Unauthorized Adjustments not valid - Defendant No. 1, the Hongkong & Shanghai Banking Corporation Ltd., a Company incorporated under the laws of Hong Kong, aggrieved by the judgment and decree dated 30th of June, 2004 passed by the Special Court (Trial of Offences relating to Transaction in Securities), Bombay in Suit No. 11 of 2002 decreeing the plaintiff’s suit for a sum of Rs. 18,59,71,808.22/- along with interest at the rate of 15% has preferred this appeal.= Plaintiff Canbank Financial Services Ltd., respondent no. 1 herein filed the suit seeking a decree directing defendant no. 1 to pay to the plaintiff a sum of Rs.33,13,42,781.62/- with further interest thereon at the rate of 24% per annum compounded quarterly from the date of the suit till realization. It is the assertion of the plaintiff that defendant no. 1 was not justified in adjusting the amount paid by the plaintiff for purchase of bonds towards transactions between defendant no. 1 and Canbank Mutual Fund. The plaintiff has alleged that the transaction between defendant no. 1 and Canbank Mutual Fund are totally unconnected with the transaction between plaintiff and defendant no. 1. Whether Defendant prove that the said pay order for Rs. 18,59,71,808.22 was issued by Plaintiffs on behalf of CMF as alleged in para 8 of Written Statement?” whether defendant no. 1 has established that the payment that was made by the plaintiff to it on 24th of June, 1991 was on behalf of the Canbank Mutual Fund? - It is the specific case of defendant no. 1 that the broker informed it that the plaintiff has made payment on behalf of Canbank Mutual Fund. However, the letter dated 25th of February, 1993 of the broker to defendant no. 1 shows that on 24th of June, 1991 the Coal India bonds were sold by defendant no. 1 to the plaintiff and not to Canbank Mutual Fund. From the aforesaid it is evident that defendant no. 1 has not been able to prove that payment was made by the plaintiff on behalf of Canbank Mutual Fund. The natural corollary thereof is that the payment was made by the plaintiff to defendant no. 1 to purchase the bonds. It is not the case of defendant no. 1 that it had delivered the bonds to the plaintiff. Therefore, we are in agreement with the reasoning and the conclusions arrived at by the trial court and find no reason to interfere with the same.

                        published in     http://judis.nic.in/supremecourt/imgst.aspx?filename=40557                               

  NON-REPORTABLE




                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION


                        CIVIL APPEAL NO.5281 OF 2004






         HONGKONG & SHANGHAI BANKING CORPN. LTD.    APPELLANT


                                   VERSUS


         CANBANK FINANCIAL SERVICES LTD. & ANR.   RESPONDENTS




                                  JUDGMENT




         CHANDRAMAULI KR. PRASAD,J.





                  Defendant  No.  1,  the  Hongkong  &   Shanghai   Banking
         Corporation Ltd., a Company incorporated under the  laws  of  Hong
         Kong, aggrieved by the judgment and decree  dated  30th  of  June,
         2004 passed by the Special Court (Trial of  Offences  relating  to
         Transaction  in  Securities),  Bombay  in  Suit  No.  11  of  2002
         decreeing the plaintiff’s suit for a sum of Rs.  18,59,71,808.22/-
         along with interest at the rate of 15% has preferred this appeal.


                 Plaintiff Canbank Financial Services Ltd., respondent no. 1
         herein filed the suit seeking a decree directing defendant  no.  1
         to pay to the plaintiff a sum of Rs.33,13,42,781.62/- with further
         interest thereon at the rate of 24% per annum compounded quarterly
         from the date of the suit  till  realization.  
According  to  the
         plaintiff, it is a Company incorporated under  the  Companies  Act
         and a subsidiary of Canara Bank.  Plaintiff has averred that it is
         engaged in the business  of  providing  financial  and  management
         consultancy services and trading in Government and  public  sector
         securities and bonds.
In course of business  the  plaintiff  buys
         and sells Government and public sector  bonds  and  securities  in
         accordance with the guidelines issued from time  to  time  by  the
         Reserve Bank of India.
The plaintiff’s case is that  on  24th  of
         June, 1991, it purchased from defendant no. 1,  through  a  broker
         M/s. Naresh K. Aggarwala, Coal India bonds of the  face  value  of
         Rs. 18 crores.
The broker issued a  contract  note  of  the  same
         date.
The plaintiff, in order to obtain from bank a pay order  in
         favour of the seller, gave a cheque in favour of  the  said  bank.
         Accordingly,  the  Canara  Bank  issued  a  pay  order   favouring
         defendant no. 1, for a  sum  of  Rs.  18,59,71,808/-  specifically
         mentioning that the pay order  is  on  account  of  the  plaintiff
         Canbank Financial Services Ltd.
The plaintiff’s case  further  is
         that during the reconciliation of the  securities  account  in  or
         about September, 1994, the plaintiff found  that  the  Coal  India
         bonds purchased by it from defendant no. 1 on 24th of  June,  1991
         have not been received by them.  Accordingly,  plaintiff  wrote  a
         letter dated 1st of October, 1992 to defendant no. 1 for  delivery
         of the bonds or to refund the amount paid by it.  According to the
         plaintiff,  defendant  no.  1  acknowledged  the  receipt  of  the
         aforesaid amount by Canara Bank pay order but asserted that it was
         for settlement of Canbank Mutual Fund bank receipt No. 2214 issued
         by them in its favour on 8th of May, 1991.
It is the assertion of
         the plaintiff that defendant no. 1 was not justified in  adjusting
         the amount paid by the plaintiff for  purchase  of  bonds  towards
         transactions between defendant no. 1 and Canbank Mutual Fund.
The
         plaintiff has alleged that the transaction between   defendant no.
         1 and  Canbank  Mutual  Fund  are  totally  unconnected  with  the
         transaction between plaintiff and defendant no. 1.


                 On the aforesaid pleadings, the plaintiff  filed  the  suit
         seeking the relief aforesaid on its assertion that the  action  of
         defendant no. 1 by adjusting the  amount  paid  by  the  plaintiff
         towards payment allegedly due to  defendant  no.  1  from  Canbank
         Mutual Fund is totally unauthorized.


                 The defendant no. 1 contested the suit and its plea in  the
         written statement is that on 8th of May, 1991,  through  a  broker
         M/s. Naresh K. Aggarwala, defendant no.  1  purchased  Coal  India
         bonds of the face value of Rs.18 crores from Canbank  Mutual  Fund
         and paid to it an amount of Rs.18,05,64,657.53/-.  Defendant no. 1
         received from Canbank Mutual Fund bank receipt No. 2214  promising
         to deliver securities purchased by the plaintiff from the  Canbank
         Mutual Fund.  The plea of defendant no. 1 further is that on  24th
         of June, 1991 it sold the same securities to Canbank  Mutual  Fund
         and in consideration, received a cheque from Canara Bank  for  Rs.
         18,59,71,808.22/-, which  is  the  principal  trustee  of  Canbank
         Mutual Fund. Further plea of defendant no. 1 is  that  along  with
         the pay order   defendant no.  1  did  not  receive  any  covering
         letter.  Defendant no. 1 has further averred that after  receiving
         the pay order, acting on instructions received from the broker, it
         handed over the  bank  receipt  to  the  said  broker  for  onward
         delivery to the Canbank Mutual Fund.  It is claimed  by  defendant
         no. 1 that for transaction dated 24th of June, 1991 the broker has
         issued a contract note to   defendant no. 1 who  by  letter  dated
         30th of October, 1992 confirmed that  he  had  received  the  bank
         receipt No. 2214 issued by Canbank Mutual  Fund  from    defendant
         no. 1 and  handed  over  that  receipt  to  Canbank  Mutual  Fund.
         Although defendant no. 1 admits that broker had informed him  that
         the pay order dated 24th of June, 1991 was issued  on  account  of
         plaintiff, the said payment had been  made  by  it  with  a  clear
         understanding  and  arrangement  between  the  plaintiff  and  the
         Canbank Mutual Fund that the bonds would be delivered  by  Canbank
         Mutual Fund to the plaintiff on account of the money  having  been
         paid by the plaintiff to said defendant.  Therefore, according  to
         defendant no. 1, the liability to deliver the  securities  to  the
         plaintiff is that of Canbank Mutual Fund and not of defendant  no.
         1.  It  is  the  case  of  defendant  no.  1  that  there  was  no
         transaction  between  it  and    plaintiff  for  purchase  of  any
         securities on 24th of June, 1991.


                 On the basis of the pleadings  the  trial  court  framed  a
         large number of issues including the following issue with which we
         are concerned in the present appeal:


                      “3) Whether Defendant prove that the  said  pay  order
                      for Rs. 18,59,71,808.22 was issued  by  Plaintiffs  on
                      behalf  of  CMF  as  alleged  in  para  8  of  Written
                      Statement?”




                 On the basis of the pleadings and the evidence,  the  trial
         court recorded a finding that the plaintiff  has  proved  that  on
         24th of June, 1991 it had bought the securities through the broker
         Naresh K. Aggarwala.  The trial court also recorded a finding that
         the payment was made by the plaintiff to defendant no.  1  of  the
         purchase price relying on the pay order which  shows  that  Canara
         Bank issued the pay order on account of the plaintiff.  All  these
         findings are based on material on record and,  in  fact,  can  not
         legitimately be questioned.  The main defence of   defendant no. 1
         is that there was understanding between the plaintiff and  Canbank
         Mutual Fund and, in fact, the  payment  was  made  to  it  by  the
         plaintiff on behalf of the Canbank Mutual Fund.   Thus,  defendant
         no. 1 accepts receipt of the payment by a pay order on account  of
         the plaintiff.  However, its assertion is  that  the  payment  was
         made to it by the plaintiff on behalf of the Canbank Mutual  Fund.
         In view of this assertion,  the  only  question  which  falls  for
         consideration is as to
whether defendant  no.  1  has  established
         that the payment that was made by the plaintiff to it on  24th  of
         June, 1991 was on behalf of the Canbank Mutual Fund?


                 Mr. C.A. Sundaram, Senior Counsel appearing  on  behalf  of
         defendant no. 1-appellant submits that on 24th of June, 1991,  the
         appellant received the payment and the broker informed it that the
         payment had been made by the plaintiff on behalf of Canbank Mutual
         Fund.  Once this is established, the case of the  plaintiff  would
         fail.  Ms.  Sunita  Dutt,  Counsel  appearing  on  behalf  Canbank
         Financial Services  Ltd.,  plaintiff-respondent  no.  1,  however,
         submits that it is a separate legal entity  so  also  the  Canbank
         Mutual Fund and it is established that as the amount was  paid  by
         the plaintiff for purchase of the securities, defendant no. 1  was
         obliged to deliver the securities or to refund the amount  to  the
         plaintiff.


                   We  have  bestowed  our  consideration   to   the   rival
           submission and we do not find any substance in the submission of
           Mr. Sundaram.
 It is the specific case of defendant no.  1  that
           the broker informed it that the plaintiff has  made  payment  on
           behalf of Canbank Mutual Fund.  
However, the letter  dated  25th
           of February, 1993 of the broker to defendant no. 1 shows that on
           24th of June, 1991 the Coal India bonds were sold by   defendant
           no. 1 to the plaintiff  and not to Canbank  Mutual  Fund.   
From
           the aforesaid it is evident that defendant no. 1  has  not  been
           able to prove that payment was made by the plaintiff  on  behalf
           of Canbank Mutual Fund.  
The natural corollary thereof  is  that
           the payment was made by the plaintiff  to  defendant  no.  1  to
           purchase the bonds.  
It is not the case of defendant no. 1  that
           it had delivered the bonds to the plaintiff.  
Therefore, we  are
           in agreement with the reasoning and the conclusions  arrived  at
           by the trial court and find no  reason  to  interfere  with  the
           same.


                   In the result, we do not find any merit in the appeal and
           it is dismissed accordingly, but without any order as to costs.








                                                  ………………………………………………………………J.
                                                   (CHANDRAMAULI KR. PRASAD)




                                                   ………..……….………………………………..J.
                                             (V.GOPALA GOWDA)




         NEW DELHI,
         JULY 15, 2013.



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