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Monday, September 14, 2015

The Securities Scam that shook the Bombay Stock Exchange in 1992 took place 23 years ago, yet the Banks and Financial Institutions that were impacted as a result of the scam continue to litigate to recover their rightful damages. The present appeals filed under Section 10 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 arise out of a transaction which occurred as a part of the same scam, which have been filed against the impugned judgment and order dated 13.07.2010, as modified by the order dated 07.10.2010 in Suit No. 6 of 1994, passed by the Special Court, Bombay, constituted under the above Act.=Since we have set aside the finding of fact recorded by the learned Special Court holding that the suit is barred by limitation, as prescribed in the Schedule to the Limitation Act, 1963 by recording the reasons in the preceding paragraphs of this judgment and the other issues including the issue on the merits of the claim were held in favour of the plaintiff (appellant herein) by the learned Special Court, which have not been challenged by the Respondents 2-10 by filing an appeal, therefore, the appellant is entitled for a decree of the suit claim of the principal amount adjudged as on the date of the institution of the suit. The appellant is also entitled to interest pendente lite and future interest. This transaction can be termed as a commercial transaction and Section 34 of the Code of Civil Procedure, 1908 confers discretionary power upon this Court to award interest at appropriate rate on the suit claim of the appellant. We have considered with regard to the facts and circumstances of the case as to what should be the reasonable rate of interest to be awarded on the suit claim both for the period of pendente lite and for future interest and from what date to be ordered. The suit in the instant case was instituted before the Special Court on 27.11.1992, but the respondent nos.2- 10 were brought on record as parties to the suit by way of an amendment, which was allowed on 10.01.1996. Therefore, it would be appropriate for this Court to award interest from the above said date during pendency of the proceedings before the Special Court and this Court and also for future rate of interest at 6% per annum till the date of realisation. The Particulars of Claim, marked as Exh. “E” to the plaint shows that the appellant had claimed 20% interest from 26.02.1992 till 27.11.1992 at the principal sum of Rs.48,02,50,000.00, to arrive at the amount of Rs.55,26,16,438.36 as the adjudged principal amount. Since we have awarded interest at the rate of 6% per annum, we shall calculate the principal amount of Rs.48,02,50,000.00, on that rate itself for the period from 26.02.1992 to 27.11.1992 at that rate itself which amounts to Rs.50,18,61,250.00 will be the adjudged principal amount from the date of institution of the suit. For the foregoing reasons, we set aside the judgment and decree of the dismissal of the suit on the question of limitation and the suit claim as indicated herein below with interest and costs is allowed by allowing these appeals in the following terms:- The respondent nos.2-10 are directed to pay the adjudged principal sum of Rs.50,18,61,250.00 along with interest at the rate of 6% per annum from 10.01.1996 till the date of realisation with suit costs throughout for having converted the suit bonds. The above respondents shall be jointly and severally liable to pay the same to the appellant. The appellant is permitted to file memo costs of the suit proceedings throughout within three weeks from the date of receipt of the copy of this judgment.



                                                                  REPORTABLE

        IN THE SUPREME COURT OF INDIA                       CIVIL APPELLATE
                                JURISDICTION

                       CIVIL APPEAL NOS.9540-9541 OF 2010


STANDARD CHARTERED BANK                  …………APPELLANT
                                     Vs.
ANDHRA BANK FINANCIAL SERVICES LTD & ORS. ……RESPONDENTS

                                 J U D G M E N T


V. GOPALA GOWDA, J.



The Securities Scam that shook the Bombay Stock Exchange in 1992 took  place
23 years ago, yet the Banks and Financial Institutions  that  were  impacted
as a result of the scam continue  to  litigate  to  recover  their  rightful
damages. The present appeals filed under Section 10  of  the  Special  Court
(Trial of Offences Relating to Transactions in Securities) Act,  1992  arise
out of a transaction which occurred as a part of the same scam,  which  have
been filed against the impugned judgment  and  order  dated  13.07.2010,  as
modified by the order dated 07.10.2010 in Suit No. 6 of 1994, passed by  the
Special Court, Bombay, constituted under the above Act.

       The relevant facts which are required for us to appreciate the  rival
legal contentions are stated in brief hereunder:

 The National Power Corporation Limited (hereinafter  “NPCL”)  issued  bonds
of two series in December, 1991. These were the 9% tax-free  bonds  and  17%
taxable bonds. On 26.02.1992, the said bonds were allotted by  NPCL  to  the
Andhra Bank Financial Services  Limited  (hereinafter  “ABFSL”),  respondent
no. 1 herein. On the same day, ABFSL sold the 17% taxable bonds of the  face
value  of  Rs.  50  crores  to   the   appellant-Standard   Chartered   Bank
(hereinafter “SCB”). The total amount payable to ABFSL was Rs.48,02,50,000/-
 which was paid by way of Pay Order on the same day. A Banker’s Receipt  No.
23727 was issued to the  appellant  by  the  ABFSL  acknowledging  the  said
payment. The receipt also stated that the delivery of  the  bonds  would  be
done later.

On 26.02.1992, SCB sold 17% bonds of the face value of Rs. 50 crores to  ANZ
Grindlays Bank (hereinafter “ANZ”). SCB issued a Bank Receipt  No.  1939  to
ANZ in lieu of the actual possession of  the  bonds.  On  27.02.1992,  ABFSL
forwarded the original letter of allotment to SCB and sought the  return  of
the Banker’s Receipt No. 23727. On the same date, SCB returned the  Banker’s
Receipt No. 23727 to ABFSL.  SCB states that as against the  return  of  the
said Bank Receipt, it only received a photocopy of the  original  letter  of
allotment. On 27.02.1992, Hiten P. Dalal, a  broker  who  was  acting  in  a
large number of securities transactions of banks and financial  institutions
obtained the possession  of  the  said  original  letter  of  allotment  and
delivered it to Canara Bank Mutual Fund (hereinafter “CMF”). On  17.03.1992,
CMF sold the 17% NPCL bonds of the face value of Rs. 50 crores to  SCB.  CMF
issued a Receipt No. 2767 to SCB Bank in lieu  of  the  original  letter  of
allotment. According to SCB, when the Securities Scam came to  limelight  in
May, 1992, the officers of SCB conducted an  investigation  of  its  records
and found that SCB did not possess the original letter of allotment but  had
only its photocopy with it. On  09.10.1992,  SCB  wrote  a  letter  to  NPCL
stating that as the suit bonds had been issued to ABFSL, which  had  further
confirmed that the same has been sold to SCB and therefore,  the  letter  of
allotment from CMF may be disregarded. NPCL informed SCB on 06.11.1992  that
since there was a dispute of ownership of the suit  bonds  between  SCB  and
CMF, the matter should be resolved between SCB and CMF  and  that  it  would
take the necessary action only after such resolution.

On 20.06.1992, SCB filed a  First  Information  Report  against  the  broker
Hiten P. Dalal and requested the Central Bureau of Investigation to  inquire
into the scam perpetrated on SCB by Hiten P. Dalal.


On 27.11.1992, SCB filed Suit No. 6 of 1994 against ABFSL for  the  recovery
of  the  principal  amount  of      Rs.48,02,50,000.00,   representing   the
consideration paid by SCB to ABFSL against the transaction  of  purchase  of
17% NPCL bonds of the face value of Rs. 50 crores.


Pursuant to the FIR dated 20.06.1992,  the  CBI  filed  a  charge  sheet  on
16.06.1995. On 20.10.1995, SCB filed an application  for  amendment  of  the
suit and to include Hiten P. Dalal and CMF as party respondents and to  file
claim  against  the  said  respondents  in  the  alternative  to  the  claim
preferred by SCB against ABFSL.


It is pertinent to mention at this stage that a suit was filed  in  relation
to the 9% bonds, which culminated in the judgment of this Court in the  case
of Standard Chartered Bank v. Andhra Bank Financial Services Ltd.[1] In  the
present suit relating to the 17% bonds, the  learned  Special  Court  framed
and answered the following issues for its consideration:

|Issues                                                 |Answer                |
|Between PLAINTIFFS and CMF                             |                      |
|Whether the suit as against Defendants No. 3-10 (CMF)  | In the               |
|is barred by limitation                                |affirmative           |
|                                                       |                      |
| Whether the Defendant No. 2 (Hiten P. Dalal) in       |In the negative       |
|collusion with one of the employees of the Plaintiff   |                      |
|(viz. Santosh Mulagaonkar) fraudulently misappropriated|                      |
|the Suit LOA as alleged in para 6A (iii) of the Plaint?|                      |
| Whether the Plaintiffs were unaware that the series of|In the negative       |
|transactions involving CMF, ANZ, ABFSL and the         |                      |
|Plaintiffs themselves were “based on the very same     |                      |
|Letter of Allotment” as alleged in para 7 of the       |                      |
|plaint?                                                |                      |
|Whether the Plaintiffs prove that they had purchased   |In the affirmative    |
|17% taxable NPCL Bonds on 26th February,1992 of the FV |                      |
|of Rs. 50 crores from ABFSL or acquired any title to   |                      |
|the Suit LOA as alleged by the Plaintiffs in para 5 of |                      |
|the Plaint?                                            |                      |
|Whether the Plaintiffs prove that CMF chose to issue   |In the negative       |
|its BR with a view to conceal the alleged              |                      |
|“misappropriation” of Bonds as alleged in para 7D and  |                      |
|7E of the Plaint?                                      |                      |
|Whether the Plaintiffs prove that on 09.04.1992 there  |In the affirmative    |
|was a “hole” pertaining to the transactions of         |                      |
|26.02.1992 between the SCB and  ABFSL as alleged in    |                      |
|para 7H of the Plaint?                                 |                      |
|Whether the Plaintiffs prove that the dealers of the   |In the affirmative    |
|Plaintiffs entered into a dummy transaction dated      |                      |
|10.04.1992 with the ABFSL to cover up the said “hole”  |                      |
|as alleged in para 7(l) of the Plaint?                 |                      |
| Whether CMF have converted the bonds/ Letter of       |In the affirmative    |
|Allotment as alleged in para 6A & 7(k) of the Plaint?  |                      |
|Whether the Suit transaction and the transactions      |In the negative       |
|referred to in para 7 (a), 7(f) and 7(g) of the Plaint |                      |
|reflect that the same were fictitious transactions for |                      |
|funding and/or they were transactions involving        |                      |
|difference between the actual rate (as transacted) and |                      |
|the derived rate as alleged in para 25 and 27 of the   |                      |
|further Written Statement?                             |                      |
|If the answer to the above issue is in the affirmative |In the negative       |
|whether such transactions are illegal and/or opposed to|                      |
|the public policy?                                     |                      |
|Whether the contention that the transactions are       |In the affirmative    |
|opposed to public policy is barred by the principles of|                      |
|res judicata and or constructive res judicata having   |                      |
|regard to the judgment of the Special Court dated      |                      |
|13.03.1995 in Suit No. 13 of 1994 and the decision of  |                      |
|the Supreme Court in CA 4456/95 dated 30th October 2001|                      |
|and in CAs Nos. 2275 & 2276 dated 05th May 2006?       |                      |
|Whether Hiten P. Dalal was the broker for ABFSL in the |Does not Arise        |
|alleged suit transaction and ABFSL handed over the     |                      |
|original Letter of Allotment to HPD as alleged in para |                      |
|6 (c) and 11(a) of the Plaint?                         |                      |
|Whether SCB are stopped from making any claim as       |In the affirmative    |
|alleged in para 2 read with para 14 of the Written     |                      |
|Statement of CMF?                                      |                      |
|Whether CMF proves that it had on 27th February, 1992  |In the negative       |
|purchased the 17% NPCL bonds through Hiten P.  Dalal   |                      |
|who was allegedly acting as a mercantile agent of SCB  |                      |
|and/or ABFSL for consideration in good faith and       |                      |
|without notice as alleged in paragraph 11 of the       |                      |
|Written Statement of the said Defendant?               |                      |
|Whether the transactions under the 15% arrangement were|In the negative       |
|transactions of HPD and not of SCB and HPD was entitled|                      |
|to deal with bonds at his discretion as alleged in para|                      |
|7(g) of CMF’s Written Statement?                       |                      |
|Whether CMF’S allegations that transactions under 15%  |In the affirmative    |
|arrangement were transactions of HPD, are barred by res|                      |
|judicata by the judgment of the Special Court in  Suit |                      |
|No. 13/94 dated 13.03.1995 and the decision of the     |                      |
|Supreme Court in CA No. 4456 of 1995 dated 30.10.2001  |                      |
|as alleged in para 7(L) (i) to 7(L)(v) of the Plaint   |                      |
|and denied in paras 32, 33 and 34 of the additional    |                      |
|Written Statement and by the judgment of the Supreme   |                      |
|Court dated 05.05.2006 in Appeal from Suit No. 11 of   |                      |
|1996 as alleged in paras 7(L)(vii) to 7(L)(xv) of the  |                      |
|Plaint?                                                |                      |
|Whether CMF’s allegation that the transactions of the  |In the affirmative    |
|Plaintiff under the 15% arrangement were actually      |                      |
|transaction of Hiten P. Dalal, is barred by            |                      |
|constructive res judicata as alleged in para 7(L)(v) of|                      |
|the Plaint and denied in para 36 of the additional     |                      |
|Written Statement?                                     |                      |
|Whether the issue of payment of consideration by the   |In the affirmative    |
|CMF for acquisition of bond on 27.12.1992 is barred by |                      |
|virtue of the principles of res judicata as alleged in |                      |
|para 11(e) of the Plaint?                              |                      |
|Whether the Defendants Nos. 3-10 are jointly and       |In the negative       |
|severally liable to pay to SCB the sum of Rs.          |                      |
|55,26,16,438.36 as per the particulars of the Claim    |                      |
|together with further interest on principle sum of Rs. |                      |
|48,02,50,000.00 @ 20% per annum from 28th November,    |                      |
|1992 till payment and/or realisations?                 |                      |
|What relief?                                           |As per Order          |
|Between PLAINTIFFS AND HPD                             |                      |
| Whether the Plaint fails to disclose any cause of     |In the affirmative    |
|action against HPD as alleged in para 1 of the Written |                      |
|Statement of HPD?                                      |                      |
|Whether the suit is barred by limitation as against    |In the affirmative    |
|Defendant No.2 as alleged in para 2 of the Written     |                      |
|Statement of Defendant No. 2                           |                      |
|Whether the allegations of HPD that the Letter of      |In the affirmative    |
|Allotment was lent to him on 27th February, 1992 and/or|                      |
|that he purchased the same on 9th May, 1992 in the     |                      |
|circumstances and manner set out in para 4 of his      |                      |
|written statement are barred by res judicata as alleged|                      |
|in para 6B of the Plaint?                              |                      |
|Whether Hiten P. Dalal is jointly and severally liable |In the negative       |
|along with CMF to pay to SCB the sum of Rs.            |                      |
|55,26,16,438.36 as per the particulars of claim        |                      |
|together with further interest on principal sum of Rs. |                      |
|48,02,50,000.00 @ 20% p.a. from 28th November, 1992    |                      |
|till payment and/or realisation?                       |                      |
|Whether SCB is entitled to any relief and if, what?    |In the negative       |

As can be seen from the above table with regard to the issues framed by  the
learned Special Court, it came to the conclusion that SCB has  succeeded  in
proving that they had purchased 17% taxable NPCL bonds. The learned  Special
Court also found that Hiten P. Dalal had not succeeded in  proving  that  he
was the owner of the suit bonds, and that SCB was entitled to  file  a  suit
for conversion against Hiten P. Dalal and CMF.

The learned Special Court, on appreciation of  the  pleadings  and  evidence
produced before it, however, declined to grant any relief to  the  appellant
on the ground that the suit was barred by limitation. The amendment  to  the
suit to implead CMF and Hiten P.  Dalal was done on 20.10.1995. The  learned
Special Judge held:
“The period of limitation had started running  from  either  18.03.1992  and
further from 23.05.1992. The amendment application for impleading  defendant
Nos. 2 to 10 was filed on  20.10.1995  and,  therefore,  if  the  period  of
limitation is calculated from 18.03.1992  or  23.05.1992,  the  said  period
expires either on 18.03.1995 or 23.05.1995. I have already given my  reasons
as to why 07.11.1992 cannot be treated as a date  on  which  the  Plaintiffs
came to know about the conversion by Hiten P. Dalal in favour  of  CMF,  and
therefore, the Plaintiffs in my view have miserably  failed  in  filing  the
suit within a period of limitation.”

On the issue of limitation, the  main  question  that  the  learned  Special
Court had to answer as to whether the provision  of  Article  91(a)  of  the
Limitation Act, 1963 (hereinafter “the Limitation Act”) would apply  to  the
instant case. To answer that question, the  learned  Special  Court  had  to
interpret the meaning of the phrase “first learns”.  The  contention  raised
before the Special Court by the learned senior counsel  for  the  defendants
was that the word “learn” cannot be construed as complete knowledge for  the
reason that if the legislature had intended to use the word knowledge as  in
Articles 56 to 59, it would have done so. It was  submitted  that  the  word
“knowledge” cannot be given to  the  word  “learn”  in  Article  91  of  the
Limitation Act. The learned Special Court had to decide whether  the  period
of limitation will be  ascertained  from  07.11.1992  as  contended  by  the
plaintiff, or the three earlier dates 18.03.1992, 10.04.1992 or  23.05.1992.
The learned Special Court after examining  the  pleadings  and  evidence  on
record came to the conclusion that the period of limitation cannot  be  said
to have started running on 07.11.1992 as the plaintiff had not succeeded  in
establishing the happening of any meeting on that date. The learned  Special
Court came to the conclusion that the period of limitation  for  institution
of the suit started running on 18.03.1992  as  that  was  the  date  of  the
transaction between ABFSL and ANZ. The Special  Court  also  held  that  the
next date when the  plaintiff  could  have  possibly  found  out  about  the
conversion of the bonds was 23.05.1992 as that was the date on  which  Hiten
P. Dalal had himself informed the plaintiffs of the conversion of  the  suit
bonds during a meeting.

The learned Special Court thus, while accepting the fact  of  conversion  of
the bonds in question, dismissed the suit as against Hiten P. Dalal and  CMF
as the said amendment was barred by limitation. Hence  the  present  appeals
are filed by the appellants urging various grounds.



We have heard Mr. Ram Jethmalani, the learned senior counsel  on  behalf  of
the appellant and Mr. Rohit Kapadia and Mr. Pradeep  Sancheti,  the  learned
senior counsel on behalf of the respondents. On the  basis  of  the  factual
circumstance and evidence on record produced before the  Special  Court  and
also in light of the rival factual  and  legal  contentions  raised  by  the
learned senior counsel for both the parties,  we  have  broadly  framed  the
issues which would require  our  consideration.  Since  the  only  issue  in
contention before us is that of limitation, we shall restrict our  attention
to that only. The main legal questions which arise in this case are-



 What is the meaning of the term “first learns” as  provided  under  Article
91(a) of the Limitation Act, 1963, and  whether  the  said  provision  would
apply to the facts of the present case?



Whether 07.11.1992 is the date on which  the  period  of  limitation  starts
running for institution of suit against the respondent Nos. 2-10, or  is  it
an earlier date?



What order?


Answer to Point 1:
We need to examine the provision of Article 91(a) of the Limitation  Act  to
understand the issue at hand. Article 91(a)  of  the  Limitation  Act  reads
thus:
|Description of Suit                  |Period of    |Time from which period    |
|                                     |Limitation   |begins to run             |
|91.For compensation,-                |Three years  |When the person having the|
|a) For wrongfully taking or detaining|             |right to the possession of|
|any specific movable property lost,  |             |the property first learns |
|or acquired by theft, or dishonest   |             |in whose possession it is.|
|misappropriation, or conversion      |             |                          |


                                  (emphasis laid by this Court)
Mr. Ram Jethmalani, the learned senior counsel appearing on  behalf  of  the
appellant, contended that while construing Article 91(a) of  the  Limitation
Act, Column 1 and Column 3 of Article 91(a) have to be read  in  conjunction
with one another. He further contended that  the  knowledge  required  under
Article 91(a) is knowledge of some definite person  who  can  be  identified
and against whom effective reliefs for restoration of property  in  question
can be obtained. The knowledge must be  such  that  as  would  afford  to  a
claimant a cause of action against the party to be sued. The learned  senior
counsel further contended that mere suspicion, surmise or conjecture is  not
knowledge. The belief must almost be certain. The court must find  that  the
plaintiff had, on credible evidence, reached a  fair  conclusion  about  the
existence of a cause  of  action  against  an  identifiable  defendant.  The
learned senior counsel placed reliance upon the case of  K.M  Talyarkhan  v.
Gangadas Dwarkadas[2], delivered by Justice Rangnekar  of  the  Bombay  High
Court in which it was held as under:
“the words whose possession means the possession  of  some  definite  person
who can be identified and against whom effective relief for  restoration  of
the property in question can be obtained.”

The learned senior counsel further contended that reference to  ‘the  person
in possession’ in column 3 of Article 91(a), indicates  that  the  knowledge
is one which must be of such person  who  on  the  information  derived  can
reasonably be sued. The learned senior  counsel  placed  reliance  on  three
judgments for the same. The first was the case  of  Muthu  Koraki  Chetty  &
anr. v. Mahamad Madar Ammal & ors. (supra), wherein it was held as under:
“Therefore, in my  opinion  the  true  rule  deducible  from  these  various
decisions  of  the  Juridical  Committee  is  this:  that  subject  to   the
exemption, exclusion, mode of  computation  and  excusing  of  delay,  etc.,
which are provided in the Limitation Act, the language of column 3  Schedule
1 should be so interpreted as  to  carry  out  the  true  intention  of  the
legislature, that is to say, by dating the cause of action from a date  when
the remedy is available to the party.”

The learned senior counsel also placed reliance on the case of Sarat  Kamini
Das v. Nagendra Nath Pal[3] decided  by  the  judicature  of  Calcutta  High
Court wherein it was held as under:
“In such a case at the time when the cause of  action  arises  there  is  no
person capable of suing upon it, the statute does not run: similarly  it  is
necessary that there shall ne a person to be sued; and it is also  necessary
that the cause of action should not be completed,  that  is  all  the  facts
must have happened which are material to be proved in order to  entitle  the
Plaintiff  to  succeed.  This  should  of  course  be  borne  in   mind   in
interpreting the intention of the legislature as expressed in  the  Articles
of the Act itself, or rather in such of them as admit of a consideration  of
the question as to when a cause of action arises.”

The learned senior counsel  on  behalf  of  the  appellants  further  placed
reliance on the case of Hari Mohan Dalal  v.  Parameshwar  Shau[4],  wherein
Chief Justice Rankin authoring a full bench judgment had held as under:
“The old English statute of Limitation had been  content  to  prescribe  the
period by putting as the limits so many years after  the  cause  of  action.
The Indian legislature endeavor in detail by the Limitation Act to state  in
the third column of the  Schedule,  the  event  which  is  to  be  taken  as
completing a cause of action that is the date from the time begins  to  run.
The language of this column of  the  schedule  should  in  general,  if  not
indeed always, be so interpreted as to carry out the true intention  of  the
legislature, that is to say, to date the cause of action from  the  date  on
which the remedy is available to the party.”

Thus, the contention of the learned senior counsel appearing  on  behalf  of
the appellant, Mr. Ram Jethmalani is essentially that Column  3  of  Article
91(a) must be read with Column 1. It leads to  the  indisputable  contention
that knowledge must be of  the  identity  of  a  specific  person  in  whose
possession the bonds are and that he acquired the  possession  of  the  said
bonds  under  an  arrangement,  which  in  law  would  constitute   wrongful
conversion.
On the other hand, the learned senior counsel appearing  on  behalf  of  the
respondents, Mr.  Rohit  Kapadia  and  Mr.  Pradeep  Sancheti  contend  that
Article 91(a) of the Limitation Act is not applicable to the  facts  of  the
instant case as it is applicable only to  “specific  movable  property”  and
that bonds are not specific movable property but chose in action.  Chose  in
action is not a thing and is not capable of  being  possessed.  The  learned
senior counsel placed reliance on the case of  Standard  Chartered  Bank  v.
Andhra Bank Financial Services Ltd & Ors.[5] wherein it was held as under:
“……a chose in action is not a thing, as, by definition, it  is  not  in  the
possession of someone, but that possession has to be acquired by some  joint
which is why it is called a chose-in-action.”

The learned senior counsel contends that Article  91(a)  of  the  Limitation
Act  deals  with  specific  movable  property  which  is  capable  of  being
possessed. Thus, movable  property  to  be  covered  under  the  purview  of
Article 91(a) must fulfill two criteria. Firstly, it must be  specific,  and
secondly, it must be capable of being possessed.
We are unable to agree with the contention of    Mr. Rohit Kapadia  and  Mr.
Pradeep Sancheti, the learned senior counsel  appearing  on  behalf  of  the
respondents. The suit bonds in  the  instant  case  are  movable  properties
which are capable of being possessed. The definition  of  the  term  movable
property can be found in Section 3(36) of  the  General  Clauses  Act,  1897
which reads thus-
“movable  property,  shall  mean  property  of  every  description,   except
immovable property.”

A reading of the sub-Section of the above  provision  makes  it  clear  that
everything that is not immovable is movable, and thus the suit bonds in  the
instant case are specific moveable property to which Article  91(a)  of  the
Limitation Act applies.
Mr. Rohit Kapadia and Mr.  Pradeep  Sancheti,  the  learned  senior  counsel
appearing on behalf of the respondents, further contend that conversion  for
the purpose of Article 91 (a) cannot be  divided  into  ‘honest  conversion’
and ‘dishonest conversion’. The learned senior counsel  placed  reliance  on
the case of Lewis Pugh Ewans v. Ashutosh Sen & Ors.[6] in which it was  held
that:-
“Article 48 alone refers to  conversion  and  their  lordships  can  see  no
ground for a splitting up conversion into two  clauses,  one  dishonest  and
the other no dishonest.”

The learned senior counsel appearing on behalf of  the  respondents  contend
that the distinction sought by SCB on the nature or degree of  knowledge  is
no distinction in the eyes of law and is of no consequence so far as  “first
learns” as it appears under Article 91(a) of the Limitation Act, 1963.
We are unable to agree with this contention advanced by the  learned  senior
counsel on behalf of the respondents. A perusal  of  Article  91(a)  of  the
Limitation Act  shows  that  it  is  meant  to  apply  to  specific  movable
property. It further stipulates that the period of  limitation  shall  start
running from the date when the person ‘first learns’  about  the  conversion
of the moveable property. While it is true that the word used  in  the  said
Article is “first learns” and not knowledge, it  is  difficult  to  construe
the word  “first  learns”  without  attributing  to  it  certain  degree  of
knowledge. The degree or the extent of knowledge is the  subject  matter  of
controversy in the instant case. The Article 91(a)  of  the  Limitation  Act
was the subject matter of controversy also in the  case  of  K.S  Nanji  and
Company v. Jatashankar Dossa & Ors.[7] wherein  the  terms  of  the  Article
were interpreted by this Court as under:
“The article says that a suit for recovery  of  specific  moveable  property
acquired by conversion or for compensation for wrongful taking or  detaining
of the suit property should be filed within three years from the  date  when
the person having the right to the possession of the property  first  learns
in whose possession it is. The question is, on whom the burden to prove  the
said knowledge lies? The answer will be clear if  the  article  is  read  as
follows: A  person  having  the  right  to  the  possession  of  a  property
wrongfully taken from him by another can file a suit  to  recover  the  said
specific moveable property or for compensation therefore within three  years
from the date when he first learns in  whose  possession  it  is.  Obviously
where a person has a right to sue within three years from the  date  of  his
coming to know of a certain fact, it is for him to prove  that  he  had  the
knowledge of the said fact on a particular date, for the said fact would  be
within his peculiar knowledge.”
                            (emphasis laid by this Court)
The provision of Article 91 (a) of  the  Limitation  Act  thus  demands  two
things. First is knowledge on the part of the plaintiff,  and  second,  that
the  said  fact  be  within  his  peculiar  knowledge.  We  agree  with  the
contention advanced by Mr. Ram Jethmalani, the  learned  senior  counsel  on
behalf of the appellant, that the term “first learns”  places  a  burden  of
knowledge which is rather specific in nature. Thus, the  knowledge  must  be
of the identity of a specific person in whose possession the bonds  are  and
that he acquired the possession of the  said  bonds  under  an  arrangement,
which in law would  constitute  wrongful  conversion.  The  knowledge  of  a
specific person against whom the suit can be instituted is what  is  crucial
here. A mere suspicion or a whisper of  knowledge  is  not  enough  for  the
period of limitation to start running. Point  number  1  is  thus,  answered
accordingly.

Answer to Point No. 2

Now that we have established that the burden of proof on  the  plaintiff  as
to the degree of knowledge is that of specific knowledge with  regard  to  a
specific person in whose possession the bonds were,  we  turn  to  determine
the fact as to when did the period  of  limitation  start  running  for  the
institution of the amendment to implead the  respondent  nos.  2-10  in  the
instant case. The period of limitation according to  Article  91(a)  of  the
Limitation Act  for  filing  a  suit  for  compensation  for  conversion  of
property is three years from the date on which the person having  the  right
to possession of  the  property  learns  in  whose  possession  it  is.  The
amendment to the suit to implead CMF and Hiten  P.  Dalal  was  effected  on
20.10.1995 vide a Chamber Summons. The case of the appellant is that it  was
during a meeting held on 07.11.1992 that they first  learnt  that  the  suit
bonds had been misappropriated by Hiten P.  Dalal  and  given  to  CMF.  The
learned Special Court came to the conclusion that the  plaintiff  (appellant
herein) had failed to establish the happening of  a  meeting  on  07.11.1992
for three reasons. Firstly, that if the appellant knew  of  the  transaction
between Hiten P. Dalal and CMF on 07.11.1992, then  they  should  have  been
impleaded as parties in the suit filed by the appellant on  27.11.1992,  and
that the appellant has not  given  any  reason  as  to  why  they  were  not
impleaded as parties on 27.11.1992 itself. Secondly, that no  reference  has
been made about this meeting by Mr. Kalyan Raman, PW-1, in  his  deposition,
who at the time had been deputed from Andhra Bank to  ABFSL,  who  was  also
alleged to have been present at the meeting. Thirdly, that  even  Mr.  David
Loveless PW-4, Director  of  Security  and  Investigations,  Office  of  the
Special Representatives of India (OSRI) does not make any reference to  this
meeting.  The  learned  Special  Court  further  held  that  the  defendants
(respondents  herein)  have,  on  the  basis  of  the  evidence  on  record,
established that the plaintiff had knowledge about possession of  the  bonds
at least on 18.03.1992 or 23.05.1992.

Mr. Ram Jethmalani, the learned senior counsel on behalf of  the  appellant,
contends that the period of limitation started running  on  07.11.1992,  and
that the finding of the learned special court that no meeting took place  on
that date is perverse for the reason that it is contrary to  legal  evidence
on record and therefore  deserves  to  be  set  aside.  The  learned  senior
counsel placed reliance on the deposition of Mr. Srinivasan,  PW-3,  deputed
to the Office of the Special  Representatives  in  India  for  the  Standard
Chartered Bank, which reads as under:
      “…I say that to the best of  my  recollection,  these  documents  were
prepared by me as a record of what transpired on 07  November,  1992  and  a
confirmation thereof  in  respect  of  the  transactions  mentioned  in  the
documents  therein  referred.  When  I  prepared  these   documents,   facts
mentioned therein were fresh in my memory. Having now  refreshed  my  memory
on the basis thereof I say that to the best of  my  recollection,  the  said
documents are a record of what transpired  at  the  said  meeting  mentioned
therein.
In view of the fact that the said document at Exh. A was not signed  by  me,
one Mr. Sanjeev Chugh from SCB, in or about early 1996 inquired from  me  as
to whether the copy of the minutes (being Exh. A hereto)  forwarded  by  him
to me at the time  had  in  fact  been  prepared  by  me  and  whether  they
accurately reflected what had transpired at that  meeting.  I  confirmed  to
the said Mr. Sanjeev Chugh that this  was  indeed  the  position.  Mr  Chugh
asked me to confirm the same to the bank  in  writing.  Accordingly,  on  11
March 1996 I addressed a letter dated 11 March 1996 to SCB (Exh.  B  hereto)
inter alia stating that due to inadvertence I had not  signed  the  note  at
the relevant time and confirmed that the original of  the  said  note  which
was with the bank reflected a  true  and  accurate  statement  of  what  had
transpired on 07 November 1992 and  further  confirmed  that  the  bank  may
refer to and rely upon the same in any legal  proceedings  as  it  may  deem
appropriate………”

The learned Special Court had disregarded the testimony of  PW-3  Srinivasan
in the following terms:
“The evidence of PW-3 Srinivasan itself does not  inspire  confidence  since
though he was a member of the  investigation  team,  he  does  not  remember
anything  else  about  the  transaction  of  the   Plaintiffs   except   the
circumstances under which he has signed the letter of confirmation- Exh  D2-
2.”

The learned senior counsel further contends that the  said  finding  of  the
learned special court ignores the provision of Sections 159  &  160  of  the
Indian Evidence Act, 1872 (hereinafter “the Evidence Act”). It is  contended
that the Evidence Act recognizes that human memory  is  fallible  and  after
some time, it may become totally blank about  a  transaction  of  long  ago.
Sections 159 and 160 of the Evidence Act are quoted hereunder:

“159. Refreshing memory: A witness may,  while  under  examination,  refresh
his memory by referring to any writing made by himself at the  time  of  the
transaction concerning which he is questioned, or so  soon  afterwards  that
the Court considers it likely that the transaction was at  that  time  fresh
in his memory. The witness may also refer to any such writing  made  by  any
other person, and read by the witness within the time aforesaid, if when  he
read it he knew it to be correct.”
“160. Testimony to facts stated in document  mentioned  in  Section  159-  A
witness may also testify to facts mentioned  in  any  such  document  as  is
mentioned in section 159, although he has no specific  recollection  of  the
facts themselves, if he is sure that the facts were  correctly  recorded  in
the document.”

It is further contended by Mr. Ram Jethmalani, the  learned  senior  counsel
on behalf of the appellant, that Mr. Srinivasan, PW-3, was called to  depose
in the year 2009 for a transaction that took place in November  1992.  Thus,
it would be  perfectly  reasonable  for  him  to  claim  that  he  remembers
practically nothing unless reminded by the contemporaneous document of  1992
of which, he had once before been  reminded  in  1996.  The  learned  senior
counsel further contends that no suggestion was put to him at  the  time  of
his cross examination regarding any bribery or inducement on behalf  of  the
CMF. No suggestion was also put to him that the letter dated 11.03.1996  was
not written by him. It was  further  not  suggested  to  him  that  no  such
meeting happened on 07.11.1992.

The learned senior counsel for  the  appellant  further  contends  that  the
respondent CMF in their Written Statement before  the  Special  Court  never
denied the happening of the meeting on 07.11.1992. Para 12  of  the  Written
Statement reads thus:-

“……this Defendant denies that S.R Ramaraj stated to CBI on 07.11.1992 or  at
any time that Defendant No.2 had a dummy transaction with the Fund  or  that
the details of the said alleged transactions came to light only  during  the
proceedings in Misc. Petition No. 81 of 1995.”

The  learned  senior  counsel  further  contends  that  because   even   the
respondent CMF never denied the happening of the meeting on 07.11.1992,  the
learned Special Court erred in coming  to  the  said  conclusion,  which  is
contrary to the pleading and evidence on record.



We agree with the contention advanced  by  the  learned  senior  counsel  on
behalf of the appellant,    Mr. Ram Jethmalani with regard  to  the  meeting
on the above date.

There needs to be  specific  denial  by  a  witness  as  to  the  suggestion
regarding the happening of a meeting for the Special Court to arrive at  the
conclusion that the meeting did not take place. Order VIII  Rule  5  of  the
Code of Civil Procedure, 1908 deals with this aspect,  which  is  reproduced
hereunder:
“Order VIII Rule 5 - Specific denial:
(1) Every allegation of fact in the plaint, if not  denied  specifically  or
by necessary implication, or stated to be not admitted in  the  pleading  of
the defendant, shall be taken to be admitted  except  as  against  a  person
under disability………”

It is a settled position of law that if an allegation made in the plaint  is
not  specifically  denied  in  the  written  statement,  it  is  treated  as
admitted, as was also held by this Court in the case  of  Balraj  Taneja  v.
Sunil Madan[8].
In the instant case, it is evident from the affidavit of Mr. Srinivasan, PW-
3 that the meeting happened on 07.11.1992, the relevant  part  of  which  is
extracted hereunder:
“…I say that to the best of my recollection, these documents  were  prepared
by  me  as  a  record  of  what  transpired  on  07  November,  1992  and  a
confirmation thereof  in  respect  of  the  transactions  mentioned  in  the
documents  therein  referred.  When  I  prepared  these   documents,   facts
mentioned therein were fresh in my memory. Having now  refreshed  my  memory
on the basis thereof I say that to the best of  my  recollection,  the  said
documents are a record of what transpired  at  the  said  meeting  mentioned
therein.”
                                  (emphasis laid by this Court)
He further stated in his cross examination conducted by the counsel for  the
defendant no. 2 Hiten P Dalal that:
“……I say that I have no personal  knowledge  of  the  transaction  which  is
mentioned in Exhibit A, i.e office  note  dated  7/11/1992  annexed  to  the
affidavit in lieu of evidence. I say that my memory has faded and  I  cannot
recall why the meeting mentioned in the office note dated  7/11/1992  marked
as Exh A was held. I do not recall the circumstances under  which  the  said
meeting took place. I do not recollect whether I had checked the records  of
the SCB pertaining to contents of this  office  note.  I  do  not  recollect
whether I had checked the record before mentioning the contents of the  said
note……I say that we were responsible  officers  of  the  Bank  and  whatever
transpired in the  meeting  was  mentioned  in  the  office  note  that  was
prepared after the meeting was over……………
I say that the meeting which is referred to in note dated 7/11/1992 was  not
called by me and normally I did not call or convene such meetings. I do  not
recollect who asked me to attend this meeting dated 7/11/1992 since  it  was
16 years back. I say that to the best of my  knowledge,  I  could  not  know
persons who were present in the meeting prior to  7/11/1992.  I  cannot  say
whether I was asked to attend the said meeting because it was  an  important
meeting……I say that to the best of  my  memory,  I  was  called  to  Canbank
Mutual Fund’s office to attend the meeting dated 7/11/1992. I  say  that  it
only out of my memory I say so and I do  not  have  any  record  in  support
thereof.”
                        (emphasis laid by this Court)
At no point of time was the suggestion put  to  him  regarding  the  meeting
itself not happening. Further, on the suggestion that the fact that  he  did
not originally sign the documents of the Minutes  of  the  Meeting  held  on
07.11.1992 shows that he had a fraudulent intention, his response was:
“I say that the words “at the relevant time” mentioned  in  second  line  of
letter at Exhibit-B to my affidavit of evidence,  pertain  to  1992.  I  say
that in 1996, I would have recollected that I have not signed the  note  and
therefore, I have mentioned in the said Exhibit-B that I have  inadvertently
not signed the said note. I say that there was no compulsion in me  to  sign
the said note which is at Exhibit-A to my affidavit in lieu of  evidence  in
1992. I say that it seems that it was a specific request was made  from  the
bank, and, as a result, I did  not  ask  any  question  as  to  whether  the
signature on the note was required or not. I say that  to  the  best  of  my
knowledge when I have mentioned “original of the said  note”  in  letter  at
Exhibit B dated 11/3/1996 annexed  to  my  affidavit  in  evidence,  I  have
referred to the original office note at Exhibit-A annexed  to  my  affidavit
of evidence.
I stand by whatever I have said in my affidavit in lieu of evidence.”
                                (emphasis laid by this Court)
On a careful examination of the above deposition of  Mr.  Srinivasan,  PW-3,
it becomes clear that a meeting     in fact, took place on  07.11.1992.  Mr.
Srinivasan has stated in his deposition that he prepared  a  document,  Exh.
A, which is the minutes of the  meeting  which  took  place  on  that  date.
According to this meeting, Mr. Ramaraj of Divisional  Manager  of  CMF,  Mr.
Kalyan Raman, Senior Vice President of ABFSL, Mr. Bhupinder  Kumar  and  Mr.
Azad of the CBI and  Mr.  N.  Srinivasan  of  the  SCB  were  present.   Mr.
Srinivasan further stated  in  his  deposition  that  he  had  inadvertently
forgotten to sign the document prepared by him which contained  the  minutes
of the meeting. On 11.03.1996, he signed a document, produced before  us  as
Exh. B, in which he has stated:
“I have perused the attached note dated 7 November 1992 prepared  by  me.  I
have inadvertently not signed the said note at  the  relevant  time.  I  now
confirm that the original of the said note which is  now  in  possession  of
the bank is true and accurate and the bank may refer to and  rely  upon  the
same in any legal proceedings as it may deem appropriate.”
           (emphasis          laid          by          this          Court)





























































































































































































































A careful examination of the testimony  of  Mr.  Srinivasan,  PW-3,  reveals
that a meeting did  take  place  on  07.11.1992.  Despite  a  lengthy  cross
examination conducted by the counsel for the respondents,  at  no  point  of
time the suggestion was put to  him  regarding  the  not  happening  of  the
meeting itself. The deposition of  Mr.  Srinivasan  not  only  confirms  the
happening of the meeting  on  07.11.1992,  but  also  throws  light  on  the
members present at the meeting, as well as the  events  that  transpired  at
the said meeting.
      Apart from the testimony of Mr. Srinivasan, the evidence of one  other
witness who was examined also conclusively  establishes  the  occurrence  of
the meeting on 07.11.1992. That is the deposition of Mr. David Loveless, PW-
4, who was appointed as the Director of Security and Investigations,  Office
of the Special Representatives for India  (OSRI)  in  August  1992.  He  has
stated in his affidavit as under:
      “I say that at the relevant time  when  the  suit  was  filed  i.e  27
November 1992 the Bank was under the impression  that  with  regard  to  its
purchase of 17% NPCL bonds from ABFSL, plaintiff had not  received  physical
delivery of the bonds or Letter of Allotment from ABFSL,  but  that  it  had
received  merely  a  photocopy.  This  was  based  on  the  records  of  the
Plaintiff, being the “Bank  Receipts  Held  Register”  which  reflected  the
receipt of a photocopy of the original LOA. Hereto  annexed  and  marked  as
EXHIBIT “A” is a  copy  of  the  relevant  extract  of  the  said  Register.
However, on 7 November, 1992, at a meeting which was attended inter alia  by
Plaintiff’s representative Mr. N Srinivasan and Mr. R.  Ramaraj  of  Canbank
Mutual Fund, Plaintiff became aware of the fact  that  the  CMF  claimed  to
have received the original Letter of Allotment from Hiten P Dalal,  who,  it
appears, had handed over the said Letter of Allotment to  CMF  in  order  to
satisfy some alleged outstanding liabilities of HPD to the said fund,  which
has arisen in respect of some alleged security transactions  engaged  in  by
the CMF with HPD in November 1991.”
                              (emphasis laid by this court)
It becomes manifestly clear from an examination of  the  deposition  of  Mr.
Srinivasan, PW-3 and Mr. Loveless, PW-4 that a meeting did infact  occur  on
07.11.1992.  The  learned  senior  counsel  appearing  on  behalf   of   the
respondents has not been able to show any reason  as  to  why  the  evidence
rendered by this witness should be disbelieved.
     The learned Special Court recorded the finding of fact holding that  no
meeting had occurred on 07.11.1992 on the primary ground  that  neither  Mr.
Kannan, PW-2 nor Mr. Ramaraj, both of whom were allegedly  present  at  this
meeting, mentioned the  happening  of  a  meeting  on  07.11.1992  in  their
depositions. The learned Special Court erred in  coming  to  the  conclusion
that no meeting has occurred on 07.11.1992 for the reason that  Mr.  Ramaraj
and Mr. Kannan, PW-2 did not mention this meeting in their  deposition,  and
thus, going against the well settled principle of law of ‘specific  denial’.
Mr. Srinivasan, PW-3 and Mr. Loveless, PW-4, both  specifically  deposed  as
to the happening of a meeting  on  07.11.1992.  Thus,  the  learned  Special
Court could come to the conclusion that the meeting did not happen was  only
if some witness deposed specifically that the meeting  did  not  happen.  In
the  instant  case,  no  witness  was  specifically  asked  in   the   cross
examination by the counsel for the respondents about the  happening  of  the
meeting on 07.11.1992. Thus, no witness expressed in  as  many  clear  terms
that the purported meeting infact did not take place.
    On the basis of the legal evidence placed on  record  by  the  appellant
before  the  Special  Court  that  a  meeting  did  infact  take  place   on
07.11.1992, we turn our attention to what happened at the said meeting.  The
note prepared by Mr. Srinivasan, PW-3, after the said meeting,  produced  as
Exh. “A” states as under:
“CMF says the following:
There was an initial purchase in end 1991, by CMF from HPD of some  security
against which HPD did not deliver physicals to CMF.
Consequently, HPD had a dummy sale/ purchase transaction  with  CMF  for  FV
Rs. 100 crs and delivered 9% NPCL and 17% NPCL to CMF on 26.02.92. The  deal
slip indicates deal with ABFSL, but difference between sale  &  purchase  of
Rs. 3 crores was paid to HPD directly by Andhra Bank……”

A perusal of the record prepared by Mr. Srinivasan,  PW-3,  makes  it  amply
clear that it was during this meeting on 07.11.1992 that CMF first  admitted
to SCB regarding the dummy sale involving the 9% NPCL  bonds  and  17%  NPCL
bonds. At this point, we would like to reiterate  that  the  learned  senior
counsel appearing on behalf of the respondents have not been able  to  point
out  any  reason  for  us  to  disbelieve  either  the  deposition  of   Mr.
Srinivasan, PW-3, or the documents prepared by him, which have  been  placed
on record.
Thus, we conclude that a meeting did infact take place in the office of  CMF
on 07.11.1992, and that it was on this date that SCB  found  out  about  the
dummy transaction that had taken  place  between  CMF  and  Hiten  P.  Dalal
regarding the 9% and 17% NPCL bonds. Therefore, the finding recorded by  the
learned Special Court is erroneous both in fact and in law, hence  the  same
is liable to be set aside.

In light of the fact  that  the  knowledge  of  the  appellant  had  started
running on 07.11.1992, the question that  now  remains  to  be  answered  is
whether there was any previous date  on  which  it  was  possible  that  the
appellant had acquired  knowledge  of  the  conversion  of  the  bonds.  The
learned senior counsel appearing on behalf of  the  respondents,  Mr.  Rohit
Kapadia and Mr. Pradeep Sancheti,  contend  that  there  are  atleast  three
alternate prior dates on which the appellant can be said  to  have  acquired
knowledge of the fraud perpetrated on it by  the  respondents.  These  dates
are 18.03.1992, 10.04.1992 and 23.05.1992.


We have heard Mr. Ram Jethmalani, the learned senior  counsel  appearing  on
behalf of the appellant and Mr. Rohit Kapadia and Mr. Pradeep Sancheti,  the
learned senior counsel appearing on  behalf  of  the  respondents  and  have
perused the documents produced before  us  as  evidence.  We  shall  examine
these dates one by one  in  order  to  conclude  whether  knowledge  of  the
appellant can be construed from any one of these dates, from which date  the
period of  limitation  for  instituting  the  suit  for  claim  against  the
respondents starts running.


It is contended by the learned senior counsel appearing  on  behalf  of  the
respondents that the first date on which knowledge can be attributed to  the
appellant is 18.03.1992. The learned senior counsel places reliance  on  the
second amendment to the Plaint dated October 2006  in which  it  is  stated:












































“………Significantly, although, admittedly, 3rd Defendant on 17 March 1992  had
physical possession, of the  said  bonds  (the  LOA  representing  the  said
bonds), 3rd Defendant deliberately did not deliver  to  the  plaintiffs  the
said bonds and instead delivered  to  the  Plaintiffs,  3rd  Defendant’s  BR
bearing No. 2767. In view thereof,  Plaintiffs  did  not  realize  that  the
original letter of allotment which has been delivered to the  Plaintiffs  on
27 February 1992 was, in fact, in the possession of 3rd Defendant as  on  17
March 1992……”

The learned senior counsel  further  places  reliance  on  para  7E  of  the
amended plaint which reads thus:
       “…………Had  3rd  Defendant,  delivered  to  plaintiffs,   against   the
transaction of 17 March 1992, the original Letter of  Allotment,  which  was
in the possession  of  3rd  Defendant,  Plaintiffs  would  have  immediately
realized the fraud that had been played on the Plaintiffs…………”

The learned senior  counsel  for  respondent  Nos.  2  to  10  contend  that
18.03.1992 would be a crucial  date  regarding  definite  knowledge  of  the
appellant about possession  of  the  bonds  by  CMF.  CMF  had  specifically
pleaded that it had delivered the bonds on 18.03.1992 to the  appellant  and
in turn the appellant discharged its Bank  Receipt  No.  2767  acknowledging
the same. The learned senior counsel further places  reliance  on  the  Bank
Receipt No. 2767 produced as Exh. P-16, dated 17.03.1992, which contains  an
endorsement “bonds delivered 18/3/92”.   According  to  the  learned  senior
counsel  on  behalf  of  the  respondents  that  the   said   Bank   Receipt
conclusively proves the delivery of the  physical  bonds  to  the  appellant
SCB.

Mr. Ram Jethmalani, the learned senior counsel appearing on  behalf  of  the
appellant, on the other hand contends that in para 7E of the Plaint, it  has
been clearly and specifically alleged  that  on  18.03.1992,  the  17%  NPCL
bonds were delivered directly through Hiten P. Dalal to ANZ  Bank,  to  whom
SCB had sold  the  said  bonds  on  26.02.1992  itself.  He  further  places
reliance on the affidavit of Mr. S. Ramaraj, authorized employee  and  agent
of CMF. This affidavit was produced in  the  suit  before  the  Company  Law
Board. He had stated therein:
“Even in respect of the 17% NPCL  bonds  which  were  subsequently  sold  on
17.3.1992 by the Petitioners (CMF) to Respondent no. 4 (SCB) as set  out  in
para A above,  the  Petitioners  (CMF)  had  entered  into  the  transaction
through respondent no. 2 (HPD) who acted as the broker………The RBI cheque  for
the net amount of Rs. 15,23,973.61 issued by Respondent no. 4 in  favour  of
the Petitioners was delivered to the Petitioners (CMF) by respondent  no.  2
(HPD) and likewise the BR in respect of the  sale  of  17%  NPCL  bonds  was
delivered by the Petitioners (CMF) to respondent  no.  2  (HPD)  for  onward
delivering to the Purchaser. Subsequently, even when the original letter  of
allotment was exchanged for the BR, the said exchange also had  taken  place
through respondent no. 2 (HPD) and/ or his servants and agents.”

The learned senior counsel on behalf of the appellant submits that the  said
affidavit  states  that  the  17%  NPCL  bonds  were  purchased  by  CMF  on
27.02.1992 from ABFSL through its broker Hiten P. Dalal along with  9%  NPCL
Bonds. Mr. Ramaraj further said that the very same bonds  were  subsequently
sold by CMF to SCB, on 17.03.1992. The Bank Receipt issued was exchanged  by
delivery of original LOA  on  18.03.1992.  He  does  not  say  that  it  was
delivered to the SCB. The learned senior counsel contends that  in  view  of
the averments of the affidavit of Mr. Ramaraj, the knowledge  of  the  bonds
being delivered to the Company on 18.03.1992  is  not  tenable  in  law.  He
further contends that the learned Special Court erred in  arriving  at  this
conclusion on facts, which is contrary to the affidavit of Mr.  Ramaraj  and
therefore, the said finding is erroneous, liable to be set aside.

The  learned  Special  Court  has  erroneously  held  that  the  period   of
limitation for institution of the suit by the appellant would start  running
on 18.03.1992, as  there  was  no  evidence  on  record  to  show  that  the
appellant did not have knowledge that this was the only set of  bonds  which
were used by NPCL and therefore there was no question of other  bonds  being
in circulation. The learned Special Court further held that  the  burden  of
proving the non existence of knowledge was on the  appellant,  and  that  in
the absence of evidence on this point, it would have to be  held  that  when
the bonds were returned by CMF to ANZ on  that  date  itself  the  appellant
became aware of the possession of the bonds by CMF, and that is the date  on
which the period of limitation would start running for  institution  of  the
suit against the respondents.


As has already been discussed by us in an earlier  part  of  this  judgment,
the period of limitation under Article 91(a) of the  Limitation  Act  starts
running on the date that the plaintiff acquires knowledge  of  the  identity
of the person who is in possession of the bonds.  Apart  from  knowledge  of
the identity of the person, Article 91(a) also requires the  knowledge  that
the possession of the bonds was acquired by means of wrongful conversion.


The evidence of Mr. Ramaraj, as produced before the Company Law  Board,  has
been grossly misinterpreted by the learned Special Court. The  affidavit  of
Mr. Ramaraj clearly states that the Bank Receipt in respect of the said  17%
NPCL bonds was delivered by CMF to Hiten P.  Dalal for  onward  delivery  to
the ‘purchaser’. The purchaser in this context refers to ANZ. The  affidavit
of Mr. Ramaraj makes it amply clear that at no point of time  did  SCB  have
possession of the physical bonds. It was Hiten P. Dalal who  delivered  them
to ANZ. Thus, the finding of the learned Special Court as  to  the  date  of
knowledge being 18.03.1992 is perverse and is liable to be set aside.


The next date of knowledge, as contended by the learned  senior  counsel  on
behalf of the respondents, is 10.04.1992. It was contended  by  the  learned
senior counsel appearing on behalf of  the  respondents  that  the  list  of
transactions disclosed by the  SCB  to  the  Joint  Parliamentary  Committee
reflects a transaction for sale dated 10.04.1992. In Para 7I of the  Plaint,
the appellant had stated that they had realized that there was a  ‘hole’  or
a shortfall in their Securities Account pertaining  to  the  transaction  of
26.02.1992 between the appellant and ABFSL, in view of  the  belief  of  the
appellant that the said bonds  under  the  said  transaction  had  not  been
received from ABFSL. It was further stated in the plaint  that  the  dealers
of the appellant then entered into  a  dummy  transaction  dated  10.04.1992
with ABFSL. In fact, the said purported transaction was  a  mere  unilateral
set of entries effected in the books of  the  appellant  and  that  so  such
transaction  took  place.  The  learned  senior  counsel  contends  that  no
evidence  has  been  placed  on  record  to  show  that  this  was  a  dummy
transaction, and that the  date  of  knowledge  imputed  to  SCB  should  be
10.04.1992.

It is further contended by Mr. Ram Jethmalani, the  learned  senior  counsel
appearing on behalf of the appellant, that 10.04.1992 cannot  be  considered
to be the date on which knowledge of  the  conversion  can  be  said  to  be
imputed to SCB. He relied on the evidence of Mr.  Kalyan  Raman,  PW-1,  who
has stated thus:
“My attention has also been  drawn  to  para  6  (c)  of  the  Miscellaneous
Petition No. 81 of 1995 filed by  Defendant  No.3  before  the  Company  Law
Board. I say that ABFSL  had  not  entered  into  any  of  the  transactions
mentioned in para 6(c) of the Miscellaneous Petition No.  81  of  1995  with
CMF or any other party.”

The learned senior counsel for the appellant contended that  this  testimony
of Mr. Kalyan Raman, PW-1, who was  an  employee  of  ABFSL  at  that  time,
clearly establishes that there were no transactions between  SCB  and  ABFSL
on 10.04.1992. This was the best evidence on the matter  in  favour  of  the
appellant which is conveniently omitted to  be  considered  by  the  learned
Special Court while recording  the  finding  on  the  contentious  issue  of
limitation.
The learned Special Court  dismissed  the  claim  of  the  respondents  that
10.04.1992 could be the date on which knowledge can be said  to  be  imputed
to the appellant on the ground  that  the  respondents  had  not  proved  by
leading  any  cogent  evidence  that  the  appellant  became  aware  of  the
conversion on 10.04.1992. The learned Special Court further  held  that  the
respondents had failed  to  show  that  the  said  transaction  was  settled
against bonds for valuable consideration.

We agree with this finding of the learned Special Court.  The  testimony  of
Mr. Kalyan Raman, PW-1, makes it manifestly clear that no  transaction  took
place between ABFSL and  SCB  on  10.04.1992,  and  thus,  the  question  of
imputing knowledge to the appellant on that date  does  not  arise  for  the
purpose of limitation begins to run for the  appellant  for  institution  of
the suit claim against the respondents.


The next date, which has been  most  vehemently  contended  by  the  learned
senior counsel appearing on behalf of the respondents, is 23.05.1992.


The learned senior counsel for the respondents place reliance on para  4  of
the Written Statement submitted by them before  the  learned  Special  Court
which stated:
“Further according to the  Plaintiffs,  they  had  a  meeting  with  various
brokers, including Hiten P. Dalal on 23.05.1992 wherein in relation  to  the
alleged Andhra Bank Financial transactions relating  to  NPCL  bonds  he  is
alleged to have “admitted that he diverted the Bonds to Citibank”. Thus,  on
the Plaintiffs own showing, without any manner admitting the correctness  of
the allegations, in any case, latest by May, 1992 the Plaintiffs  are  aware
that Hiten P Dalal had traded in the said Bonds and in  fact  delivered  the
same Bonds to CMF.”

The learned senior counsel further submit that the happening  of  a  meeting
on 23.05.1992 is an admitted fact. During the course of the  meeting,  there
was a specific discussion with regard to the NPCL  bonds,  of  both  9%  and
17%. The minutes of the meeting, produced before us as Exh. D-2(1) state:

“On the Andhrafina transactions relating to the NPCL  bonds  where  SCB  was
provided with photocopies of the bonds instead of  originals,  HPD  admitted
that he had divereted the bonds to Canbank………”


The learned senior counsel for the  respondents  further  contend  that  the
meeting of 23.05.1992 is a material fact, which ought to have  been  pleaded
by the appellant particularly since admittedly, the appellant  was  informed
of  the  conversion  of  the  suit  bonds  on  that  day  and  the   alleged
explanation, as to whether the knowledge was  complete  or  incomplete  etc.
ought to have been a part of its pleading.


The learned senior counsel on behalf  of  the  respondents  further  contend
that the distancing of the appellant from  the  clear  knowledge  about  the
diversion of the bonds to CMF by Hiten P. Dalal by insisting that  the  said
information was purely informal, and that Hiten P.  Dalal  had  even  stated
that he would deny this conversation if the SCB ever sought to  make  formal
use of his statement is a clear tactic  of  evasion.  He  further  contended
that the minutes of the meeting do  not  contain  any  such  reservation  as
claimed by the appellant.



The learned Special Court, while arriving at the  conclusion  on  the  facts
pleaded and evidence on record that 23.05.1992 can also be considered to  be
the date from which knowledge can be said to be  imputed  to  the  appellant
regarding the conversion of the bonds in question, relied primarily  on  the
evidence of        Mr. Kalyan Raman, PW-1,  who  was  also  present  at  the
meeting held on 23.05.1992. He has stated in his affidavit submitted  before
the learned Special Court as under:
“I further state that in view of the  fact  that  SCB’s  investigation  team
headed by Mr. Wasim Saifee, had inter alia informed  me  about  the  missing
NPCL bonds, both Saifee and myself did inquire from HPD, in  the  course  of
the meeting held on 23rd May 1992 as to what had really happened in  respect
of the said  transactions  with  ABFSL  on  26th  February  1992.  HPD  also
informed us that insofar as the transactions wherein SCB  had  purchased  9%
NPCL bonds of FV 50  crores  and  17%  NPCL  bonds  of  FV  50  crores  were
concerned and in respect of which SCB had paid  full  consideration  but  in
respect of which SCB records reflected receipt of only  photocopies  of  the
original LOA’s, that he (HPD) had diverted the said bonds to Canara Bank.”

The learned Special Court further held that  Mr.  Kalyan  Raman,  PW-1,  had
also identified the minutes of the meeting which had been placed on  record.
There was no mention of the evasive response given by  Hiten  P.  Dalal,  or
that he had stated that the said information was informal and that he  would
deny this conversation if the SCB ever sought to make  formal  use  of  this
conversation. It was further held that Hiten P. Dalal did  disclose  in  the
meeting on 23.05.1992 about  diversion  of  the  bonds  to  CMF.  Thus,  the
appellant first learnt about the diversion on 23.05.1992 of the  suit  bonds
to CMF.

Mr. Ram Jethmalani, the learned senior counsel appearing on  behalf  of  the
appellant, on the other hand contends that 23.05.1992 cannot be taken to  be
the date on which SCB had knowledge of the conversion of the suit bonds.  He
submits that knowledge is not mere suspicion, and that it must be  knowledge
of such a nature as will enable the person defrauded to seek a remedy  in  a
court of law. He further contends that the fact that appellant did not  know
of the role played by Hiten P. Dalal and that this becomes amply clear  from
the FIR filed by them dated 20.06.1992. The appellant was  under  the  clear
impression that the suit bonds had not been received by them,  and  that  it
had only received a Bank Receipt which had been returned to ABFSL.


We agree with the submission of Mr. Jethmalani, the learned  senior  counsel
on behalf of the appellant. The learned Special Court erred in  arriving  at
the conclusion that 23.05.1992 could be a  date  from  which  the  appellant
could be said to have knowledge of the diversion of the suit bonds by  Hiten
P Dalal. In this context, we would turn our attention to the evidence of PW-
2, Mr. Kannan, who also stated  after  stating  that  Hiten  P.   Dalal  had
admitted the diversion of bonds:
“In the said meeting, I pressed H.P. Dalal to furnish  me  the  details  and
particulars with regard to his allegations of alleged  diversion  to  Canara
Bank of the said NPCL bonds. HPD was however evasive and did not afford  any
cogent reply. I  specifically  inquired  from  him  as  to  the  manner  and
circumstances of the alleged diversion. However when pressed by me  to  give
particulars and details,  he  refused  to  state  anything  further  on  the
subject and instead insisted  that  the  said  information  of  the  alleged
diversion of the Bonds to Canara Bank was purely informal and that he  would
deny his conversation with the SCB if the SCB were to seek  to  make  formal
use of his statement.
……The matter of NPCL bonds was thereafter discussed by  me  with  the  other
senior managers of SCB but in view of the lack of any  details/  particulars
forthcoming from HPD and in view of his failure to adhere to his  assurances
and commitments of delivery of stocks/ securities/ reimbursement  of  losses
assured by him to be delivered between 18 and 22 May 1992, it was felt  that
no credence could be placed on the said statement made by  HPD  with  regard
to NPCL bonds at the relevant time.”
                                (emphasis laid by this Court)
We also turn our attention to the cross  examination  of  this  witness  who
stated:
“You have stated that “HPD  was  evasive  and  did  not  afford  any  cogent
reply.”  Which of these statements is correct?
Both are correct

I say that the meetings which are referred to in para 17 in my  evidence  in
earlier suit would include the meeting dated 23rd May, 1992.
…I say that HPD had admitted that he had diverted  the  original  letter  of
allotment to Canara Bank and had not delivered the same to SCB.
I say that since he had mentioned diversion of the bonds I thought  that  he
might have misappropriated the bonds. I agree  that  misappropriation  is  a
serious matter. I say that I reported this to Mr. Wasim Saifi. He  was  also
present in the meeting and he has prepared this note and he told me that  he
would verify the record and go further in detail and  therefore,  this  fact
should not be mentioned in the office note.
How are NPCL bonds transactions a specific instance of  ‘Entry  Guma  diya’,
‘Duplicate funding hoya’ and ‘Duplicate funding kiya’?
I say that when Mr. HPD informed us that the original letters  of  allotment
were diverted to Canara Bank, I thought that it must be falling  in  one  of
these categories. I say I thought it would fall within one of these
would verify the record and go further in detail and  therefore,  this  fact
should not be mentioned in the office note.
How are NPCL bonds transactions a specific instance of  ‘Entry  Guma  diya’,
‘Duplicate funding hoya’ and ‘Duplicate funding kiya’?
I say that when Mr. HPD informed us that the original letters  of  allotment
were diverted to Canara Bank, I thought that it must be falling  in  one  of
these categories. I say  I  thought  it  would  fall  within  one  of  these
categories because of diversion of securities.”

In this connection, it also important to examine the testimony of PW-4,  Mr.
David Loveless, who was investigating these transactions at  that  time.  He
has expressly stated:
“……I was informed that on  23  May  1992  at  a  meeting  held  between  the
Plaintiff’s officers and various brokers,  including  inter  alia  HPD,  the
said HPD had casually mentioned the said 17% NPCL bonds  had  been  diverted
by him to Canara Bank. However, I was informed by the Plaintiff’s  officers,
who attended the said meeting that when HPD was pressed to give details  and
particulars of the alleged diversion and manner and  circumstances  thereof,
he had resisted evasively and had refused to furnish  any  details  and  had
even gone to the extent of stating that the information divulged by him  was
purely informal and that if the Plaintiffs were  to  seek  to  make  use  of
thereof in any legal proceedings, he (HPD) would deny the same.
In this connection, I say that I was subsequently briefed by the members  of
the investigation team including Mr. Waseem Saifi as also by Mr. Kannan  who
were present in the said meeting held on 23 May 1992.  From  the  report  of
the said Mr. Kannan, it was clear to me that no  reliance  could  be  placed
upon what HPD had vaguely alleged. It was in these circumstances  that  when
the plaintiff originally filed its Suit no. 6 of 1994, on 27 November  1992,
Plaintiff confined its claim only against ABFSL, which it believed,  on  the
basis of its information and record had failed to deliver the  original  LOA
in respect of Rs 50 crores FV 17% NPCL bonds,  which  it  had  sold  to  the
Plaintiff on 25 February 1992. I was only thereafter, in  the  circumstances
referred to by me hereinabove that Plaintiff realized that the said LOA  had
possibly been converted by CMF and  only  thereafter  upon  discovering  the
said fact and learning of the said conversion effect by CMF  that  plaintiff
took steps to amend  its  Plaint  and  claim  in  the  alternative,  damages
against CMF for conversion. I  further  say  that  the  said  amendment  was
necessitated on accounts of  the  facts  that  emerged  after  the  CBI  had
investigated the matter pursuant to SCB’s FIR dated 20  June  1992  and  the
charge sheet filed pursuant thereto, dated 16 June  1995.  I  further  state
that after filing its FIR dated 20  June  1992,  SCB  was  waiting  for  the
outcome of the CBI investigation.”
A careful examination of the deposition of  these  two  witnesses  makes  it
manifestly clear that the revelation made  by  Hiten  P.  Dalal  during  the
meeting held on  23.05.1992,  did  not  give  the  appellant  the  knowledge
requisite for the purpose of  Article  91(a)  of  the  Limitation  Act.  The
revelation in contention made by Hiten  P.  Dalal  was  vague  and  he  gave
evasive responses after the same and thus, it is not  reasonable  to  expect
the appellant to believe the same and  initiate  legal  proceedings  on  the
basis of the said statement.
We examined all the dates alternative dates prior to 07.11.1992 proposed  by
the respondents, where  knowledge  could  be  said  to  be  imputed  to  the
appellant for institution of suit against the respondents. We find no  merit
in the contentions urged by the learned senior counsel for the  respondents.
The period of  limitation  would  start  running  only  on  07.11.1992,  the
reasons for which we have already elaborately stated in an earlier  part  of
this judgment. We set aside the finding of the learned Special Court on  the
contentious issue nos.1 and 2 framed in the suit  that  the  institution  of
the suit of the  appellant  against  Respondents  Nos.  2-10  is  barred  by
limitation.
Answer to Point No. 3

Since we have set aside the finding of fact recorded by the learned  Special
Court holding that the suit is barred by limitation, as  prescribed  in  the
Schedule to the Limitation  Act,  1963  by  recording  the  reasons  in  the
preceding paragraphs of this judgment and the  other  issues  including  the
issue on the merits of the claim  were  held  in  favour  of  the  plaintiff
(appellant herein) by  the  learned  Special  Court,  which  have  not  been
challenged by the Respondents 2-10  by  filing  an  appeal,  therefore,  the
appellant is entitled for a decree  of  the  suit  claim  of  the  principal
amount adjudged as  on  the  date  of  the  institution  of  the  suit.  The
appellant is also entitled to interest pendente lite  and  future  interest.
This transaction can be termed as a commercial transaction  and  Section  34
of the Code of Civil Procedure, 1908 confers discretionary power  upon  this
Court to award interest at  appropriate  rate  on  the  suit  claim  of  the
appellant. We have considered with regard to the facts and circumstances  of
the case as to what should be the reasonable rate of interest to be  awarded
on the suit claim both for the  period  of  pendente  lite  and  for  future
interest and from what date to be ordered. The suit in the instant case  was
instituted before the Special Court on 27.11.1992, but the respondent nos.2-
10 were brought on record as parties to the suit by  way  of  an  amendment,
which was allowed on 10.01.1996. Therefore,  it  would  be  appropriate  for
this Court to award interest from the above said  date  during  pendency  of
the proceedings before the Special Court and this Court and also for  future
rate of interest  at  6%  per  annum  till  the  date  of  realisation.  The
Particulars of Claim, marked as Exh.  “E”  to  the  plaint  shows  that  the
appellant had claimed 20% interest from 26.02.1992 till  27.11.1992  at  the
principal  sum  of  Rs.48,02,50,000.00,  to  arrive   at   the   amount   of
Rs.55,26,16,438.36 as the adjudged principal amount. Since we  have  awarded
interest at the rate of 6% per  annum,  we  shall  calculate  the  principal
amount of Rs.48,02,50,000.00, on  that  rate  itself  for  the  period  from
26.02.1992  to  27.11.1992  at   that   rate   itself   which   amounts   to
Rs.50,18,61,250.00 will be the adjudged principal amount from  the  date  of
institution of the suit.

For the foregoing reasons, we set aside  the  judgment  and  decree  of  the
dismissal of the suit on the question of limitation  and the suit  claim  as
indicated herein below with interest and costs is allowed by allowing  these
appeals in the following terms:-


 The respondent nos.2-10 are directed to pay the adjudged principal  sum  of
Rs.50,18,61,250.00 along with interest at the rate  of  6%  per  annum  from
10.01.1996 till the date of  realisation  with  suit  costs  throughout  for
having converted the suit bonds. The above respondents shall be jointly  and
severally liable to  pay  the  same  to  the  appellant.  The  appellant  is
permitted to file memo costs  of  the  suit  proceedings  throughout  within
three weeks from the date of receipt of the copy of this judgment.



……………………………………………………………………J.
                          [V.GOPALA GOWDA]


                              …………………………………………………………………J.

                          [R. BANUMATHI]


New Delhi,
August 28, 2015
-----------------------
[1]    (2006) 6 SCC 94
[2]    (1935) ILR 60 Bom 848
[3]    AIR 1926 Cal 65
[4]    AIR 1928 Cal 646
[5]    (2006) 6 SCC 94, para 84
[6]    AIR 1929 PC 69
[7]    AIR 1961 SC 1474
[8]     (1999) 8 SCC 396

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