HONGKONG & SHANGHAI BANKING CORPN. LTD. Vs CANBANK FINANCIAL SERVICES LTD.
Bench: CHANDRAMAULI KR. PRASAD,V. GOPALA GOWDA
Case number: C.A. No.-005281-005281 / 2004
Diary number: 16444 / 2004
Advocates: Vs
S. THANANJAYAN
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NON-REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.5281 OF 2004
HONGKONG & SHANGHAI BANKING CORPN. LTD. APPELLANT
VERSUS
CANBANK FINANCIAL SERVICES LTD. & ANR. RESPONDENTS
JUDGMENT CHANDRAMAULI KR. PRASAD,J.
Defendant No. 1, the Hongkong & Shanghai
Banking Corporation Ltd., a Company incorporated
under the laws of Hong Kong, aggrieved by the
judgment and decree dated 30th of June, 2004 passed
by the Special Court (Trial of Offences relating
to Transaction in Securities), Bombay in Suit No.
11 of 2002 decreeing the plaintiff’s suit for a
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sum of Rs. 18,59,71,808.22/- along with interest
at the rate of 15% has preferred this appeal.
Plaintiff Canbank Financial Services Ltd.,
respondent no. 1 herein filed the suit seeking a
decree directing defendant no. 1 to pay to the
plaintiff a sum of Rs.33,13,42,781.62/- with
further interest thereon at the rate of 24% per
annum compounded quarterly from the date of the
suit till realization. According to the
plaintiff, it is a Company incorporated under the
Companies Act and a subsidiary of Canara Bank.
Plaintiff has averred that it is engaged in the
business of providing financial and management
consultancy services and trading in Government and
public sector securities and bonds. In course of
business the plaintiff buys and sells Government
and public sector bonds and securities in
accordance with the guidelines issued from time to
time by the Reserve Bank of India. The
plaintiff’s case is that on 24th of June, 1991, it
purchased from defendant no. 1, through a broker
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M/s. Naresh K. Aggarwala, Coal India bonds of the
face value of Rs. 18 crores. The broker issued a
contract note of the same date. The plaintiff, in
order to obtain from bank a pay order in favour of
the seller, gave a cheque in favour of the said
bank. Accordingly, the Canara Bank issued a pay
order favouring defendant no. 1, for a sum of
Rs. 18,59,71,808/- specifically mentioning that
the pay order is on account of the plaintiff
Canbank Financial Services Ltd. The plaintiff’s
case further is that during the reconciliation of
the securities account in or about September,
1994, the plaintiff found that the Coal India
bonds purchased by it from defendant no. 1 on 24th
of June, 1991 have not been received by them.
Accordingly, plaintiff wrote a letter dated 1st of
October, 1992 to defendant no. 1 for delivery of
the bonds or to refund the amount paid by it.
According to the plaintiff, defendant no. 1
acknowledged the receipt of the aforesaid amount
by Canara Bank pay order but asserted that it was
for settlement of Canbank Mutual Fund bank receipt
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No. 2214 issued by them in its favour on 8th of
May, 1991. It is the assertion of the plaintiff
that defendant no. 1 was not justified in
adjusting the amount paid by the plaintiff for
purchase of bonds towards transactions between
defendant no. 1 and Canbank Mutual Fund. The
plaintiff has alleged that the transaction between
defendant no. 1 and Canbank Mutual Fund are
totally unconnected with the transaction between
plaintiff and defendant no. 1.
On the aforesaid pleadings, the plaintiff
filed the suit seeking the relief aforesaid on its
assertion that the action of defendant no. 1 by
adjusting the amount paid by the plaintiff towards
payment allegedly due to defendant no. 1 from
Canbank Mutual Fund is totally unauthorized.
The defendant no. 1 contested the suit and
its plea in the written statement is that on 8th of
May, 1991, through a broker M/s. Naresh K.
Aggarwala, defendant no. 1 purchased Coal India
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bonds of the face value of Rs.18 crores from
Canbank Mutual Fund and paid to it an amount of
Rs.18,05,64,657.53/-. Defendant no. 1 received
from Canbank Mutual Fund bank receipt No. 2214
promising to deliver securities purchased by the
plaintiff from the Canbank Mutual Fund. The plea
of defendant no. 1 further is that on 24th of June,
1991 it sold the same securities to Canbank Mutual
Fund and in consideration, received a cheque from
Canara Bank for Rs. 18,59,71,808.22/-, which is
the principal trustee of Canbank Mutual Fund.
Further plea of defendant no. 1 is that along with
the pay order defendant no. 1 did not receive
any covering letter. Defendant no. 1 has further
averred that after receiving the pay order, acting
on instructions received from the broker, it
handed over the bank receipt to the said broker
for onward delivery to the Canbank Mutual Fund.
It is claimed by defendant no. 1 that for
transaction dated 24th of June, 1991 the broker has
issued a contract note to defendant no. 1 who by
letter dated 30th of October, 1992 confirmed that
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he had received the bank receipt No. 2214 issued
by Canbank Mutual Fund from defendant no. 1 and
handed over that receipt to Canbank Mutual Fund.
Although defendant no. 1 admits that broker had
informed him that the pay order dated 24th of June,
1991 was issued on account of plaintiff, the said
payment had been made by it with a clear
understanding and arrangement between the
plaintiff and the Canbank Mutual Fund that the
bonds would be delivered by Canbank Mutual Fund to
the plaintiff on account of the money having been
paid by the plaintiff to said defendant.
Therefore, according to defendant no. 1, the
liability to deliver the securities to the
plaintiff is that of Canbank Mutual Fund and not
of defendant no. 1. It is the case of defendant
no. 1 that there was no transaction between it and
plaintiff for purchase of any securities on 24th of
June, 1991.
On the basis of the pleadings the trial
court framed a large number of issues including
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the following issue with which we are concerned in
the present appeal:
“3) Whether Defendant prove that the said pay order for Rs. 18,59,71,808.22 was issued by Plaintiffs on behalf of CMF as alleged in para 8 of Written Statement?”
On the basis of the pleadings and the
evidence, the trial court recorded a finding that
the plaintiff has proved that on 24th of June, 1991
it had bought the securities through the broker
Naresh K. Aggarwala. The trial court also
recorded a finding that the payment was made by
the plaintiff to defendant no. 1 of the purchase
price relying on the pay order which shows that
Canara Bank issued the pay order on account of the
plaintiff. All these findings are based on
material on record and, in fact, can not
legitimately be questioned. The main defence of
defendant no. 1 is that there was understanding
between the plaintiff and Canbank Mutual Fund and,
in fact, the payment was made to it by the
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plaintiff on behalf of the Canbank Mutual Fund.
Thus, defendant no. 1 accepts receipt of the
payment by a pay order on account of the
plaintiff. However, its assertion is that the
payment was made to it by the plaintiff on behalf
of the Canbank Mutual Fund. In view of this
assertion, the only question which falls for
consideration is as to whether defendant no. 1 has
established that the payment that was made by the
plaintiff to it on 24th of June, 1991 was on behalf
of the Canbank Mutual Fund?
Mr. C.A. Sundaram, Senior Counsel appearing
on behalf of defendant no. 1-appellant submits
that on 24th of June, 1991, the appellant received
the payment and the broker informed it that the
payment had been made by the plaintiff on behalf
of Canbank Mutual Fund. Once this is established,
the case of the plaintiff would fail. Ms. Sunita
Dutt, Counsel appearing on behalf Canbank
Financial Services Ltd., plaintiff-respondent no.
1, however, submits that it is a separate legal
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entity so also the Canbank Mutual Fund and it is
established that as the amount was paid by the
plaintiff for purchase of the securities,
defendant no. 1 was obliged to deliver the
securities or to refund the amount to the
plaintiff.
We have bestowed our consideration to the
rival submission and we do not find any substance
in the submission of Mr. Sundaram. It is the
specific case of defendant no. 1 that the broker
informed it that the plaintiff has made payment
on behalf of Canbank Mutual Fund. However, the
letter dated 25th of February, 1993 of the broker
to defendant no. 1 shows that on 24th of June,
1991 the Coal India bonds were sold by defendant
no. 1 to the plaintiff and not to Canbank Mutual
Fund. From the aforesaid it is evident that
defendant no. 1 has not been able to prove that
payment was made by the plaintiff on behalf of
Canbank Mutual Fund. The natural corollary
thereof is that the payment was made by the
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plaintiff to defendant no. 1 to purchase the
bonds. It is not the case of defendant no. 1
that it had delivered the bonds to the plaintiff.
Therefore, we are in agreement with the reasoning
and the conclusions arrived at by the trial court
and find no reason to interfere with the same.
In the result, we do not find any merit in
the appeal and it is dismissed accordingly, but
without any order as to costs.
………………………………………………………………J. (CHANDRAMAULI KR. PRASAD)
………..……….………………………………..J. (V.GOPALA GOWDA)
NEW DELHI, JULY 15, 2013.
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