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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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