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.
-----------------------
42
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.
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[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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42
