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Saturday, August 3, 2013

APEX COURT UPHELD THAT THE SUIT FILED BY NATIONAL HOUSING BANK UNDER SPECIAL ACT ENACTED FOR PURPOSE OF HARSHAD S. MEHTA , IS ONLY AN EYE WASH =The entire scandal and the present litigation revolves around the second defendant (since deceased) - one Harshad S. Mehta (a notified person under Section 3(2) of the Act). The scandal exposes the shortcomings and loopholes in the administration of banking sector of this country, more particularly, the State-owned/controlled banks. 6. The National Housing Bank (hereinafter referred to as the ‘Plaintiff’) a statutory Corporation created by an Act of Parliament (Act No. 53 of 1987) filed two suits, one invoking the original jurisdiction of Bombay High Court (Suit No. 211 of 1995) and another before the Special Court established under the Act No. 27 of 1992 being Suit No. 2 of 1995. The said suits came to be filed against (i) the State Bank of Saurashtra which at that point of time was a subsidiary bank of the State Bank of India but later got amalgamated with the State Bank of India, (ii) Harshad S. Mehta, (iii) two of the employees of the plaintiff bank and (iv) the Custodian appointed under Section 3(1) of the Act 27 of 1992.= No oral evidence from plaintiff side except filing some documents - At the time when these documents were being tendered it was clarified to all parties that mere tendering of documents would only establish that there was in existence such a document and that it stated what is stated. It was clarified that the contents of the documents would not be deemed to have been proved. It was clarified that any party who wanted to prove the truth of the contents had to do so by positive evidence. As stated above, except for 2nd Defendant, no other party has led any oral evidence.”; Janakiraman Committee Report - not admissible = The Special Court Act though declares that the Court is not bound by the Code of Civil Procedure, it does not relieve the Special Court from the obligation to follow the Evidence Act. Further, the learned Judge extensively relied upon the second interim report of the Jankiraman Committee[11] on the ground that the same was tendered[12] by the 1st defendant. 51. Irrespective of the fact whether such a report is admissible in evidence or not, = It is well settled by a long line of judicial authority that the findings of even a statutory Commission appointed under the Commissions of Inquiry Act, 1952 are not enforceable proprio vigore as held in Ram Krishna Dalmia v. Justice S.R. Tendolkar and Others [AIR 1958 SC 538] and the statements made before such Commission are expressly made inadmissible in any subsequent proceedings civil or criminal. In our considered view the report of Janakiraman Committee is not evidence within the meaning of Evidence Act; There is absolutely no evidence on record regarding the payment of the above mentioned amount of Rs.55 crores (approx.) by the plaintiff-Bank to the Standard Chartered Bank except the Janakiraman Committee Report and the correspondence which is neither proved nor the content of the correspondence is explained. On the other hand, the Special Court recorded[17] with respect to the payment of Rs.55 crores (approx.) to the Standard Chartered Bank by the plaintiff – “In the plaintiff’s record there is no clear indication as to for what transaction this cheque had been issued. The plaintiffs were, therefore, not sure for what this cheque had been issued.” 62. In the background of the above discussed pleadings and evidence, we are of the opinion the suit is required to be dismissed on the ground that there is no evidence led by the plaintiff to establish its case. ; suppression of material facts = We must also record our disapproval of the finding recorded by the Special Court that the plaintiff did not suppress the truth. We are of the opinion that the plaintiff approached the Special Court with unclean hands by suppressing the relevant material. We shall first discuss the nature of the suppression and then examine the legal consequences that should follow.= The whole attempt of both the banks is to shield the officers on either side taking refuge under attractive legal pleas – which if examined in the context of the limited facts pleaded give a picture that the suit transaction is an innocuous transaction which unfortunately for the country is not. In our opinion the suit is a sheer abuse of the legal process.= both the plaintiff and respondent Banks simply reiterated their respective stands before the Committee of Secretaries. No attempt appears to have been made by the Government to find out the truth as to (1) how the plaintiff Bank parted with a high denomination cheque and gave custody of the same to Harshad Mehta and (2) as to how the first defendant Bank paid the various amounts to the dictation of Harshad Mehta in the absence of any authorisation by the plaintiff Bank. Be that as it may, if really the Government believed that the judgment of the Special Court does not require any interference, nothing stopped the Government from directing both the Banks to withdraw their appeals before this Court. 74. The whole exercise appears to be an eye wash. A thinly veiled scorn for the orders of this Court.= The professed purpose of the Special Courts Act - the back drop of the scandal that shook the nation - and the manner in which the litigation was conducted coupled with the absolute indifference of the Government to get at the truth only demonstrates the duplicity with which Governments can act. 76. We dismiss the suit and set aside the decree in toto. The consequences follow insofar as the appeals are concerned. But in the circumstances, we do not award any costs.

                                   published in     http://judis.nic.in/supremecourt/imgst.aspx?filename=40614 
                          Reportable


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 2155 OF 1999

State Bank of India Thr. General Manager   …Appellant

                       Versus

National Housing Bank & Ors.               …Respondents

                             WITH
                        CIVIL APPEAL NO. 2294 OF 1999
                        CIVIL APPEAL NO. 3647 OF 1999




                               J U D G M E N T

Chelameswar, J.

1.    These statutory appeals are filed under  Section  10  of  the  Special
Court (Trial of Offences Relating to Transactions in Securities) Act  27  of
1992 (hereinafter referred to as ‘the   Special  Court  Act’).  
An  appeal
both on questions of fact and law under  the  above-mentioned  provision  is
provided directly to this Court from  any  “judgment,  decree,  sentence  or
order” of a  Special  Court  established  under  Section  5  of  the  above-
mentioned Act.

2.    The Special Court Act was made in the aftermath of a  scandal  in  the
stock market in the year 1991-1992  when  “large  scale  irregularities  and
malpractices were noticed in  both  the  Government  and  other  securities,
indulged in by some brokers in  collusion  with  the  employees  of  various
banks and financial institutions”.[1]

3.    Under Section 3(2)[2] of the said Act, the Custodian appointed by  the
Government of India, 
if satisfied that  any  person  was  involved  in  “any
offence relating to transactions in securities” during  the  period  falling
between 01.04.1991 to 06.06.1992 is empowered to notify  the  name  of  such
person  in  the  official  gazette.     
Upon  such  notification,  all   the
properties whether movable or immovable belonging to any person so  notified
stand attached.
The custodian  is  required  to  deal  with  such  attached
properties in such manner as the Special Court may direct.
The Act  further
authorises the Government of India  to  establish  a  Special  Court  to  be
presided over by a sitting Judge of a High Court  to  be  nominated  by  the
Chief  Justice  of  the  High  Court  within  the  local  limits  of   whose
jurisdiction the Special Court is to be  located.
The  concurrence  of  the
Chief Justice of India is required to be obtained for such nomination  of  a
sitting Judge of the High Court.

4.    The Special Court is invested  with  jurisdiction  both  criminal  and
civil to deal with the offences committed by the notified persons  and  also
with the properties and transactions  in  securities  in  which  a  notified
person is involved and any matter or claim arising  therefrom.   
 An  appeal
to this Court, is provided from the judgment, decree, sentence or  order  of
such Special Court.

5.    The entire scandal and the  present  litigation  revolves  around  the second defendant (since deceased) - one Harshad S. Mehta (a notified  person under Section 3(2) of the Act).   

The scandal exposes the  shortcomings  and
loopholes in the administration of banking  sector  of  this  country,  more particularly, the State-owned/controlled banks.

6.     The  National  Housing  Bank  (hereinafter   referred   to   as   the
‘Plaintiff’) a statutory Corporation created by an Act  of  Parliament  (Act
No. 53 of 1987) filed  two suits, 
one invoking the original  jurisdiction  of
Bombay High Court (Suit No. 211 of 1995)  
and  
another  before  the  Special Court established under the Act No. 27 of 1992  being Suit No.  2  of  1995.
The said suits came to be filed
against 
(i) the  State  Bank  of  Saurashtra
which at that point of time was a subsidiary  bank  of  the  State  Bank  of India but later got amalgamated with the State Bank of India,  
(ii)  Harshad S. Mehta, 
(iii) two of the employees of the  plaintiff  bank  
and  
(iv)  the Custodian appointed under Section 3(1) of the Act 27 of 1992.


7.    It appears that the relief sought in both  the  above-mentioned  suits
is substantially the same i.e. the  recovery  of  an  amount  of  Rs.  95.39
crores with interest.   By an Order dated  17th  April,  1995,  the  Special
Court directed the plaintiff bank to elect one of the two fora for  pursuing
its litigation.

8.    “Aggrieved” by the said direction, the plaintiff bank approached  this
Court.  This Court directed  that  both  the  suits  be  placed  before  the
learned Judge who had been nominated to be  the  Judge  presiding  over  the
Special Court (Hon. Justice Variava of Bombay High Court,  as  His  Lordship
then  was)  for  disposal  in  accordance  with   law.     Consequently,   a
preliminary  question  regarding  the  forum  which  had   jurisdiction   to
adjudicate the dispute which is the subject matter of the two suits came  to
be considered by Hon. Justice Variava.
 By an  order  dated  3rd  February,
1996, the learned Judge held that in view of  the  language  of  Section  9-
A(1)(b) of the Special Court Act, it is the Special Court  alone  which  had
the jurisdiction to adjudicate the dispute as the dispute centres around   a
claim arising out of a transaction in which  a  person  notified  under  the
Special Court Act is involved.  
The above-mentioned Suit  no.  211  of  1995
came to be dismissed.

9.    Subsequently, the plaintiff bank moved an  application  to  amend  the pleadings in Suit No. 2 of 1995.   The said application was  allowed  by  an order of the Special Court dated 16th October, 1996.    The  frame  of  Suit
No. 2 of 1995 and the nature of the amendment made will be  discussed  later
in this judgment.

10.   In view of the amendment in the plaint, the 1st  defendant  bank  once
again raised a preliminary issue regarding the maintainability of  the  suit
before the Special  Court.   The  Special  Court  rejected  the  preliminary
objection by its order dated 22nd November, 1999.   Aggrieved by  the  same,
the 1st defendant Bank carried Civil Appeal No. 2294 of 1999 to this  Court.


11.   During the pendency of the said appeal, Suit  No.  2  of  1995  itself
came to be disposed off on 24th February, 1999.  
Challenging  that  part  of
the decree[3] which was against  it,  the  1st  defendant  Bank  once  again
carried Civil Appeal No. 2155 of 1999 to  this  Court.   
Aggrieved  by  that
part of the decree of the Special Court wherein the Special  Court  directed
the plaintiff to deliver certain amounts to the Custodian[4], 
the  plaintiff bank filed Civil Appeal no. 3647 of 1999.

12.   The prayer in Suit No. 2 of 1995 is as follows:-
        “(a) that the 1st Defendant be ordered and decreed
to  pay  to  the
        Plaintiff a sum of  Rs.  164,11,61,079.59  as  per  particulars  at
        Exhibit ‘B’ hereto with further interest thereon at the rate of 24%
        per annum from the date hereof till payment and/or realisation.


        (b) In the alternative to prayer (a) above the Defendant Nos. 1  to
        4 or any one or more of them be ordered and decreed 
to pay  to  the
        Plaintiff jointly and/or severally a sum of Rs. 164,11,61,079.59 p.
        as per particulars at Exhibit ‘B’  hereto  together  with  interest
        thereon at the rate of 24% per annum  from  the  date  hereof  till
        payment and/or realisation.


        (c) For costs; and


        (d)  For  such  further  and  other  reliefs  as  the  nature   and
        circumstances of the case may require;”

13.   According to the facts pleaded in the  amended  plaint,
the  National
Housing Bank drew a cheque on 3rd January, 1992 for an amount of  Rs.  95.39 crores approximately on the Reserve Bank of India in  favour  of  the  State Bank of Saurashtra.   

Towards the end of April, 1992, 
“the  Plaintiff  found
that, while  its  records  indicated  that  certain  transactions  had  been entered into and were  still  outstanding,  it  did  not  possess  any  Bank Receipts (hereinafter referred to as ‘B.R.’) or supporting documents or  any securities in respect of such transactions.   
On the  basis  of  information
gathered it was thought that the said transaction was outstanding  and  that the 1st Defendant had not delivered the related securities or any  B.R.  for the  same.    
The  Plaintiff,  therefore,  addressed  letters  to  the   1st
Defendant drawing its attention  to  the  said  fact  and  request  the  1st Defendant for  delivery  of  B.R./Securities  or  for  return  of  the  said amount”.

14.    A  blissfully  vague  statement   regarding   the   nature   of   the
“transaction”.


15.   Long  correspondence  ensued  between  the  plaintiff  and  the  first
defendant bank.
The first  defendant  bank  denied  the  existence  of  any
“outstanding transaction” between the two and its liability to issue  either a B.R. or deliver any securities or refund of the amount as claimed  by  the plaintiff  bank.    
The  substance  of  the  correspondence  of  the   first
defendant bank as narrated in the  plaint  is
the  1st  Defendant  further
stated that the amount of the cheque received by it  had  been  for  and  on account and for the benefit  of  the  2nd  Defendant.    
The  1st  Defendant
further stated that its action of crediting the proceeds of the said  cheque to  the  account  of  the  2nd  Defendant  was  justified   by  a certain market/banking practice.   
The 1st Defendant also stated that solely on  the
basis of instructions of the 2nd Defendant against the said  cheque  of  the Plaintiff it issued cheque on behalf of  the  2nd  Defendant  in  favour  of certain third parties.”
16.   The unamended plaint[5] 
contained assertions that the  plaintiff  Bank
drew the cheque in issue for the purpose of acquiring 9% IRFC Bonds of  face value of Rs.100 crores, the  same  was  omitted  by  the  amendment  of  the plaint.
However, vague references continued even in the amended  plaint  to a transaction pertaining to the sale of 9% IRFC Bonds.

17. The plaintiff based his prayers
 “on grounds which are  set  out  in  the
alternative and without prejudice to  each  other’”.
The  grounds  of  the plaintiff are:-
   
1. As there was no transaction  between  the  plaintiff  and  the  1st defendant
the 1st defendant was bound to hold the  money  realised by encashing the cheque in question until further instructions were issued by the plaintiff bank, 
but should not have paid the proceeds of the cheque on the directions of the 2nd  defendant.   
Therefore,
 the 1st defendant is “liable for conversion of the cheque.” 
 In the same breath the plaintiff also added “in  any  case  is  liable  to repay the amount on the basis of moneys had  and  received  without any consideration”.
    
 2. The second ground on which the plaintiff  based  his  case 
 in  the alternative  is  “conspiracy,  collusion  and  fraud  between   the defendant Nos. 1 to 4” thereby causing loss to the plaintiff bank.


18.   On the other hand, the first defendant bank in its  written  statement
took a categorical stand that
 the records of the bank  did  not  show  
“that the cheque in dispute was issued in respect  of  any  alleged  sale  by  the first defendant to the plaintiff of 9% IRFC Bonds of face value of  Rs.  100 crores”,
but went on to say that the said cheque was issued for the  benefit
of the second defendant  Harshad  S.  Mehta,  through  whose  employee,  the cheque was delivered to the first  defendant  bank.    
The  first  defendant
also took a stand that the cheque  was  delivered  to  the  first  defendant under a covering  letter  dated  3rd  January,  1992  of  Harshad  S.  Mehta containing instructions to the first defendant to make certain  payments  as detailed in the letter.[6]

19.   The second defendant Harshad  S.  Mehta  filed  a  written  statement.
According to him,  the  entire  transaction  in  question  occurred  in  the
following manner:-
          “…(a)   This Defendant states  that  
on  3rd  January,  1992, 
 the Plaintiffs undertook a set of two transactions in  respect  of  9% IRFC Bonds with a view to make an assured profit,  without  outlay of any funds of the Plaintiffs, of 4 paise per face value  of  Rs. 100/- i.e. Rs. 4 lacs.   
Accordingly, 
the Plaintiffs purchased  9% Tax-free Indian Railways Finance Corporation (IRFC) Bonds  of  the face value of Rs. 100 crores @ Rs. 93.08 and delivered  the  same, under  instructions  of  this  Defendant,  to   Canfina.      
This Defendant states  that  accordingly  
the  Plaintiffs  delivered  a Banker’s Receipt to Canfina and received a Banker’s  Receipt  from Defendant No. 1. 
This Defendant says that the terms  of  the  said transaction have been duly recorded in the  computerised  data  of this Defendant and a copy of the said  data  seized  by  the  I.T. Department is also available with the Office of Defendant  No.  5.
          This Defendant craves leave to refer to and rely upon the same  as and when produced.


          (b)  This Defendant further states that 
the sale of 9% IRFC  Bonds of the face value of Rs. 100 cores  by  Defendant  No.  1  to  the Plaintiffs as stated hereinabove was on behalf of  this  Defendant under the routing  facility  offered  by  Defendant  No.  1  as  a customer to this Defendant.   
The sale proceeds of the above bonds under the routing facility was, therefore, received  by  Defendant No. 1 from the Plaintiffs and were credited into its  own  account maintained by it with the Reserve Bank of India.   
Thereafter, the
 sale proceeds, as were due to this  Defendant,  were  credited  to
 this Defendant’s current account maintained with Defendant No. 1.


       9. This Defendant further states  that  sometime  thereafter  in  the
          month of March, 1992, before the interest payment date fell due on
          1st  April,  1992,  this  Defendant  initiated  the   process   of
          liquidating the outstanding banker’s receipts issued by  both  the
          Plaintiffs and Defendant No.  1.  
This  Defendant  arranged  for
          physical delivery of 9% Tax-free IRFC Bonds of a face value of Rs.
          100 crores directly to Canfina and instructed  Canfina  to  tender
          the discharged banker’s receipt to the Plaintiffs  to  enable  the
          Plaintiffs to return the duly discharged banker’s  receipt  issued
          by Defendant No. 1.
 this Defendant states that
 it is an admitted position
that 
Canfina has received delivery of 9% IRFC Bonds of  a face value of Rs. 100 crores 
and 
it is also an  admitted  position
that 
the said Canfina has discharged the Plaintiffs from all their liabilities under the banker’s receipt issued by the Plaintiffs.


      10. This Defendant says and submits that
the above 9%  IRFC  Bonds  of the face value of Rs. 100 crores covered  under  banker’s  receipt issued by  Defendant  No.  1  would  now  constitute  an  attached property of this Defendant together with all the accruals thereon.
            This Defendant, therefore, submits that
the Plaintiffs should be
called upon to surrender the said 9% IRFC Bonds of a face value of Rs. 100 cores together with accrued tax free benefits and interest
on the same to Defendant No. 5 on behalf  of  this  Defendant  and
          accordingly this suit be dismissed with costs.”




20.   The Special Court framed a large number of issues arising between  the
plaintiffs and each of the defendants.
The suit  is  decreed  only  against the first defendant Bank with a further direction to the plaintiff  to  make payment of certain amount to the second/fifth defendant.

21.   The Special Court in the judgment under appeal  clearly  rejected  the
case of the plaintiff based on the principle  of  money  had  and  received.
The Special Court held as follows:-
       “Thus on that ground, it will have to be held  that  the  claim  for money had and received would not be maintainable” (Para 77)




22.   Coming to the allegations of conspiracy, collusion and fraud, at  para
92  of  the  judgment,  the  Special  Court  recorded  
“…it  is   absolutely unnecessary to decide the alternate case whether there has  been  any  fraud or not”.

      It also recorded:-

       “On the case of fraud, no party  has  led  any  oral  evidence,  the burden of proving fraud always lies on the party  who  alleges  it.”
       (Para 92)



23.   The Special Court also  recorded  that  the  only  piece  of  evidence relied upon on the plea of fraud is the Second  Report  of  the  Janakiraman Committee, but opined that the Report would not be sufficient to  foist  any liability on individuals. (para 98).


      On the other hand, the Special Court held:-

       “Having received, encashed plaintiff’s cheque  without  there  being any transaction, 
the first defendant is now  liable  to  refund  the money 
on the basis of conversion, fiduciary  obligation  and  moneys paid without intending to do so gratuitously.” (para 84)



24.   It can be seen from the judgment under appeal that some of the  issues were not pressed  even  before  the  Special  Court.  
The  issue  regarding
suppression of material facts by the plaintiffs is common with reference  to
both the defendants.  However, issues Nos. 4 to 6 between the plaintiff  and
the 1st defendant and issues Nos. 6 and 7 between the plaintiff and the  2nd
defendant imply (though inelegantly) that there was a  sale  transaction  of
the IRFC bonds of face value of Rs.100 crores between  the  plaintiff  which
the 1st defendant Bank routed through the 2nd defendant.   In  view  of  the
specific assertion of defendants  1,  2  and  5  and  particularly  the  2nd
defendant in his written statement  that  the  plaintiff  entered  into  two
transactions on 03 January 1992 – one for the purchase  and  the  other  for
the sale of 9% IRFC Bonds and that the 1st  defendant  also  issued  a  B.R.
(obviously for the value of the cheque in issue) in favour of the  plaintiff
bank and the further assertion of the 2nd defendant that  he  “arranged  for
physical delivery of 9% IRFC bonds” to CANFINA  and  instructed  CANFINA  to
return the duly discharged B.R. issued by the plaintiff  bank  in  order  to
enable the plaintiff to discharge the  B.R.  allegedly  issued  by  the  1st
defendant bank –
in our opinion, a more specific issue
whether there  were
two transactions as alleged by the 2nd defendant 
and also 
whether  the  1st defendant also issued a B.R. for  the  value  of the  cheque  in  issue  as averred by the 2nd defendant, ought to have been framed.

25.   The  Special  Court  opined  that  the  plaintiff  had  disclosed  all
necessary facts in the plaint and was not guilty of suppression of  material
facts. 
A conclusion which in our opinion is wrong and  the  consequences  of suppression of material facts require a further scrutiny at  a  later  stage of this judgment.

26.   We have already noticed that
the decree under appeal is in two  parts.
The first part of the decree is in favour of the plaintiff 
and 
the  second
part virtually in favour of  the  second  defendant,  
though,  the  ultimate
direction in this regard is that the plaintiff should  pay  certain amounts to  the  fifth  defendant  who  is  the  statutory custodian  of  the   2nd defendant’s property under the Special Court Act.

27.    The  plaintiff  preferred  Civil  Appeal  No.  3647  of  1999  “being aggrieved by the judgment of the Special Court insofar as it :-

     A) directs the plaintiff (NHB) to hand over Rs. 40.22  crores  to  the Custodian with interest thereon at 19% per annum from 30.3.92;
     B) directs the Plaintiff to pay costs of Rs. 10,000 to Defendants 3  & 4 on the basis that no case of fraud had been made out against them
     C) holds that the Plaintiff top management “were  aware  of  what  was  going on”.

28.   The 1st defendant also preferred an  appeal  being  Civil  Appeal  No. 2155  of  1999  aggrieved  by  the  decree  directing  the  payment  to  the plaintiff.

29.   Under the Code of Civil Procedure, 1908 (for short “the  Code”),  such a decree in favour of a defendant is permissible in a case  where  defendant either pleads a set off or makes  a  counter  claim  as  contemplated  under Order VIII of the Code.

30.   The procedure that is required to be followed in the cases of set  off
or counter claim is detailed under  Order  VIII  of  the  Code.  
From  the
record before us, it does not appear that the procedure  contemplated  under
Order VIII of the Code is followed in the instant case.  
However,  we  do
notice that under Section 9-A(4) of the Act, the Special Court is not  bound by the procedure  laid  down  by  the  Code  but  shall  be  guided  by  the principles of natural  justice  and  has  the  power  to  regulate  its  own procedure.[7]

31.    Under Section 9-A(1)  of  the  Act[8],  the  Special  Court  has  all
jurisdiction to adjudicate any matter or claim arising out of a  transaction
in securities entered into during the period specified in the  said  section
in which a notified person is involved in whatever capacity.  We  therefore,
proceed on the basis  that  the  Special  Court  is  authorised  by  law  to
adjudicate the claim of the second defendant without being shackled  by  the
procedural fetters imposed under the Code.

32.    In  exercise  of  such  jurisdiction,  the  Special  Court  partially
accepted the ‘counter claim’ made by the second defendant.    Which  counter
claim as already noticed from the written statement of the second  defendant
(relevant parts  already  extracted)  is  based  on  the  existence  of  two
transactions in securities that is (i) the sale and purchase of  IRFC  bonds
between the plaintiff and CANFINA (which is not a party to the  suit),  (ii)
between the plaintiff and the first  defendant  bank.     According  to  the
second defendant, both the transactions were routed through him.

33.   According to the second  defendant  under  the  first  of  the  above-
mentioned transactions, the plaintiff bank agreed to sell the IRFC bonds  to
CANFINA and  received  the  agreed  price  of  the  bonds  without  actually
delivering the bonds and issued a B.R. for the  amount  so  received.    The
further case of the second defendant is  that  he  got  delivered  the  IRFC
bonds to the satisfaction of CANFINA and on receipt of  such  bonds  CANFINA
returned the discharged  B.R.  of  the  plaintiff  bank.    
In  the  written
statement, the second defendant  does  not  dispute  the  assertion  of  the
plaintiff bank, that the second defendant ‘got  possession’  of  the  cheque
which is the subject matter of dispute in the suit.  
 It is also  worthwhile
noticing that the second defendant does not dispute (either in  his written statement or by way of any rejoinder to the written statement of  the  first defendant) the categoric stand taken by the first defendant that the  cheque in issue was in  fact  delivered  by  the second  defendant  to  the  first defendant with a covering letter dated 03.01.1992 (the content of which  has already been taken note of)  the terms of which were acted upon by  the  1st defendant.

34.   2nd Defendant further took a categoric stand at para 9 of the  written
statement;
           “9. …..This Defendant arranged for physical delivery of  9%  Tax-
          free IRFC Bonds of a face value of  Rs.  100  crores  directly  to
          Canfina and instructed Canfina to tender the  discharged  banker’s
          receipt to the Plaintiffs to enable the Plaintiffs to  return  the
          duly discharged banker’s receipt issued by Defendant No. 1.   this
          Defendant states that it is an admitted position that Canfina  has
          received delivery of 9% IRFC Bonds of a  face  value  of  Rs.  100
          crores and it is also an admitted position that the  said  Canfina
          has discharged the Plaintiffs from all their liabilities under the
          banker’s receipt issued by the Plaintiffs.
          ”


35.   Though not expressly stated, in  the  written  statement  but  it  was
argued that the cumulative effect of  all  the  above-mentioned  factors  is
that the 2nd defendant though appropriated the proceeds  of  the  cheque  in
issue, such an  appropriation  is  supported  by  consideration  –  i.e.  he
relieved the plaintiff bank of its obligation  to  deliver  the  IRFC  bonds
which it was obliged to deliver to CANFINA.  In  the  process  of  the  said
transaction, the plaintiff Bank made a profit of Rs.4 lakhs in one day.

36.   The first  defendant  also  in  his  written  statement  categorically
pleaded that there was a security transaction between the plaintiff and  the
CANFINA on 3rd January, 1992 (as alleged by  the  second  defendant  in  his
written statement) and in that context,  the  plaintiff  issued  a  B.R.  in
favour of CANFINA.   The first defendant  further  took  a  stand  that  the
second defendant discharged the  obligation  of  the  plaintiff  to  CANFINA
under the said BR by delivering the said IRFC Bonds to CANFINA[9]

37.   The fifth defendant, the custodian also  filed  a  written  statement.
It is recorded by the judgment under appeal at para 37 as follows:-
          “37.  The 5th Defendant i.e. the Custodian avers that he is filing
          the Written Statement only for the purpose of placing facts before
          the Court.   The 5th Defendant clarifies  that  the  facts  placed
          before the Court are on the basis of  the  correspondence  carried
          out by the Custodian with the Plaintiffs, Standard Chartered  Bank
          and Canfina.”



38.   The substance  of  the  fifth  defendant’s  written  statement[10]  as
culled out in the judgment under appeal in  paragraph  38  is  also  to  the
effect that there were two  transactions  in  securities  contended  by  the
second defendant on 3rd January, 1992 and also that  CANFINA  had  confirmed
by its letter  to  the  Custodian  stating  that  the  B.R.  issued  by  the
plaintiff was discharged on 31st March, 1993 and IRFC Bonds  of  face  value
of Rs. 100 crores were delivered by the second defendant on  behalf  of  the
plaintiffs.

39.   It is not clear  either  from  the  written  statement  of  the  fifth
defendant or from any other material on record, what was  the  occasion  for
correspondence between the custodian and the  various  parties  whether  the
statements made  to  the  custodian  by  various  parties  involved  in  the
transaction in the letters allegedly written by  them  contained  any  facts
relevant to the adjudication of the issues in the  suit,  and  whether  such
statements are evidence at all in the eye of law  and  if  those  statements
are evidence what is the probative value  of  such  evidence  are  questions
which are required to be decided if such documents are sought to be  proved.
 But we only note that the fifth defendant also pleaded that there were  two
transactions in securities as alleged by the first defendant and a B.R.  was
issued by the plaintiff in favour of the CANFINA  and the same was  returned
discharged to the plaintiff bank.

40.     It is on the basis of such pleadings of  the  parties,  the  Special
Court passed the decree which is the subject matter of  these  two  appeals,
though the plaintiff did not choose to adduce any  evidence  in  support  of
its pleadings.

41.         Apart from  the  problem  of  the  plaintiff  not  adducing  any
evidence, it is rather difficult to understand the process followed  by  the
Special Court to reach the conclusion that the plaintiff is entitled to  the
decree as prayed for and at the same time not entitled to retain the  entire
amount but should share a part of it with the 2nd defendant.

42.         Such conclusions are recorded on  the  basis  of  the  following
findings :-
     1. That the 1st defendant received the cheque in issue  without  there
        being any consideration for the same.
     2. There was a transaction between the plaintiff and CANFINA where the
        plaintiff agreed to sell IRFC Bonds of face value Rs.100 crores  to
        CANFINA  for  a  consideration  of  Rs.   95.43   crores   (appx.).
        Initially the plaintiff issued a B.R. in favour of CANFINA  without
        actually delivering the bonds though  the  plaintiff  received  the
        sale price of the bonds.
     3. The said B.R. was returned discharged by CANFINA to the plaintiff.
     4. Such discharge was a consequence of the receipt of the  IRFC  bonds
        of face value of Rs. 100 crores by CANFINA.
     5. The said  bonds  were  delivered  to  CANFINA  partly  by  the  2nd
        defendant and partly by the Standard Chartered Bank.

43.   We are, therefore, required to examine the factual correctness of  the
abovementioned five conclusions reached by  the  Special  Court.  The  first
conclusion is obviously based on the admission made by the 1st defendant  in
his written statement.  The content of para 8 of the  written  statement  of
the 1st defendant has already been taken note of wherein the  1st  defendant
admits receipt of the cheque in question through the 2nd defendant.   It  is
further specifically stated in para 8(d) of the  written  statement  of  the
1st defendant as follows:-
          “8(d)  On 3rd January, 1992 no amount was due and payable  by  the
          plaintiff to this defendant.  The proceeds of the said cheque were
          intended for the benefit of defendant No.2. The said  cheque  was,
          in fact, handed over by the plaintiff to defendant No.2.  The said
          cheque was  drawn  in  favour  of  this  defendant  to  facilitate
          defendant No.2 to obtain same day credit of the  proceeds  of  the
          said cheque.  Defendant No.2 was the intended beneficiary and real
          owner of the proceeds of the said cheque.”

44.    Insofar  as  the  remaining  four  conclusions  are  concerned,  such
findings can arise only out of the pleadings of the defendants 1  and  2  as
the plaintiff never made  any  reference  to  any  transaction  between  the
plaintiff  and  CANFINA.   However,  it  is  the  specific  defence  of  the
defendants 1 and 2 that there was another transaction on  the  3rd  January,
1992 whereunder the plaintiff agreed to  sell  IRFC   Bonds  of  face  value
Rs.100 crores to CANFINA and received the price of the  same  of  Rs.  95.43
crores (appx.) by a cheque  which  was  acknowledged  by  the  plaintiff  by
issuing a B.R.. The said receipt was  subsequently  returned  discharged  by
CANFINA on receipt of the abovementioned IRFC Bonds.  It is the case of  the
2nd defendant that the said bonds were  delivered  to  CANFINA  by  him  and
secured the discharge of  B.R.  given  by  the  plaintiff  to  CANFINA.   In
support of such a plea,
the 2nd defendant examined a witness.   The  witness
of the second defendant clearly spoke  to  the  fact  that  there  were  two
transactions in securities, i.e. the sale and  purchase  of  IRFC  Bonds  of
face value Rs. 100 crores (as  alleged  by  the  second  defendant)  on  3rd
January, 1992. whose evidence remains undisturbed as  there  were  no  cross
examination on this aspect by the  plaintiff.   Further,  the  said  witness
also spoke to the facts pleaded by the second defendant that  the  plaintiff
had issued a B.R. to CANFINA acknowledging the receipt of the  payment  made
by CANFINA towards the price of the IRFC Bonds agreed  to  be  sold  by  the
plaintiff and the said B.R.  was  returned  discharged  by  CANFINA  to  the
plaintiff in view of the fact that CANFINA had received the delivery of  the
IRFC Bonds of face value Rs.100 crores.


45.   From the judgment under appeal, it is obvious that
  the  Special  Court
accepted the defence of the 2nd defendant at least to the extent of (i)  the existence of an obligation on the part of  the  plaintiff  to  deliver  IRFC Bonds of face value Rs.100 crores, 
(2) the factum of delivery  of  the  said bonds to CANFINA and 
(3) the return of the duly discharged B.R. by CANFINA.

46.    Whether  the  cheque  in  question  was  issued  as  a  part  of  the
transaction which is alleged to be a ‘back to back’ transaction between  the
CANFINA Ltd, the plaintiff and the first defendant  is  one  of  the  issues
which necessarily arose  on  the  above  extracted  pleadings.   The  second
defendant specifically pleaded  and  adduced  some  evidence  to  prove  the
existence of ‘back to back’  transaction  which  remained  unrebutted.   The
said transaction is completely suppressed by the plaintiffs.



47.      Scandalous thing about the litigation is that  the  plaintiffs  led
no evidence.  They merely tendered certain documents but did not  bother  to
prove them in spite of a caution by  the  Special  Court.  By  the  judgment
under appeal, it is recorded in this regard as follows:
        “46.     The Plaintiffs have led no oral evidence.
The  Plaintiffs
        merely tendered documents.
The 1st  Defendant  attempted  to  lead
        evidence of a witness from Canfina.
However,  the  witness  had  no
        personal  knowledge.   2nd  Defendant  then  led  no  further  oral
        evidence.
It  also  merely  tendered  some  documents.
The   2nd
        Defendant has led evidence of his dealer at the relevant  time  and
        tendered documents.
The 3rd and 4th Defendants have  led  no  oral
        evidence, but merely tendered documents.
 At  the  time  when  these
        documents were being tendered it was clarified to all parties  that
        mere tendering of documents would only establish that there was  in
        existence such a document and that it stated what is stated. It was
        clarified that the contents of the documents would not be deemed to
        have been proved. 
It was clarified that any  party  who  wanted  to
        prove the truth of the contents had to do so by positive  evidence.
        As stated above, except for 2nd Defendant, no other party  has  led
        any oral evidence.”

      Further at para 48 the judgment under appeal records as follows:
        “48.     Apart from this oral evidence, Court  has  before  it  the
        evidence of what was claimed by the parties in correspondence.
The
        truth of what was claimed in the correspondence and in the  various
        documents has not been proved.  However,  in  the  absence  of  any
        contrary evidence Court is proceeding on footing that what  parties
        have stated to the Custodian is true.”


49.   The Special Court  based  its  conclusions  on  Janakiraman  Committee
Report and the correspondence between the  various  parties  (whose  details
are not even specified in the judgment).

50.    We regret to say that the course adopted by the learned Judge of  the
Special Court of looking into the correspondence between the parties,  which
even according to the learned Judge had not been proved is  not  permissible
in law.
The Special Court Act though declares that the Court is  not  bound by the Code of Civil Procedure, it does not relieve the Special  Court  from the obligation to follow  the  Evidence  Act. 
 Further,  the  learned  Judge
extensively  relied  upon  the  second  interim  report  of  the  Jankiraman Committee[11] on the ground that  the  same  was  tendered[12]  by  the  1st defendant.

51.    Irrespective of the fact 
whether  such  a  report  is  admissible  in evidence or not, 
 it  appears  from  the  judgment  under  appeal  that  the
relevant part of the report is substantially in accordance with the  version
of the 2nd  defendant,  as  contained  in  his  written  statement.  
 It  is
recorded by the judgment under appeal at para 45:
      “In respect of the Suit transactions the Janakiraman  Committee  notes
      that on 3rd January 1992 the Plaintiffs had entered into back to  back
      transactions to purchase 9% IRFC Bonds face value Rs.100  crores  from
      the 1st Defendant and sell  the  same  to  Canfina.   The  Janakiraman
      Committee notes that the Plaintiff’s Bankers Receipt to Canfina stands
      discharged without the Plaintiffs having made any delivery whatsoever.
       The Janakiraman Committee notes that the Plaintiffs  Bankers  Receipt
      stood discharged by Canfina on 31st  March  1992  by  taking  physical
      delivery of the Bonds from Defendant No.2 (herein).   The  Janakiraman
      Committee notes that for the amount paid to  the  1st  Defendant,  the
      Plaintiffs (herein) have made a claim which claim is being disputed by
      the 1st Defendant (herein).”


52.      It is well settled by a long line of judicial  authority  that  the
findings of even a statutory Commission appointed under the  Commissions  of Inquiry Act, 1952 are  not  enforceable  proprio  vigore   as  held  in  Ram Krishna Dalmia v. Justice S.R. Tendolkar and Others [AIR 1958  SC  538]  and the statements made before such Commission are expressly  made  inadmissible
in any subsequent proceedings  civil  or  criminal.  
The  leading  judicial
pronouncements[13] on that question were succinctly analysed by  this  Court
in (2001) 6 SCC 181, Paras 29-34.   Para  34  of  the  judgment  inter  alia
reads:-
        “34…… In our view, the courts, civil or criminal, are not bound  by the report or findings of the Commission of Inquiry as they have to arrive at their own decision on the evidence placed before them  in  accordance with law.”

53.     Therefore, Courts are not bound  by  the  conclusions  and  findings
rendered by such Commissions.
The statements  made  before  such  Commission
cannot be used as evidence before any civil or  criminal  court.
 It  should
logically follow that even the conclusions  based  on  such  statements  can
also not be used as  evidence in any Court.
Janakiraman  Committee  is  not
even a statutory body authorised to collect evidence  in  the  legal  sense.
It is a body set up by the Governor of Reserve Bank of  India  obviously  in
exercise  of its administrative functions,
            “……… the Governor, RBI set up a Committee on 30 April,  1992  to
          investigate into the possible irregularities in  funds  management
          by commercial banks and financial institutions, and in particular,
          in relation to their dealings  in  Government  securities,  public
          sector bonds and similar instruments.  The Committee was  required
          to investigate various aspects of  the  transactions  of  SBI  and
          other commercial banks as well as financial institutions  in  this
          regard.”[14]

      Its terms of reference are[15]:


54.   The report of such a Committee in our view can at best be the  opinion
of the Committee based on its own examination of the records of the  various
banks (including the plaintiff and the 1st  defendant)  and  the  statements
recorded  (by  the  Committee)  of  the  various  persons  examined  by  the
Committee.
 In our considered view the report of  Janakiraman  Committee  is not evidence within the meaning of Evidence Act – 
which  the  Special  Court is bound to follow.

55.   We find it difficult to approve the procedure followed by the  Special
Court to record such conclusions.

56.   The first defendant summoned the Executive  Vice  President,  one  Mr.
Prabhu of the CANFINA and examined him.  The said Mr. Prabhu  in  his  chief
examination categorically admitted that there  was  a  security  transaction
dated  3rd  January,  1992  between  the  plaintiff  and  the   CANFINA.[16]
Interestingly, the plaintiff  did  not  choose  to  cross-examine  the  said
witness.

57.   The only other witness examined in this case before Special  Court  is
one Hiten B. Mehta who claimed that he was working at the relevant point  of
time (1992) with the second defendant as a Chief dealer.   He also spoke  to
the existence of two transactions and the issue of a B.R. by  the  plaintiff
to CANFINA as pleaded  by  the  second  defendant.    He  made  a  categoric
statement in his chief examination as follows:-
          “I got the discharged B.R. from Canfina and delivered the same  to
          NHB”


58.   There is no cross-examination on  behalf  of  the  plaintiff  in  this
regard.

59.   Unfortunately, even the custodian himself did not choose to prove  the
various letters alleged to have been received by him  from  various  parties
involved in the transaction, though the  entire  written  statement  of  the
custodian is based on such correspondence.

60.   Coming to the conclusion of the Special Court that only a part of  the
IRFC Bonds are delivered to CANFINA by the 2nd defendant  is  based  on  the
contents of the Janakiraman Committee Report and the “correspondence”.   The
Special Court recorded that-the plaintiffs had on 30th March, 1992 issued  a
cheque drawn on RBI in favour of the Standard Chartered Bank for  a  sum  of
Rs. 55,18,43,647.07.  When the plaintiff sought to recover the said  amount,
the Standard Chartered Bank, took a stand that at  the  behest  of  the  2nd
defendant they had delivered to CANFINA, IRFC  Bonds  of  face  value  Rs.80
crores  and  therefore,  it  was  under  no  obligation  to  refund  to  the
plaintiffs the amount of Rs.55 crores (approx.) as the same was paid to  the
Standard Chartered Bank towards the price of IRFC Bonds of face value  Rs.80
crores which eventually came to be delivered  to  CANFINA  by  the  Standard
Chartered Bank on behalf of the plaintiff-Bank.


61.   There is absolutely no evidence on record  regarding  the  payment  of
the above mentioned amount of Rs.55 crores (approx.) by  the  plaintiff-Bank
to the Standard Chartered Bank except the Janakiraman Committee  Report  and
the  correspondence  which  is  neither  proved  nor  the  content  of   the
correspondence  is  explained.  
On  the  other  hand,  the  Special   Court
recorded[17] with respect to the payment of Rs.55 crores  (approx.)  to  the
Standard Chartered Bank by the plaintiff –
               “In the plaintiff’s record there is no clear  indication  as
          to  for  what  transaction  this  cheque  had  been  issued.   The plaintiffs were, therefore, not sure for what this cheque had been issued.”

62.   In the background of the above discussed pleadings  and  evidence,  we
are of the opinion the suit is required to be dismissed on the  ground  that
there is no evidence led by the plaintiff to establish its case.

63.   We must also record our disapproval of the  finding  recorded  by  the
Special Court that the plaintiff did not suppress the  truth.    
We  are  of
the opinion that the plaintiff approached the  Special  Court  with  unclean hands by suppressing the relevant  material.  We  shall  first  discuss  the nature of the suppression and  then  examine  the  legal  consequences  that should follow.

64.   As already noticed that the plaint, as originally filed,  stated  that
the cheque in question was drawn “in favour of the 1st defendant in  respect
of the sale by the 1st defendant to the plaintiff of 9% IRFC Bonds  of  face
value Rs.100 crores”.
But subsequently the plaint was amended omitting  the
reference of the purchase of the abovementioned IRFC Bonds.

65.   It is pertinent to note that the defendants 1, 2  and  5  pleaded  and
the defendants 1 and 2 adduced oral evidence to  prove  that  the  plaintiff
incurred an obligation to deliver IRFC Bonds of face value Rs.100 crores  on
3.1.1992 to CANFINA Ltd.
 It, therefore, appears that in order to  discharge
its  obligation  to  CANFINA  to  deliver  the  abovementioned  Bonds,   the
plaintiff sought to purchase the Bonds from the 1st defendant and  drew  the
cheque in question.  
We may also note that such a stand is not taken by  the
defendants for the first time in the  written  statement.
Plaintiffs  were
aware of the stand of the 1st defendant in the light of  the  correspondence
that took place between the 1st defendant and the  plaintiff  prior  to  the
filing of the suit.
Such  knowledge  on  the  part  of  the  plaintiffs  is
obvious from the averments made in the plaint itself.
In the background  of
such a stand of the 1st defendant and the stand  of  the  plaintiff  in  the
unamended plaint that its record revealed that  the cheque in  question  was
issued 
“in respect of the sale by the 1st defendant to the plaintiff  of  9%
IRFC Bonds”, 
the plaintiff owes a basic duty to the Court to explain in  the
plaint and prove by producing its records in evidence 
(i) as to how  such  a
transaction came to be entered in its records, who was responsible for  such
entry, 
(ii) who took the decision to purchase the IRFC Bonds  from  the  1st
defendant, 
(iii) who signed the cheque in question  and  
(iv)  how  the  2nd defendant got custody of the cheque.  
None of this information is  given  in the plaint.

66.   On the other hand, we cannot ignore the pleading of the 3rd  defendant
who took a categoric stand that the decision such as the one to purchase  or
sell securities are taken at a higher level of the  plaintiff-Bank.   It  is
only on the instructions of  the  appropriate  higher  authorities,  cheques
such as the one in question, are prepared.


67.   Assuming for the sake of argument that the cheque in question came  to
be handed over to the 2nd defendant without  the  knowledge  of  the  higher
authorities, it is difficult to believe that those who are  responsible  for
the management of the plaintiff bank at a higher level  did  not  bother  to
verify till the scandal broke out as to how a debit of Rs.  95  crores  came
to be made to the account of the plaintiff-Bank - we are unable  to  believe
that such a failure is only an accident.  Even  the  judgment  under  appeal
records that the plaintiff’s top management “were aware of  what  was  going
on”.


68.   The suppression of the original case coupled with the very  fact  that
the 1st defendant paid various amounts in accordance with  the  instructions
of the 2nd defendant after encashing the cheque  in  question  coupled  with
the 1st defendant’s consistent stand that the  cheque  was  issued  for  the
benefit of the 2nd defendant, leads us to a possible inference that the  1st
defendant  acted  on  the  instructions  of  some  body  high  up   in   the
administration of the plaintiff Bank.
Neither of the  banks  explained  the
genesis of such practice. But from the very history of this  litigation  and
the background in which the Special Court Act came  to  be  passed,  we  can
safely presume that both the banks herein, (along  with  other  banks),  did
not follow any procedure when it came to  the  dealings  in  which  the  2nd
defendant was involved.  Eventually when the bubble burst,  everybody  tried
to disown the responsibility trying to project an image of  innocence.   The
entire effort of the plaintiff in the suit, according to us, is to  suppress
all the relevant information  we  are  convinced  that  such  a  process  is
resorted to in order to shield the delinquent officers of the bank  (whoever
they are) who are responsible for such dealings by taking shelter under  the
legal principles such as unjust enrichment and moneys had and received  etc.
to recover the money paid by the plaintiff to the 1st defendant through  the
cheque in question.


69.   Whether the payment in question was made in discharge of any  existing
legal obligation such as the one set up by the defendants 1  and  2  or  not
could be known only when the full facts are disclosed.   But  disclosure  of
full facts might (though we are almost certain) lead to trouble to  somebody
or the other in the management of the plaintiff-Bank  or  perhaps  both  the
Banks and God knows who else.  It is equally irresponsible on  the  part  of
the 1st defendant to have acted on the instructions  of  the  2nd  defendant
without there being any legal authority in writing on the part  of  the  2nd
defendant to issue instructions regarding the disbursement of  the  proceeds
of the cheque in question.  We may not be far  from  truth  if  we  draw  an
inference  that  such  payments  were  obviously  made  on   the   unwritten
instructions by somebody in the plaintiff bank.
The whole attempt  of  both
the banks is to shield the officers  on  either  side  taking  refuge  under
attractive legal pleas – which if examined in the  context  of  the  limited
facts pleaded give a picture that  the  suit  transaction  is  an  innocuous
transaction which unfortunately for the country is  not.   
 In  our  opinion
the suit is a sheer abuse of the legal process.


70.   On the other hand, the dispute such as the  one  on  hand,  where  the
contesting parties are either organs of the State or its  instrumentalities,
is better resolved through a Committee of Secretaries of the  Government  of
India or the States, as the case may be, as directed by this Court  on  more
than one occasion.
Unfortunately, such  orders  remain  unimplemented.   In
fact, it appears from the judgment under appeal that even in this  case  the
Special Court had directed such  a  settlement  without  any  success.
The
Special Court in paras 2 to 5  of  the  judgment  under  appeal  elaborately
recorded the legal requirement of settling the dispute to the  Committee  of
Secretaries and efforts made by the Special Court  to  have  the  matter  so
settled  and eventually directed –
                 “Officer on Special Duty is directed to send a copy of this
           judgment to the Ministry of Law and Ministry of Finance and  the
           Governor of Reserve Bank of India with a request to take  action
           on this and on the aspect set out in paras 27, 73, 74 ,  ………….”


71.   Even during  the  pendency  of  the  instant  appeal,  this  Court  on
18.02.2009, passed an order to the following effect:
                 “These appeals are filed by the State  Bank  of  Saurashtra
           against the National Housing Bank and others.  Having regard  to
           the dispute between these two Public Sector Banks,  we  feel  it
           appropriate that the matter be considered at the  level  of  the
           Finance Minister, Union of India to explore the  possibility  as
           to whether there could be any settlement  between  the  parties.
           Therefore, we adjourn these  appeals  and  request  the  Finance
           Minister, Union of India to look into the matter and suggest any
           possibility of settlement between the parties.  Parties would be
           at liberty to bring this order to  the  notice  of  the  Finance
           Minister, Union of India.


                 Adjourned by three months.”
Still the Government did not think it fit to settle the matter.

72.   By a letter dated 11th June, 2010, signed by  one  Raman  Kumar  Gaur,
Under Secretary to the Government of India, Ministry of Finance,  Department
of Financial Services, addressed to the Registrar  of  this  Court,  it  was
informed as under:
            “8.   The Special Court had gone into all aspects of the  matter
          including the transaction of NHB with Standard Chartered Bank  and
          Canfina before arriving at his conclusions.  The Hon’ble Court has
          also gone into the alteration in the cheque, the initial stand  of
          NHB before the Court etc.  The Court has even awarded costs to NHB
          and others looking into the conduct of SBS before it.  The Hon’ble
          Court has also observed that each transaction has to be dealt with
          independently and did not agree with the contention of  SBS  about
          satisfaction of its liability by  delivery  of  bonds  by  Harshad
          Mehta to Canfina.  As far as an amicable  solution  is  concerned,
          all along SBI has insisted that it be given 50%  of  total  amount
          received by NHB for which NHB is not agreeable.  Thus, it was felt
          that the Special Court has looked into all the  above  aspects  of
          the matter and has given  its  well  reasoned  judgement.  It  has
          therefore been decided, with the  approval  of  Finance  Minister,
          that there seems to be no reason to  suggest  any  change  in  the
          decision of the Special Court.”


A reading of the letter demonstrates utter callousness on the  part  of  the
Government in dealing with the matter.  We must also place  our  disgust  at
the audacity of the author of the letter to state-
          “that there seems to be no reason to suggest  any  change  in  the
          decision of the Special Court.”

73.   Apart from the question of propriety of the language employed  in  the
said  suggestion,
 the  content  of  the  letter  indicates  that
both  the
plaintiff and respondent Banks simply  reiterated  their  respective  stands
before the Committee of Secretaries.  
No attempt appears to have  been  made
by the Government to find out the truth as to 
(1)  how  the  plaintiff  Bank
parted with a high denomination cheque and  gave  custody  of  the  same  to
Harshad Mehta and 
(2) as to how the first defendant Bank  paid  the  various
amounts  to  the  dictation  of  Harshad  Mehta  in  the  absence   of   any
authorisation by the plaintiff Bank.  Be that  as  it  may,  if  really  the
Government believed that the judgment of the Special Court does not  require
any interference, nothing stopped the Government  from  directing  both  the
Banks to withdraw their appeals before this Court.

74.   The whole exercise appears to be an eye wash. 
A  thinly  veiled  scorn for the orders of this Court.

75.   The professed purpose of the Special Courts Act -  the  back  drop  of the scandal that shook the nation - and the manner in which  the  litigation was conducted coupled with the absolute indifference of  the  Government  to get at the truth only demonstrates the duplicity with which Governments  can act.

76.    We  dismiss  the  suit  and  set  aside  the  decree  in  toto.   The consequences follow insofar as  the  appeals  are  concerned.   But  in  the circumstances, we do not award any costs.



                                                              …………………………….J.
                                                              ( R.M. Lodha )



                                                              …………………………….J.
                                                          ( J. Chelameswar )



                                                              …………………………….J.
                                                           ( Madan B Lokur )
New Delhi;
July 31, 2013.
-----------------------
[1]    In the course of the investigations by the  Reserve  Bank  of  India,
large scale irregularities and malpractices were noticed in transactions  in
both the Government and other securities, indulged in  by  some  brokers  in
collusion with the employees of various bonds  and  financial  institutions.
The said irregularities and malpractices led to the diversion of funds  from
banks and financial institutions  to  the  individual  accounts  of  certain
brokers.   2.   To deal with the situation and in particular to  ensure  the
speedy recovery of the huge  amount  involved,  to  punish  the  guilty  and
restore confidence in and maintain the basic integrity  and  credibility  of
the banks and financial institutions the Special Court  (Trial  of  Offences
Relating to Transactions in Securities) Ordinance, 1992 was  promulgated  on
the 6th June, 1992.   The Ordinance provides  for  the  establishment  of  a
Special Court with a sitting Judge of a  High  Court  for  speedy  trial  of
offences relating to transactions in securities and disposal  of  properties
attached.   It also provides for appointment of one or more  Custodians  for
attaching the property of the offenders with a view to prevent diversion  of
such properties by the offenders.

[2]    Section 3.  Appointment and functions of Custodian. – (1) The
Central Government may appoint one or more Custodians as it may deem fit
for the purposes of this Act.
      (2) The Custodian may, on being satisfied on information received
that any person has been involved in any offence relating to transactions
in securities after the 1st day of April, 1991 and on and before the 6th
June, 1992 notify the name of such person in the Official Gazette.
      (3) Notwithstanding anything contained in the Code and any other law
for the time being in force, on and from the date of notification under sub-
section (2), any property, movable or immovable, or both belonging to any
person notified under that sub-section shall stand attached simultaneously
with the issue of the notification.
[3]     Para 110.  Accordingly there will be a decree in favour of the
Plaintiffs and against the 1st Defendant in a sum of Rs.95,39,78,082.19p
with interest thereon at the rate of 19% p.a. from 3rd January 1992 till
payment of realisation thereof.

[4]     Para 120.   Today  a  Decree  has  been  passed  in  favour  of  the
Plaintiffs and against the 1st Defendant in the sum  of  Rs.95,39,78,082.19p
along with interest at 19% per annum.  If plaintiffs  are  allowed  to  keep
interest on the sum of  Rs.40.22  crs.  they  will  have  unjustly  enriched
themselves.  This because with effect from 30th March, 1992  the  Plaintiffs
liability  to  Canfina  stood  discharged  without  their  having  paid  any
consideration for the 9% IRFC Bonds f.v. Rs.38.75 crs.  The Plaintiffs  will
be receiving interest at 19% per annum even on the sum of  Rs.40.22  crores.
As stated above to allow the Plaintiffs to retain that interest would be  to
allow the  Plaintiffs  to  unjustifiably  enrich  themselves.   Thus  it  is
directed that as and when the Plaintiffs receive interest at 19% on the  sum
of Rs.40.22 crores, the Plaintiffs must hand over  the  interest  amount  on
Rs.40.22 crs. from 30 March 1992 onwards to the Custodian.   Clarified  that
Plaintiffs will be entitled to keep the interest amounts, even  on  Rs.40.22
crs., from 3rd January 1992 till 29th  March  1992.   This  interest  amount
i.e. for the period 30th March 1992  onwards  on   Rs.40.22  crs.  would  be
payable to the Custodian within four weeks from the receipt  of  the  amount
by the Plaintiffs.
[5]     Unamended Plaint – The records of the plaintiff, as mentioned by
the Funds Management Group, show that a cheque bearing No.173756 dated
3.01.1992 drawn by the Plaintiff on the Reserve Bank of India in the sum of
Rs.95,39,78,082.19 p. had been issued in favour of the 1st Defendant in
respect of the sale by the 1st defendant to the plaintiff of 9% IRFC Bonds
of the face value of Rs.100,00,00,000/-.

      Amended Plaint -  A cheque bearing No.173756 dated 3.01.1992 drawn by
the Plaintiff on the Reserve Bank of India in the sum of Rs.95,39,78,082.19
had been issued in favour of the 1st Defendant. The Plaintiff says that the
cheques was originally drawn in the name of State Bank of India and was
altered in the name of 1st Defendant and received as such as by the 1st
Defendant.  However the  documents and the records as maintained by F.M.G.
did not show a similar corresponding correction and continue as if the deal
was between the Plaintiffs and State Bank of India.
[6]    (a) The said cheque for Rs. 95,39,78,082.19  p.  dated  3rd  January,
1992 was to the knowledge of the plaintiff issued for the  sole  benefit  of
Defendant No. 2.

       (b) Under cover of a letter dated 3rd January 1992 the 2nd  Defendant
delivered the said cheque to this Defendant.   Pursuant to the  instructions
contained in the said letter dated  3rd  January,  1992  as  varied  by  the
subsequent oral instructions of Defendant No. 2 this Defendant  issued  four
cheques, as follows:-

                               Particulars
Amounts (Rs.)
   1.       Bankers Cheque No. 202667 dated 3.1.92
              79,79,69,041.09
            in favour of Canara Bank

   2.       Bankers Cheque No. 202669 dated 3.1.92 in
      5,01,58,904.18
            favour of State Bank of India

   3.       Bankers Cheque No. 202668 dated 3.1.92 in
      5,37,00,000.00
            favour of ANZ Grindlays Bank

   4.       Bankers Cheque No. 202670 dated 3.1.92 in
      4,10,00,000.00
            favour of Bank of India
                                              _____________
            Total                             94,28,27,945.27


        (c) Defendant No. 2, thereafter, by  a  letter  dated  6th  January,
1992 requested this Defendant to issue a Bankers cheque  in  favour  of  ANZ
Grindlays Bank for Rs. 1,10,00,000/-  and  debit  his  current  account  No.
2230, titled as Harshad S. Mehta for the  said  sum  of  Rs.1,  10,00,000/-.
This Defendant carried out the aforesaid instructions.


[7]    Section 9-A(4) -  While dealing with cases relating to any matter  or
claim under this section, the Special  Court  shall  not  be  bound  by  the
procedure laid down by the Code of Civil Procedure, 1908 (5  of  1908),  but
shall be guided by the principles of natural justice,  and  subject  to  the
other provisions of this Act and of any rules, the Special Court shall  have
power to regulate its own procedure.
[8]    Section 9-A(1)(a) 5
      [9-A. Jurisdiction, powers, authority and procedure of Special Court
in civil matters.---(1) On and from the commencement of the Special Court
(Trial of Offences Relating to Transactions in Securities) Amendment Act,
1994, the Special Court shall exercise all such jurisdiction, powers and
authority as were exercisable, immediately before such commencement, by any
civil court in relation to any matter or claim---
      (a) relating to any property standing attached  under  subsection  (3)
of section. 3:

      (b) arising out of transactions in securities entered into  after  the
1st day of April, 1991, and on or before the  6th  day  of  June,  1992,  in
which a person notified under sub-section (2) of section 3 is involved as  a
party, broker, intermediary or in other manner
[9]    Para  10  of  D1’s  Written  Statement  -   (d).    Defendant  No.  2
discharged the obligation of the plaintiff to CANFINA under the said  BR  by
delivering the said IRFC Bonds to CANFINA.   The delivery to and receipt  of
the said IRFC Bonds by CANFINA has been admitted by CANFINA in an  affidavit
dated 10th July, 1995 of Mr. S.A.P. Prabhu in Misc. petition no. 79 of  1994
filed by this Defendant in  this  Hon’ble  Court.    This  Defendant  craves
leave to refer to and rely upon the said affidavit when produced.
[10]   Relevant portion of the 5th Defendant’s Written Statement reads:-
        “2.  From the correspondence carried out by the Defendant No. 5 as
aforesaid, it appears as under:-
 a)   According to the Plaintiffs, on 3.1.1992,  the  Plaintiffs  issued  a
    cheque in favour of Defendant No. 1 for Rs.  95,39,78,082.19p  for  the
    purchase of 9% IRFC bonds of the face value of  Rs.  100  crores  on  a
    ready forward basis.  No. B.R. was received by the Plaintiffs from  the
    Defendant no. 1 for the aforesaid.
 b)   On the same day i.e. 3.1.1992, the Plaintiffs had a back to back deal
    with Canfina for the sale of 9% IRFC bonds of the face value of Rs. 100
    crores.   For this sale the Plaintiffs received from Canfina  a  cheque
    for Rs. 95,43,78,082.19p and the same was credited into the Plaintiffs’
    account with the RBI.   In respect of the  aforesaid  transaction,  the
    Plaintiffs issued a B.R. dated 3.1.1992 in favour of Canfina.   He said
    B.R. was returned by Canfina, duly  discharges  to  the  Plaintiffs  on
    31.3.1992.   The said B.R.  was  returned  as  discharged  by  Canfina,
    apparently as physical delivery of the bonds  in  respect  thereof  was
    made by the Defendant No. 2.”
[11]   Committee set up by RBI on 30.04.1992 which submitted 6  reports  and
the Final Report was on 7.5.1993
[12]   Para 62 of the judgment – “As this document is  tendered  and  relied
upon by the 1st defendant they are bound by what it contains.
[13]   Maharaja Madhava Singh v. Secretary of State for India in Council
[(1903-04) 31 IA 239 (PC), M.V. Rajwade v. Dr. S.M. Hassan [AIR 1954 Nag 71
: 55 Cri LJ 366], Ram Krishna Dalmia v. Justice S.R. Tendolkar [ AIR 1958
SC 538, State of Karnataka v. Union of India [(1977) 4 SCC 608], Sham Kant
v. State of Maharashtra [(1992) Supp (2) SCC 521
[14]    See the Janakiraman Committee’s first interim report – May 1992,
page 1
[15]    Terms of Reference :
      The Committee is required to specifically
     a)    enquire into the extent of non-compliance by banks and financial
        institutions with the guidelines of the  RBI  regarding  securities
        transactions including transactions in PSU bonds, units, etc.,
     b)    enquire into the inadequacies in systems and procedures in force
        in these institutions generally and  the  extent  of  use  of  Bank
        Receipts  (BRs)  which  have  been  in  vogue  in  regard  to   the
        transactions in Government securities and other instruments;
     c)    suggest such corrective steps as may be necessary to have a more
        efficient and accountable system in the future;
     d)    examine and  determine  the  extent  of  malpractices,  if  any,
        indulged in by officials of banks and financial institutions, where
        their  funds  have  been  allowed  to  be  used   for   speculative
        transactions by brokers and other intermediaries, and whether undue
        benefits have been thereby derived by brokers  and  others  through
        unauthorized  access  to  borrowed  funds  of  the  banks/financial
        institutions and fix responsibility  therefore  and  recommend  the
        action to be taken, and
     e)    scrutinize the procedure adopted by Public Debt  Offices  (PDOs)
        of the RBI in regard to the maintenance of SGL accounts  and  other
        related matters and  suggest  remedial  measures  to  tone  up  the
        responsiveness of the system.
[16]   On 3-1-1992 there were transactions in securities.   On 3rd January,
1992 there was a transaction in securities between National Housing Bank
and Canfina.  Canfina had purchased 9% IRFC Bonds f. v. Rs. 100 crores from
N.H.B.
[17]    The correspondence suggests that  Canfina  received  9%  IRFC  Bonds
f.v. Rs.100 crores from the 2nd Defendant.  Having received  9%  IRFC  Bonds
f.v. Rs.100 crores,  Canfina  discharged  Plaintiff’s  Bankers  Receipt  and
handed it back to  the  Plaintiffs.   The  Plaintiffs  were  thus  initially
inclined not to make a claim  against the 1st Defendant.  However,  it  then
turns out that the Plaintiffs had  on  30th  March  1992  issued   a  R.B.I.
cheque  in  the  name   of   Standard   Chartered   Bank   in   a   sum   of
Rs.55,18,43,657.07.  The said cheque had been accepted and encahsed  by  the
Standard Chartered Bank.  In the  Plaintiffs’  records  there  is  no  clear
indication as to for what transaction this  cheque  had  been  issued.   The
Plaintiffs were therefore not sure for what this  cheque  had  been  issued.
Thus at  different  times  they  claim/specify  different  securities.   The
Janakiraman Committee Report indicates  that  Standard  Chartered  Bank  has
given credit of the proceeds of this cheque to  one  Growmore  Research  and
Asset  Management Company Limited.  This is one of the group  companies  run
by the 2nd Defendant. It must be mentioned that Growmore Research and  Asset
Management  Company  Limited  is  also  a  Notified  Party.  The  Plaintiffs
therefore made a claim against  Standard  Chartered  Bank  for  the  sum  of
Rs.55,18,43,657.07. Standard  Chartered  bank  then  claimed  that,  at  the
behest of the 2nd Defendant, they had delivered to  Canfina  9%  IRFC  Bonds
f.v. Rs.80 crores.  Standard Chartered Bank claimed that  out  of  these  9%
IRFC Bonds f.v. Rs.80 crores they had delivered 9% IRFC Bonds f.v.  Rs.61.25
crores to Canfina on behalf of  he  Plaintiffs.   Initially  the  Plaintiffs
dispute this claim.  Initially they claim that in their record there was  no
such transaction and they had never authorised Standard  Chartered  Bank  to
make any such delivery.  Canfina however confirmed that out of the  9%  IRFC
Bonds f.v. Rs.100 crs. received from 2nd  Defendant  they  had  received  9%
IRFC Bonds f.v. Rs80 crores from Standard Chartered Bank.  Canfina  confirms
that these had been  received  towards  Plaintiffs’  liability  under  their
Bankers   Receipt.    Thus,   it   would   appear   that   the   amount   of
Rs.55,18,43,657.07 received by  Standard  Chartered  Bank  was  set  off  by
Standard Chartered Bank against 9% IRFC Bonds f.v. Rs.61.25 crores which  it
had delivered to Canfina.

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