. It is an admitted
fact that though the letter was signed on 18th May, 1992, the said letter,
however, bears the date of 11th May, 1992.
Alternative claims were put forth by the
appellants in the said suit. In the first instance it was claimed that the
shares, the details of which were mentioned in the annexure to the said letter
dated 11.5.1992 and worth approximately Rs. 145 crores, were delivered by Hiten
Dalal in partial discharge of his liability to the appellant Bank in pursuance
to the aforesaid agreement which was recorded in a note dated 18th May, 1992.
The case of the appellants was that the bank is entitled to exercise ownership
right in respect of the said shares and to the accretions thereon which may
have been received by the appellants. The appellants also sought a declaration
that Hiten Dalal had no right, title or interest in the said shares and the
same did not belong to him on the date of the notification. It may here be
noted that the counsel for the appellants did not press this claim of ownership
before the Special Judge.
The second alternative claim by the
appellants was that the said shares were validly pledged in favour of the
appellant bank under the letter dated 11th May, 1992. In exercise of its rights
as pledgees, the appellant bank claimed that the said shares had been adjusted
against the admitted liability of the second respondent to the appellant bank.
It thus claimed ownership over the said shares. This plea also was not pressed
by the appellants before the Special Court inasmuch as it conceded that in law
no such right existed in a pledgee.
The third alternative put forth in the plaint
by the appellants was that the letter dated 11th May, 1992 created a valid and
existing pledge of the shares and that the rights, bonus and the dividends
received by the appellants formed part of the pledge and constituted security
for the appellants. The appellant bank claimed that it was entitled to retain
possession of the shares and accretions thereon until the second respondent
satisfied his liability towards the appellants. The appellants claimed a right
to sell the pledged shares and appropriate the sale proceeds towards partial
satisfaction of the outstanding liability of Hiten Dalal of Rs. 1253 crores.
The appellants thus claimed that as pledgees they were entitled to have the
shares transferred in their names without the process of certification. By an
amendment in 1996, another alternative claim put-forth by the appellants was
that the said shares, debentures, bank receipts, bonds and securities and the
rights and bonus received by the appellant bank stood mortgaged to it. The
appellants claimed that a sum of Rs. 30040885.00 expended by the appellant bank
on purchase of right shares and for preservation of the mortgaged security
formed part of the mortgage debt. The appellants thus claimed that they were
entitled to retain the mortgaged shares and securities and the accretions
received in respect thereof.
The custodian in its written statement did
not admit the correctness of the facts stated in the plaint.
According to the custodian, Hiten Dalal was a
notified party and the shares worth Rs.145 crores which were in the custody of
the appellants were the property of the said notified party. By virtue of the
provisions of the Act these shares stood attached as on the day when the name
of Dalal was notified and the said shares could not be dealt with by the
appellants except by and under the directions of the court.
The custodian denied that the appellants were
entitled to any of their claims.
In his written statement the defence which
was, inter alia, taken by Hiten Dalal was that he was acting as a broker in
securities and as such was dealing with the appellants for the last four years.
He did not admit that there was any shortfall in respect of the transactions,
which had taken place through him. He specifically denied that the purchases
approximating Rs.1253 crores were not supported by delivery of stocks or
acceptable bank receipts.
On the contrary Dalal averred that the
appellants had committed several irregularities and were attempting to transfer
the burden on him. He denied having accepted any liability to pay any amount to
the appellant bank or having admitted to the appellants having suffered any
loss as alleged or at all. With regard to the stocks and shares worth Rs.145 crores
which were lying with the appellants, the case of Dalal was that two employees
of the appellants, namely, Ravi Iyer and Siva Kumar had forcibly taken away
those stocks which had been lying in his office and which belonged not only to
him but also to his wife and some of his customers. Dalal claimed that these
officers threatened him that if he did not cooperate they would prosecute and
ruin him. Dalal further alleged that his signatures were taken on blank
documents and the appellants had wrongfully used those documents with blank
signatures in order to foist a false claim against him. He further alleged that
on 18th May, 1992 under threat of physical torture, criminal prosecution and
threat to that his life and that he would be ruined the appellants made him
sign a letter dated 11th May, 1992. In short he denied that he had voluntarily
admitted any liability towards the appellants.
On the basis of the pleadings the Special
Court framed sixteen issues as between the appellants and respondent no.1 and another
seventeen issues between the appellants and respondent no.2. It is not
necessary, for deciding these appeals, to refer to the said issues inasmuch as
the Special Court itself observed that though a number of issues had been
raised there were only four questions which arose for consideration and they
were; [I] whether the appellants herein had suffered a loss as claimed or at
all; [ii] whether respondent no.2 had given the said shares as securities
and/or the same were taken from him forcibly;
[iii] if the said shares were given as
securities then the question would also be as to whether it was by way of
pledge or mortgage; and [iv] whether rights and bonus shares, dividend and
interest on the said shares formed part of secured assets.
It may here be noted that before the Special
Court counsel for the appellants stated that he was not pressing the plea of
pledge with right of appropriation. He contended that the appellants were only
pressing that in respect of the shares in question which they had in their
possession there was either a mortgage or pledge in respect thereof.
When the Special Court was framing issues
relating to the question as to how the appellants had been able to prove the
loss caused to them by Dalal and if so to what extent, the counsel for the
appellants had contended that Dalal had admitted his liability in the said
letter of 11th May, 1992 and other documents and, therefore, it was not
necessary for him to prove the loss. The Special Court over-ruled this
submission but no speaking order was passed inasmuch as the counsel for the
appellants informed that if the court so desired the appellants would prove the
loss. The court then proceeded with the trial of the case on the basis that the
loss stated to have been suffered by the appellants was not to be attempted to
be proved only on the basis of the admissions of Dalal. The appellants
proceeded with the trial claiming that loss had been caused to them by their
having paid moneys in purchase transactions and their not having received deliveries
of stocks/bankers receipts.
The appellants led evidence in support of
On behalf of Dalal the court was given to
understand that he will enter the witness box in order to substantiate his plea
of physical torture, threat of criminal prosecution, coercion etc. Ultimately
Dalal chose not to give evidence before the court. On 24th December, 1998, the
Special Court delivered its judgment and, inter alia, held that;
 the appellants had been able to prove
loss totalling Rs.280.80 crores and that other losses alleged by the appellants
were disproved;  no coercion had been exercised by the appellants on Dalal;
 the letter dated 11th May, 1992 addressed by Dalal to the appellants
created a pledge in favour of shares and said debentures, particulars of which
were given in annexure to the said letter. The claim of mortgage of the said
shares was not accepted;  the appellants were entitled to sell the original
and right shares pledged to them in reduction of Dalals liability to the appellants;
 bonus shares and dividend and interest accrued on the original shares
pledged were not themselves the subject matter of the pledge and must be handed
back by the appellants to the Custodian;  Cantriple Units, referred to in
the letter dated 11th May, 1992, received by the appellants from Dalal must be
handed back by the appellants to the custodian as the appellants had not
succeeded in showing that they had any right, title or interest in respect
thereto and nor had it been proved that the said units had been pledged with
 Costs of Rs.30 lacs were awarded against
respondent no.2 and in favour of the appellants.
Aggrieved by the findings of the Special
Court in relation to the quantum of loss suffered, the rights of the appellants
in regard to bonus shares and dividend and interest which had accrued on the
original shares, which had been pledged, as well as the direction to hand over
Cantriple Units to the custodian and lastly the strictures passed against
certain employees of the appellants, appeal No. 762 of 1999 has been filed.
Hiten P. Dalal has filed appeal No.1878 of
1999 challenging the judgment of the Special Court which had accepted the
appellants claim regarding loss amounting to Rs.280.80 crores. He also
challenged the directions regarding handing over of the Cantriple Units by
Standard Chartered Bank to the custodian and lastly the challenge is to the
costs of Rs.30 lacs that had been awarded against him.
The four questions, which were considered by
the Special Court, are what arise for consideration in these appeals before us.
We will first deal with the issue relating to the loss claimed to be suffered
by the appellant bank and its right to retain the securities, which were the to
In the suit, which was filed, it was inter
alia stated in the plaint that the appellant bank had suffered a loss of about
Rs. 1253 crores on its dealing with Dalal. It is on this basis that it sought
to retain and appropriate securities worth Rs. 145 crores which, admittedly,
had been delivered by Dalal to the appellant bank between 11th and 15th, May,
1992. The claim of the appellant bank was based on the letter dated 11th May,
1992 (Ex. G) in the suit. It has come in the evidence and it is not disputed
that this letter was prepared by the officials of the appellant bank and was
signed by Dalal on 18th May, 1992. This letter, however, was ante dated to 11th
May, 1992. This letter addressed to the Standard Chartered Bank, Bombay reads
Dear Sirs, Re: Transactions in Government and
1. In the past 4 years I have been acting as
your broker for transactions in Government and other securities.
2. I am aware that you are in the process of
reconciling your purchases/sales through me of Government and other securities
and whilst the reconciliation is yet to be completed, you have ascertained as
of date that the following purchases aggregating Rs. 1258 crores are not
supported by deliveries of stocks and/or bank receipts of banks acceptable to
Type of Security Transaction Value 15 Crores
units Rs. 200 crores (Karad B.R.) 9% IRFC (1/1) Rs. 385 Crores (Metro B.R.) 9%
IRFC (1/4) Missing B.Rs. Rs. 45 crores (various B.Rs) 12.5% GOI 2 007 Rs. 80
crores (Karad SGL) 6% GOI 1994 Rs. 50 crores (Metro SGL) 11% IDBI 2002 Rs. 20
crores (Metro B.R.) 11.5% IDBI 2011 Rs. 47 crores (Karad B.R.) 8.75% IDBI 2000
Rs. 23 crores(Karad B.R.) 6 crore units Rs. 90 crores (Metro B.R.) 12% ICICI
2011 Rs. 50 crores (Metro B.R.) Cantriple Rs. 205 crores(Physical) Cantriple
(Expected) Rs. 58 crores Rs. 1253 crores The letter further goes on to say that
Dalal had delivered to the bank stocks, shares, deposits etc. as listed in the
annexure to the said letter by way of securities towards the short-fall and/or
any further short-falls which may be ascertained. The stocks and shares which
were listed in the annexure to this letter were the one which were handed over
by Dalal to the appellant bank between 11th and 15th May, 1992 and were stated
to be worth Rs. 145 crores, in respect of which, the present suit was filed. By
this letter Dalal further agreed to keep the appellant bank indemnified against
any loss which it might have incurred and/or suffered upon the appellant bank
completion of final re-conciliation of its account with Dalal and he undertook
to make good any such losses either by payment in cash or by physical delivery
of such other assets as the bank might require. The letter also postulated that
if on the completion of the re-conciliation, aggregate of the cash paid and the
value of the assets delivered exceeded the amount of loss identified, then the
Bank was to refund such excess to Dalal. He further confirmed and agreed that
the appellant bank was authorised to sell the stocks, shares, debentures etc.
which were handed over to the bank and to appropriate the proceeds thereof to
partly liquidate his liabilities to the bank. If there was any short fall after
such appropriation, Dalal held himself to be personally responsible to pay to
the bank such balance as was outstanding.
At this stage, we may notice that Dalal did
not deny the execution of this letter. His case in the written statement was
that this letter and other documents were got signed by the bank officials
under threat or coercion. He had contended that the shares, securities etc. which
were listed in Exhibit G had been forcibly taken away by the appellant bank
The Special Court, after taking all the
evidence into consideration, came to the conclusion that the said shares etc.
had not been forcibly taken away from Dalal but he had, on the contrary, handed
over these shares as security.
In arriving at this conclusion, the special
court held that it was unbelievable that the shares would be forcibly taken
away from Dalal between 11th and 13th May, 1992 and for a period of three days
at least he would make no complaint or try to stop the appellants from taking
away the said shares forcibly. Admittedly, there had been a meeting between
Dalal and the Advocate of the appellants and the Special Court found it
inconceivable that force had been used at the time of taking away all the
We have gone through the evidence and we
agree with the aforesaid conclusion of the Special Court to the effect that the
contention of Dalal that the said shares were taken away from him forcibly is
not correct. In the issues which were framed the onus of proof that the letter
dated 11th May, 1992 had been executed under threat of physical terror and
criminal prosecution was on Dalal. Hiten Dalal however chose not to enter the
witness box in support of this plea.
Not only did he not lead any evidence in
order to prove coercion, the appellant bank on the other hand examined
witnesses who clearly proved that Dalal had not only signed the letter dated
11th May, 1992 but he also signed other documents to which we will presently
refer. As Dalal had failed to step into the witness box or lead any evidence on
his behalf, the Special Court rightly drew an adverse inference against him.
We must, therefore, proceed on the basis that
Ex. G even though prepared by the employees of the appellant bank had been
voluntarily and willingly signed by Hiten Dalal.
We also proceed on the basis that the shares,
securities etc. had been delivered by Dalal to the appellant bank valued at Rs.
145 crores between 11th and 15th May, 1992.
It is in this background that we must examine
the claim of the appellant bank with regard to the loss stated to have been
suffered by it.
On the basis of the evidence which was led
before it, the Special Court observed that out of items of securities mentioned
in Ex. G, items 2,3,4,6,11,12 and 13 were dis-proved. It held that it is proved
that in respect of these items, there is no loss. The claim for Rs. 795 crores
thus stands disproved.
Having held that the claim for loss of Rs.
1253 crores was an exaggerated claim, the Special Court further came to the
conclusion that items 5,7,8 & 9 were also dis-proved or in any event, they
could not be relied upon and used for the purpose of calculating loss. It
upheld the case of the appellants with regard to items 1 and 10.
Lastly, the Special Court, came to the
conclusion that on the basis of the evidence produced before it, the appellants
had made a payment of Rs. 201 crores for the purchase of units of U.T.I. of the
face value of Rs. 15 crores but had not received the said securities. It also
accepted the claim of loss of Rs. 79.80 crores which was evident by statement
Ex. 19 which was produced in the court by the counsel for the appellants. The
Special Court held that this statement Ex. 19 was tendered under Section 163 of
the Evidence Act and the facts stated therein must be regarded as having been
proved or binding on Dalal.
It was submitted by Mr. K.K. Venugopal and
Mr. K.S. Cooper, learned counsel for the appellants that for this case it was
not necessary for the appellants to have established loss of more than Rs. 145
crores. Mr. K.K. Venugopal submitted that the appellants were not contending in
these appeals that the shares worth Rs. 145 crores had been given to the
appellants by way of mortgage. It was submitted that the said shares were
pledged to the bank. He however submitted that the evidence on record would
show that the appellants had been able to prove that the liability of Hiten
Dalal towards the appellants was Rs.1253 crores. In any event, the Special
Court had accepted the claim of loss of the appellants to the extent of Rs.280.80
crores which was much more than the value of the pledged shares. It was
submitted that with regard to the balance claim the Special Court ought not to
have given a positive finding that the same stood dis-proved.
Hiten Dalal, in the appeal filed by him, has
challenged the acceptance by the Special Court of the loss of Rs. 280.80 crores
stated to have been suffered by the appellant bank in its dealing with him. So
far as the Custodian is concerned, Mr. Shiraz Rustamjee, learned counsel for
the Custodian, submitted that it accepted the loss of Rs. 201 crores which was
more than sufficient to cover the value of the pledged shares of Rs. 145 crores
but he submitted that the decision of the Special Court in invoking the
provisions of Section 106 of the Evidence Act and in holding that the loss of
Rs. 79.80 crores has been proved was not correct. In this respect he supported
the submissions of Shri S. Ganesh, learned counsel on behalf of Dalal.
Before dealing with the correctness of the
findings of the Special Court it will be appropriate to analyse the said letter
dated 11th May, 1992 Ex. G. As has already been observed, this letter was
admittedly prepared by the officials of the appellant bank on the basis of
inspection which had been carried out. Para 2 of the said letter states in no
uncertain terms that as on that date the bank had ascertained that the
following purchases aggregating Rs.
1258 crores are not supported by deliveries
of stocks and/or bank receipts of banks acceptable to us. The purchases which
are referred to are the thirteen types of securities, total value of which
aggregated Rs. 1253 crores. This means that there was an outgoing of Rs. 1253
crores from the appellant bank, in cash or in kind and thirteen types of
securities listed in para 2 of the said letter, in respect of which the
outgoing had taken place, had not been delivered or bank receipts in respect
thereof given. It is to secure the delivery of these stocks and shares that
securities and shares worth Rs. 145 crores listed in annexure to this letter
were pledged to the appellant Bank.
The Special Court Act, 1992 contemplates
attachment of all movable and immovable properties from the day when the party
is notified. The attached property is thereupon to be dealt with by the
Custodian in such a manner as the Court may direct. The attached property is to
be disposed off by the Custodian under order of the Court and Section 11(2)
specifies the liabilities of the notified party which are required to be paid
or discharged out of the proceeds of the properties of the notified party. It
was, therefore, but right that the Court had to be satisfied by positive
evidence, and not merely on the basis of the admission of Dalal that the
appellant Bank had suffered loss inasmuch as purchases aggregating Rs. 1258
crores are not supported by deliveries. with the result that the securities and
shares worth Rs. 145 crores had been pledged in favour of the appellant bank.
The loss of Rs. 201 crores qua item No. 1 in
regard to the non-delivery of Rs. 15 crores units of U.T.I. of the face value
of Rs. 150 crores was proved through the evidence of Mr. Sanjay Pandit, PW 4.
The documents which were produced in evidence for proving that the appelllant
bank had made payment of Rs. 201 crores for the purchase of the said U.T.I.
units, which securities were not received by the appellant bank, was firstly a
deal slip No. 7941 which showed purchase of these units from the Bank of Karad.
In respect of this transaction, cost memo had
been received by the appellants from the Bank of Karad on 8.1.1992. A
transaction slip dated 8.1.1992 showing the purchase of Rs.15 crores U.T.I.
units at the rate of Rs. 13.40 (Ex. B- Vol. IV) per unit amounting to Rs. 201
crores was proved by PW 4. Also placed on record was the bankers receipt dated
8th January, 1992 for a sum of Rs. 201 crores.
Against this, on 8th January, 1992, there was
a sale of 9% I.R.F.C. bonds of the face value of Rs. 210 crores. By pay order
dated 8th January, 1992 bearing No. 231967, a sum of Rs. 199.79 crores was paid
to the Bank of Karad.
Another document Ex. M is the receipt dated
8th January, 1992 issued by the Bank of Karad acknowledging the receipt of Rs.
201 crores in respect of said U.T.I. units. In face of the said evidence, Shri
Ganesh was unable to persuade this Court that the decision of the Special Court
in accepting the loss of Rs. 201 crores was incorrect.
This finding regarding the loss of Rs. 201
crores is affirmed.
Now we come to the next item of loss which
was accepted by the Special Court, namely, that of Rs. 79.80 crores mentioned
as item no. 10 in Ex. G.During the cross-examination of the appellant bank
witness PW 6, the counsel for the Hiten Dalal put him the following question:
Mr. Rao calls upon the plaintiffs to show any single transaction wherein the
plaintiffs funds have been diverted by Mr. Hiten Dalal through bank of Karad.
This question was put to the witness on 6th November, 1998. Thereafter on 11th
November, 1998, the said PW 6 tendered in evidence Ex. 19 (colly) which was a
statement containing details of two transactions which indicated that money had
ultimately gone to the account of Dalal. One of the transactions which was
listed was item no. 10 of Ex. G. When this statement was tendered in evidence,
the Special Court noted that the counsel for the appellants had kept in Court
all the Deal Slips, Cost Memos, Pay Orders and Banker Receipts. These were not
marked as exhibits because the counsel for Dalal stated that he had not called
for these documents and the said counsel had not taken inspection of the said
documents. The Special Court observed that this statement Ex. 19 had to be
regarded as having been tendered under Section 163 of the Evidence Act and,
therefore stood proved and was binding on Dalal. The Special Court then
examined the said Ex. 19 which showed that the appellants had purchased six
crores units of the U.T.I. of the face value of Rs. 60 crores for Rs. 79.80
crores from the Bank of Karad and had made payment of the same by Pay Order No.
231919 for Rs. 37.63 crores. This payment was made after netting of sale of
security to Bank of Karad. Ex. 19 further shows that in respect of said
transaction, the appellants had received a banker receipt No. 18 of the
Metropolitan Co-operative Bank. Ex. 19 further showed that the money which the
appellants paid to the Bank of Karad was credited into the account of one Abhay
Narottam in the Bank of Karad and thereafter, from that account, an amount of
Rs. 36 crores was transferred/credited to the account of Dalal with Andhra
Bank. The Special Court observed that even though the said statement
established that Rs. 36 crores had been transferred into the account of Dalal,
no evidence had been led by him to show why he had received Rs. 36 crores
and/or that it was under some transaction with the Bank of Karad.
In the absence of such evidence, the Special
Court came to the conclusion that this money of the appellant bank had been
siphoned out by Dalal. The Special Court further noted from Ex. 19 that on 27th
November, 1991 the appellant bank purchased 13% M.T.N.L. Bonds of the face
value of Rs. 20 crores from the Bank of Karad and by pay order No. 231079, a
sum of Rs. 18.71 crores was paid by the appellant bank to the Bank of Karad. A
sum of Rs. 29.99 crores, which included the aforesaid sum of Rs. 18.71 crores
plus another sum of Rs. 11.27 crores, was transferred to the account of Hiten
Dalal with Andhra Bank. The Special Court noted that in this case also it was
shown that from the Bank of Karad an amount of Rs. 18.71 crores of the
appellants bank had gone to the account of Hiten Dalal. The Special Court
further noticed that in respect of this transaction relating to Rs. 18.71
crores regarding the purchase of 13% M.T.N.L.
bonds, the appellant bank had not claimed
that they had suffered a loss as the said transaction was not listed in Ex. G.
While not accepting the sum of Rs. 18.71 crores as being loss/suffered by the
appellants bank, the Special Court accepted the loss of Rs. 79.80 crores being
the face value of six crores Units of the U.T.I. in respect of which Rs. 37.63
crores had been paid but the said units were not received.
It is contended by Mr. S. Ganesh, learned
counsel for the respondent no. 2 that the Special Court mis-understood and mis-
conceived the provisions of Section 163 of the Evidence Act. He submitted that
Section 163 applied only in the following three conditions: i) The specified
documents must have been identified by the parties concerned; ii) That the
parties must give notice to the other party to produce the documents; iii) The
said documents must have been produced and inspection thereof taken by the
party who gave notice for the same.
It was contended that these basic conditions,
which are necessary for the application of Section 163 of the Evidence Act, had
not been fulfilled and, therefore, the Special Court was not correct in
admitting the said statement in evidence as Ex. 19.
Mr. Rustomjee, learned counsel, who appeared
on behalf of Custodian, also submitted that Section 163 of the Evidence Act had
been wrongly invoked in the present case.
We are not inclined to go into the
correctness of the decision of the Special Court regarding the applicability of
Section 163 of the Evidence Act. Mr. Rustomjee, learned counsel submitted that
as far as Custodian is concerned, he had chosen to accept the decision of the
Special Court wherein it had accepted the losses qua item no. 1 stated to have
been suffered by the appellant bank for a sum of Rs.201 crores. No appeal has
been filed by the Custodian challenging the correctness of the decision of the
Special Court accepting the loss of Rs. 79.80 crores. If the Custodian had felt
aggrieved an appeal should have been filed. This not having been done it is not
open to Mr.Rustomjee to submit that this part of the judgement of the Special
Court should be reversed.
As far as Dalal is concerned, once the
Special Court has come to the conclusion that there was no coercion or undue
influence in his signing letter dated 11th May, 1992, Ex. G, it is then not
open to him to contend and challenge the findings of the Special Court which
has accepted the claim of the appellant bank with regard to payment having been
made in respect of the U.T.I. Units of the face value of Rs. 79.80 crores. This
is more so when we find that the Special Court has noticed that when the
statement Ex. 19 was tendered in evidence, the counsel for the appellant bank
had kept in court all the deal slips, cost memos, pay orders and banker
receipts in respect of the said transaction. Dalal having accepted the fact
that there had been a non-delivery of six crores units of the face value of Rs.
79.80 crores which had been purchased by the appellant bank, which is evident
by his signing Ex. G, it is not open to him to contend that he does not accept
the correctness of the contents of the said letter. In our view, therefore,
without expressing any opinion on the correctness of the findings of the
Special Court with regard to the applicability of Section 163 of the Evidence
Act in the present case, the conclusion of the Special Court to the effect that
six crores units of the U.T.I. of the face value of Rs. 79.80 crores had not
been delivered to the appellant bank, even though it had made payment in
respect thereof, does not call for any interference.
With regard to the other items of securities
referred to in Ex. G, learned counsel for the appellant bank invited our
attention to Ex. E collectively which were hand-written notes signed by Dalal
on 17th May, 1992 wherein he had undertaken to deliver various shares and
securities of the total value of Rs. 900 crores. Keeping in view the fact that
the Special Court had observed that the appellant bank will have to prove the
extent of loss not on the basis of admission of Hiten Dalal but by leading
evidence on its own, we are of the opinion that the best evidence which could
have been led in respect of the other items stated to have been purchased and
mentioned in Ex. G was not led.
Apart from the loss of aforesaid amount of
Rs. 280.80 crores which has been accepted by the Special Court and upheld by
us, we would have expected the appellant Bank to lead evidence to prove that it
had paid sums of money and did not receive the securities mentioned in Ex. G.
The main documentary evidence which was led on behalf of the appellants in
respect of those items was Ex. G and the notes Ex. E which contain the schedule
for the delivery by Dalal of various shares which were to take place from 18th
May, 1992, 19th May, 1992, 20th May, 1992 and 22th May, 1992. These notes are
signed by Dalal. In addition thereto, there was to be conversion of bank
receipts of Canstars having valued at Rs. 10 crores. According to the appellant
bank, no such delivery took place. The appellant bank, however, did not lead
any evidence to prove that either in respect of the shares and securities
mentioned in Ex. E or in respect of items mentioned in Ex. G, except for items
1 and 10, any payment had in fact been made by the appellants. The claim of
loss in excess of Rs. 280.80 crores cannot be accepted.
The Special Court, on the basis of the
evidence before it, came to the conclusion that except for sum of Rs. 280.80
crores, the balance claim of the appellants stood dis-proved. As we have
already noticed, the suit was filed by the appellant bank because it had in its
possession shares and securities which had been lodged by Dalal as a notified
party with the appellant bank between 11th and 15th May , 1992. The appellants
had been asked by the Custodian to establish its right to retain the said
shares and securities and this is the reason why the suit was filed.
Even though in the plaint, it was said, and
that is noted in Ex. G itself that the appellant bank had suffered a loss of
Rs. 1253 crores for the purpose of establishing its right to retain and sell
shares and securities worth Rs. 145 crores, it was not necessary for the
appellant bank to have proved the extent of total loss which it had suffered.
It was enough for the Bank to prove that it
had paid money in excess of Rs. 145 crores and had not received shares or
Bankers receipt in respect thereof. This would give the Bank right to retain
the said shares as having been pledged to it.
Undoubtedly the Special Court had required
the appellant bank to prove by independent evidence as to what was the extent
of loss suffered by it. One of the issues between the appellant bank and the
custodian, being Issue No. 2, was as to what was the extent of loss suffered by
the Bank. The Special Court answered the issue by holding that the appellant
bank had been able to prove that it had suffered a loss to the extent of Rs.
280.80 crores only.
Having come to this conclusion it would have
been more appropriate, in our opinion, for the Special Court to have observed
that the appellant bank had failed to prove loss in excess of Rs. 280.80 crores
rather than giving a finding that the loss in excess of Rs. 280.80 crores
stands dis-proved. The loss which it had suffered was sufficient to enable it
to retain and dispose off the shares to the extent of Rs. 145 crores which had
been pledged with it.
In respect of the pledged stock, right shares
were subscribed and obtained by the appellant bank, bonus shares and dividend
and interest were also received by it. In respect of this the two questions
which arise are whether these accretions form part of the pledged property and;
secondly if they do not, then whether the
Special Court should have directed the appellant bank to hand them over to the
Before we deal with the main contention it
will be pertinent to note that in so far as the right shares were concerned, it
was accepted by all the parties that as the appellant bank had paid for these
right shares the same belong to the it and they were entitled to keep them
irrespective of the question whether they formed part of the pledge or not. The
question of return of right shares does not, therefore, arise in these appeals.
As far as bonus shares are concerned it was
submitted by Mr. Cooper, learned counsel for the appellant bank that they are
not accretions and no issue arises whether they should be handed over to the
appellant bank or to Dalal. It was submitted that as bonus share is only a
piece of paper it has no intrinsic value. Reliance was placed on the following
passage from the decision of this Court in Commissioner of Income Tax vs.
Dalmia Investment Company Ltd. 1964  SCR 210 when in relation to the issue
of bonus shares it was observed as follows:
.it takes nothing from the property of the
corpus and adds nothing to the interest of the shareholder. Its property is not
diminished and their interests are not increased. The proportional interest of
each shareholder remains the same. The only change is the evidence, which
represents that interest, the new shares and the original shares together
representing the same proportional interest that the original shares
represented before the issue of the new ones. The corporation is no poorer and
the stockholder is no richer than they were before. What has happened is that
the plaintiffs old certificates have been split up in effect and have
diminished in value to the extent of value of the new.
This decision was followed by this Court in
Hunsur SCC 335.
In our opinion the Court rightly came to the
conclusion that bonus share is an accretion. A bonus share is issued when the
company capitalises its profits by transferring an amount equal to the face
value of the share from its reserve to the nominal capital. In other words the
undistributed profit of the company is retained by the company under the head
of capital against the issue of further shares to its shareholders. Bonus
shares have, therefore, been described as a distribution of capitalised
undivided profit. Section 94 of the Companies Act refers to the power of a
limited company to alter its share capital.
Under Section 94[a] it has power to
increase its capital share while under sub-clause [d] it can sub- divide its
share into shares of smaller amount. Whereas in a case of sub-division an
existing share is simply divided or split and it may be argued that no new
share or capital is created, but there can be little doubt that in the case of
issue of bonus share there is an increase in the capital of the company by
transferring of an amount from its reserve to the capital account and thereby
resulting in additional shares being issued to the shareholders. A bonus share
is a property which comes into existence with an identity and value of its own
and capable of being bought and sold as such. Neither In Dalmia Industries nor
in Hunsur Plywoods case was this Court concerned with a question whether the
bonus share could be regarded as an accretion or not. This Court in those cases
was only concerned with a question relating to the valuation of the bonus share
for tax purposes.
On the other hand the Privy Council in
Motilal consider as to whether the pledgee was required to return to the
pledgor, on redemption, bonus shares which had been issued. The plea taken by
the pledgee in that case was that the pledgee was only required to return the
original shares which were pledged and not the bonus shares which were
received. Rejecting this contention it was held that the bonus shares were
received as arising out of and appertaining to the original shares and that it
was impossible to contend that the right to these shares could be
differentiated from the right to the original shares.
Referring to Section 163 of the Contract Act
the Privy Council held that These shares [bonus shares] are clearly accessions
to the shares expressly pledged or hypothecated, and the pledgor or his
representative, the present plaintiff, is entitled to recover the same.
Applying the same logic it must follow that the dividend and interest which was
received by the plaintiffs and which was relatable to the pledged stocks must
also be regarded as accretions thereto.
It was then contended by Mr. Cooper that the
bonus shares, dividend and interest, if they are regarded as accretions to the
pledged stocks then they must also be regarded as forming part of the pledged
property which could not be ordered to be handed over unless redemption takes
place. In other words, the submission was that the Special Court could not have
permitted the appellant bank to have retained the stocks originally pledged but
at the same time directed that the accretions thereto should be handed over to
Section 172 of the Contract Act provides that
the bailment of goods as security or payment of a debt or performance of a
promise is called pledge. Bailor being the pawnor and pawnee being the bailee.
What is bailment is defined by Section 148 which, inter alia, provides that
bailment is the delivery of goods by one person to another for some purpose,
upon a contract that they shall, when the purpose is accomplished, be returned
or otherwise disposed of according to the directions of the person delivering
them. The person delivering the goods is called the bailor and the person to
whom the goods are delivered is called the bailee. Section 160 provides that
the goods bailed are to be returned by the bailee on expiration of time or
accomplishment of purpose. Reading Section 172 with Sections 148 and 160 of
Contract Act, it would appear that when goods are bailed for securing payment
of debt or the performance of a promise the bailor would get a right for the
return of the said goods when the purpose is accomplished, namely, the debt is
returned or the promise is performed. At the same time Section 176 provides for
pawnees right when pawnor makes default. This section reads as follows:
Pawnees right where pawnor makes default:- If
the pawnor makes default in payment of the debt, or performance, at the
stipulated time, of the promise, in respect of which the goods were pledged,
the pawnee may bring a suit against the pawnor upon the debt or promise, and
retain the goods pledged as a collateral security; or he may sell the thing
pledged, on giving the pawnor reasonable notice of the sale.
This section not only gives the pawnee the
right to retain the goods pledged as collateral security but also entitles the
pawnee to sell the pledged goods after giving pawnor reasonable notice of the
same. If the proceeds of the sale are less than the amount due, the pawnor continues
liable to pay the balance. On the other hand if the proceeds realised on the
sale being made are greater then the amount due the pawnee is under obligation
to pay over the surplus to the pawnor.
According to Section 163 of the Contract Act,
in the absence of a contract to the contrary, the bailee is bound to deliver to
the bailor or according to his directions any increase or profit which may have
accrued from the bailed goods. It is indicated in the section that if a calf is
born to a cow then the bailee is bound to deliver the calf as well the cow to
the bailor. The custodian claims that as and when such accretions have taken
place the pledgee has no right to retain the same.
In this connection it was contended by Mr. S.
Rustomjee, learned counsel for the respondents, that Section 163 mainly
provides that the bailee is bound to deliver any increase in profit which may
have accrued but the said section does not provide that such delivery is to be
made only on accomplishment of the purpose for which the goods are bailed. Had
it been the intention that such accessions were to be delivered only at the
time of accomplishment of the purpose for which the goods are bailed, the
Legislature would have clearly provided for it. To buttress his argument he sought
to rely upon Sections 63 and 64 of the Transfer of Property Act which provide
that where the mortgaged property in possession of the mortgagee has, during
the continuance of the mortgage, received any accession, the mortgagor, upon
redemption, shall, in the absence of a contract to the contrary, be entitled as
against the mortgagor to such accession. It was contended that the words upon
redemption are conspicuous by their absence in Section 163 of the Contract Act.
He further contended that Sections 163 to 173 of the Contract Act repeatedly
referred to the words goods pledged and indicated that the pawnees rights
including that of sale extended only to the goods pledged and not to other
While interpreting Section 3(3) of the
Special Courts Menon and Anr. [(1997) 9 SCC 123] at page 127, in paragraph 9,
observed as follows:
It is perhaps necessary to make clear that
the income or usufruct of attached property is also attached property.
Thus, if the property be shares, dividends
and bonus and rights shares thereon would also be attached property. It is only
income generated by a notified person by dint of his own labour which falls
outside the net of Section 3(3). In respect of such income, the attachment
under Section 3(3) does not operate.
If the accretions are regarded as property
which come to existence after the date when the party was notified then in view
of T.B. Ruias case income generated after the date of notification would fall
outside the net of Section 3(3).
It, therefore, became necessary for this
Court in T.B. Ruias case to observe in paragraph 9 that if the attached
property is shares then the dividends, bonus and rights shares would also be
regarded as attached property. If this be so then would pledge not extend to
these accretions to the shares which were pledged? In this connection it is
relevant to notice that Story on Law of Bailment at para 292 has stated thus:
By the pledge of a thing, not only the thing itself is pledged, but also,
accessory, the natural increase thereof. As if a flock of sheep are pledged,
the young, afterwards born, are also pledged. This passage has been relied upon
by Chitty on Contract, 28th Edition at page 162 where it is noted that If
during the pledge there is an increase in the value of the thing pledged, the
pledgee is entitled to the increase as part of his security. To the same effect
is the view contained in Halsburys Laws of England Vol.36 para 123 where it is
stated in connection with the special property of the pawnee If during the
contract there is any increase in the value of the security, the pawnee is
entitled to that increase as part of his security.
From the aforesaid it would follow that what
Section 163 of the Contract Act really means is that accretions in respect of
the goods bailed cannot be a property of the bailee but must be returned when
the goods themselves bailed are returned. A necessary corollary to this would
be that as the pledge extends to such accretions then when the pledged goods
are returned these accretions must also be given back. But if the pledge
extends to such natural increase of the pledged goods it must follow that the
pledgee would not only have the right to retain the said accretions but also
have the right to sell the same along with original shares pledged for the purposes
of realising amounts due to it and in respect of which the shares were pledged
as a security. Not only will this be in line with the aforesaid observations of
this Court in T.B. Ruias case but in arriving at this conclusion we find
support from the Halsburys Laws of England Vol.2 para 1524, where dealing with
the bailees duty to account it was observed that When the return of the bailed
chattel constitutes part of the bailees obligation, he must restore not only
the chattel itself, but also all increments, profits and earnings immediately
derived from it. It would follow from the aforesaid that the accretions to the
pledged property would continue to be retained by the pawnee and, in the case
of a notified party, like in the present case, the accretions to the pledged
property would also be regarded as attached property to be dealt with in the
manner in which the pledged shares have to be dealt with.
It is not possible to accept the contention
of the custodian that as and when any accretion takes place the pawnee is under
Section 163 liable to hand over the accretion to the pawnor. It is true that
the words upon redemption as used in Sections 63 and 64 of the Transfer of
Property Act are not included in Section 163 of Contract Act but it is to be
seen that if the accretion is to be regarded as forming part of the bailed
property then such accretion must remain with the pawnee and be dealt with by
him in the same manner as the pledged shares. In other words the accretions
form an integral part of the attached shares as on the date of attachment, as
held in T.B. Ruias case, and it follows that it would also be an integral part
of the shares when they were pledged and would, therefore, constitute a part of
the pledged security. The appellant bank would, therefore, be entitled to
retain the same and deal with them as pledged stocks. The decision of the
Special Court that the bonus shares, dividend and interest which had accrued on
the pledged shares were not themselves the subject matter of the pledge and must,
therefore, be handed over by the appellant bank to the custodian cannot be
In the aforesaid letter dated 11th May, 1992,
Ex.G, item no.12 refers to Cantriple Units having a transaction value of Rs.205
crores and item no.13 was shown as Cantriple accepted having a transaction
value of Rs.
58 crores. In so far as Cantriple Unites of
the value of Rs.58 crores are concerned, it appears that by an order dated 10th
June, 1993, passed in Miscellaneous Application No.29 of 1993, the Special
Court directed the appellant bank to hand over the said units to the custodian.
This order has attained finality and no contention has been urged in respect
What now remains to be considered is the
order of the Special Court directing that the Cantriple Units of the value of
Rs. 205 crores should be handed over by the appellant bank to the custodian. In
arriving at this decision the Special Court dealt with the evidence which had
been led by the appellant bank in respect of this item and observed that the appellant
bank had been taking contradictory stands in respect thereto. The Court came to
the conclusion that no payment had been made in respect of these shares and the
case which was then sought to be put forth that the said units had been
received as security was false.
It does appear that the appellant bank has,
in respect of Cantriple Units, adopted varying and contradictory stands. While
in the letter dated 11th May, 1992, the tenor was that payment had been made
but these units had not been given, but in the letter dated 20th May, 1993, the
stand taken was that these Cantriple Units formed part of the pledged
securities. In another letter of 16th June, 1993, it was stated that these
units were purchased and set off against earlier transaction. A witness on
behalf of the appellant bank gave evidence to the effect that the units were
taken by way of security and were not purchased at all.
In the light of the said evidence the Special
Court rightly came to the conclusion that the appellant bank had no right to
retain these units in their possession. These units had to be regarded as being
attached. We may, however, note that in respect of these units Miscellaneous
Application No.36 of 1993 had been filed by Can Bank Financial Services Ltd.
before the Special Court. The claim of Can Bank Financial Services was that the
appellant bank herein had forcibly taken away the said Cantriple Units. The
Special Court has in this case directed that these units should be handed over
to the custodian but the appellant bank may establish a claim to these units in
any other proceedings. It may here be noted that the contention on behalf of
the appellant bank was that pending before the Special Court were Suit No.9 of
1994, Suit No.45 of 1995 and Miscellaneous Application No.36 of 1993 where the
question of title to these Cantriple Units was directly in issue.
The grievance of the appellant bank in these
appeal is that the Special Court erred in giving detailed findings in respect
of these Cantriple Units and also erred in directing the appellant bank to hand
over the said units to the custodian because Cantriple Units were outside the
scope of the suit. The fear of the appellant bank is that the findings of the
Special Court with regard to the appellant banks right to retain these
Cantriple Units may prejudice them in the other proceedings.
In paragraph 50 of the plaint it has been
categorically stated that the suit was restricted to seeking relief in respect
of the shares, securities, debentures and bank receipts delivered between 11th
to 13th May, 1992. The Cantriple Units in question had been delivered by Dalal
on 9th May, 1992. There is no specific issue, which was framed with regard to
the question, as to whether these Cantriple Units had been purchased by the
appellant bank or had been handed over to them by way of security. Once the
Special Court has come to the conclusion that the appellant bank has not proved
that Rs. 205 crores, representing the transaction value of these Cantriple
Units, were paid for or were pledged, it was justified in directing handing
over of the said units to the custodian. Other proceedings specifically
relating to these Cantriple Units are still pending before the Special Court,
especially Miscellaneous Application No. 36 of 1993. Under the circumstances it
would appear that the observations and findings of the Special Court relating
to the Cantriple Units, in the absence of evidence being led before it by all
the interested parties, can only be regarded as, prima facie so as to enable it
to come to the conclusion that the said Cantriple Units must be handed over to
the custodian and his retention would be subject to the outcome of the other
legal proceedings including Miscellaneous Application No. 36 of 1993 and the
appellant bank and other parties would be entitled to try and establish their
rival claims to get possession of the said Cantriple Units.
Learned counsel for the appellant bank also
submitted that the observations of the Special Court to the effect that there
appeared to be some arrangement which subsisted between the appellant bank and
Dalal were unwarranted and uncalled for. We do not intend to make any
observation in connection therewith because the Court has itself stated that it
was merely a presumption, and not a finding, that the appellant bank had
entered into some sort of a transaction in securities with Dalal with the
understanding that they would get a fixed return of 15 per cent on those
transactions. Once the Court itself observed that loss is not a finding but
merely a presumption, the said observations cannot in any way adversely affect
the appellant bank or reflect as being a positive finding in respect of its
business transactions. Perhaps the Special Court could have avoided the said
observation but, as we have already observed, these observations should not and
cannot cause any prejudice to the appellant bank in any other matter which is
pending before the Special Court.
It was submitted on behalf of the plaintiffs
that the Special Court ought not to have passed strictures or made harsh
observations against the appellant bank. It was contended that the appellant
bank was victim of conspiracy between their employees and Dalal on account of
which it suffered loss heavily. Services of several officers alleged to be
involved in the conspiracy were terminated by the appellant bank and criminal
proceedings were instituted.
This shows, it was contended, that when the
appellant bank got to know about the acts of its employees it acted in a bona
fide manner and no strictures should have been passed against it.
While examining the evidence the Special
Court has observed that the appellant bank was creating false record, which was
admitted by their own witnesses, and further that in the greed for profit the
appellant bank was flouting rules and regulations of the Reserve Bank of India.
This and the other observations made by the Special Court, though harsh, appear
to be amply justified. In making these observations the Special Court took note
of the fact that according to the appellant banks own witnesses false records
were created in the case of 9% IRFC Bonds to hide a hole from the Reserve Bank
of India. The false record, which was created, showed purchase of Cantriple
Units even when there was no transaction of purchase. This was done because
inspection by the Reserve Bank of India was expected. None of the officers
against whom observations have been made by the Special Court have chosen to
challenge the same. No orders need be passed, in our opinion, with regard to
the said observations of the Special Court made with reference to the officers
of the bank who suddenly one day realised in May 1992 that the bank had made
purchases of securities etc. for Rs.1253 crores but in respect of which
deliveries have not been made, the case which was set up in the letter dated
11th May, 1992. If before 11th May, 1992 the management was unaware of the
short fall of arrears worth Rs.1253 crores, as claimed by the appellant bank,
the strictures passed and the observations made against the appellant bank by
the Special Court were eminently justified.
Hiten Dalal in C.A. No. 1878 of 1999 has
impugned the decision of the Special Court upholding the appellant banks claim
for losses/deficiencies to the extent of Rs.280.80 crores. The decision of the
Special Court in this regard has already been approved by us herein above and
nothing more need to be said about this. One other contention which requires
consideration relates to the awarding of the costs of Rs.30 lacs by the Special
Court against Hiten Dalal. Arguing the appeal on behalf of Hiten Dalal, Mr.
Ganesh contended that he has serious objection to the award of the huge costs
of Rs.30 lacs to Standard and Chartered Bank. He contended that it was the
Standard and Charted Bank which has led evidence for all along 33 days, the
Special Court has given special findings that except for PW-4 the other
witnesses of the bank had lied or prevaricated and in respect thereto severe
strictures had been passed. As many as 11 claims put up by the appellant bank
had been rejected by the Special Court and that the Special Court had also
found that the appellant bank had constantly shifted their stand. It was
contended that the award of costs of Rs.30 lacs was grossly excessive and Hiten
Dalal should not have been directed to pay this amount.
The Special Court observed that it did not
doubt that the appellant bank had incurred costs of over Rs.2 crores.
It then held that this was not a fit case
where actual costs should be awarded but it restricted the costs to Rs.30 lacs.
This represents 15 per cent of the costs
actually incurred by the appellant bank. It is to be noted that the plea of
Dalal was that securities had been taken away from him by the appellant banks
officers by force and coercion. The appellant bank had, therefore, to lead
evidence to disprove this case and to prove the circumstances under which the
letter dated 11th May, 1992 Ex. G was executed. The appellant banks claim of
loss of about Rs.280 crores has been upheld and this being so the decision of
the Special Court awarding costs of Rs.30 lacs cannot in any way be findings as
incorrect. As a consequence of the aforesaid discussions and findings it
1] In Civil Appeal No.762 of 1999, filed by
the Standard Chartered Bank and Another:
a) The decision of the Special Court holding
that the appellants had been able to prove loss to the extent of Rs.280.80
crores is affirmed.
b) Bonus shares, dividend and interest were
accretions to the pledged stock and have to be regarded as forming part of the
pledged property which could not be ordered to be handed over unless redemption
c) We hold that the letter dated 11th May,
1992, addressed by Hiten P. Dalal to the appellants created a pledge in their
favour not only of the shares and debentures worth Rs.105 crores, particulars
of which were given in the said letter, but also on the bonus shares, dividend
and interest accrued on the said pledged shares and debentures.
d) In reduction of Dalals liability to the
appellants, they are entitled to sell the original shares, rights shares and
the bonus shares and also to retain the dividend and interest accrued on the
e) Cantriple Units referred to in the letter
dated 11th May, 1992 representing transaction value of Rs.205 crores shall be
returned to the custodian and his retention would be subject to the out come of
the other proceedings including Miscellaneous Application No. 36 of 1993 and
the appellants and other parties would be entitled to try and establish their
rival claims to the said units.
f) The observations made by the Special Court
with regard to the conduct of the appellants and their employees do not call
for any interference.
g) The award of costs by the Special Court
for Rs.30 lacs against Hiten P. Dalal is affirmed.
2] Appeal No.762 of 1999 is partly allowed to
the extent indicated above.
3] Appeal No.1878 of 1999, filed by Hiten P.
Dalal, stands dismissed.
Parties to bear their own costs.