State Bank of India Thr. General Manager Vs National Housing Bank

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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

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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

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 6 th 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.

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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.

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.

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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

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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

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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.

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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 decree3 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 Custodian4, 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

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 1 st 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.

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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

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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.”

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16. The unamended plaint5 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

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.

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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

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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

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 3 rd 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 6 th 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.

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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.

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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

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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

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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

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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 :-

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(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

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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 Act8, 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.

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

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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

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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. ”

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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 CANFINA9

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.

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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

statement10 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

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.”

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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.

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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

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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

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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

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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.

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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

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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

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Page 31

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 Committee11 on the ground that the same was

tendered12 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).”

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 1 st defendant they are bound by what it contains.

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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

pronouncements13 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

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

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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 are15:

54. The report of such a Committee in our view can at

best be the opinion of the Committee based on its own

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.

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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 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.

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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

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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 recorded17 with respect 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 30 th March 1992 issued a R.B.I. cheque in the name of Standard Chartered Bank in a sum of

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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

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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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

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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

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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

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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

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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

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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

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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

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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

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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 )

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…………………………….J. ( Madan B Lokur )

New Delhi; July 31, 2013.

4

STATE BANK OF INDIA THR. GENERAL MANAGER Vs NATIONAL HOUSING BANK

STATE BANK OF INDIA THR. GENERAL MANAGER Vs NATIONAL HOUSING BANK