Full Judgment Text
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
JUDGMENT
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
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banks and financial institutions”.
JUDGMENT
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
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(Trial of Offences Relating to Transactions in Securities) Ordinance, 1992 was promulgated on the 6
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) 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
JUDGMENT
concurrence of the Chief Justice of India is required to be
obtained for such nomination of a sitting Judge of the High
Court.
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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
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involved in any offence relating to transactions in securities after the 1 day of April, 1991 and on and
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before the 6 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.
JUDGMENT
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
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Order dated 17 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
JUDGMENT
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
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by Hon. Justice Variava. By an order dated 3 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
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Special Court dated 16 October, 1996. The frame of Suit
JUDGMENT
No. 2 of 1995 and the nature of the amendment made will
be discussed later in this judgment.
st
10. In view of the amendment in the plaint, the 1
defendant bank once again raised a preliminary issue
regarding the maintainability of the suit before the Special
Court. The Special Court rejected the preliminary
nd
objection by its order dated 22 November, 1999.
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st
Aggrieved by the same, the 1 defendant Bank carried
Civil Appeal No. 2294 of 1999 to this Court.
11. During the pendency of the said appeal, Suit No. 2 of
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1995 itself came to be disposed off on 24 February,
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1999. Challenging that part of the decree which was
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against it, the 1 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
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the Custodian , the plaintiff bank filed Civil Appeal no.
3647 of 1999.
12. The prayer in Suit No. 2 of 1995 is as follows:-
st
“(a) that the 1 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
JUDGMENT
3 st
Para 110. Accordingly there will be a decree in favour of the Plaintiffs and against the 1 Defendant
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in a sum of Rs.95,39,78,082.19p with interest thereon at the rate of 19% p.a. from 3 January 1992 till
payment of realisation thereof.
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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
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effect from 30 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.,
rd th th
from 3 January 1992 till 29 March 1992. This interest amount i.e. for the period 30 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,
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the National Housing Bank drew a cheque on 3 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
JUDGMENT
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
st
1 Defendant had not delivered the related securities or any
B.R. for the same. The Plaintiff, therefore, addressed letters
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to the 1 Defendant drawing its attention to the said fact and
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st
request the 1 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
st
the plaint is “ the 1 Defendant further stated that the amount
of the cheque received by it had been for and on account and
nd st
for the benefit of the 2 Defendant. The 1 Defendant further
JUDGMENT
stated that its action of crediting the proceeds of the said
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cheque to the account of the 2 Defendant was justified by a
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certain market/banking practice. The 1 Defendant also
nd
stated that solely on the basis of instructions of the 2
Defendant against the said cheque of the Plaintiff it issued
nd
cheque on behalf of the 2 Defendant in favour of certain third
parties. ”
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16. The unamended plaint 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
st st
and the 1 defendant, the 1 defendant was bound
to hold the money realised by encashing the
cheque in question until further instructions were
JUDGMENT
issued by the plaintiff bank, but should not have
paid the proceeds of the cheque on the directions
nd st
of the 2 defendant. Therefore, the 1 defendant
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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
st
India in the sum of Rs.95,39,78,082.19 p. had been issued in favour of the 1 Defendant in respect of
st
the sale by the 1 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
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Reserve Bank of India in the sum of Rs.95,39,78,082.19 had been issued in favour of the 1 Defendant.
The Plaintiff says that the cheques was originally drawn in the name of State Bank of India and was
st st
altered in the name of 1 Defendant and received as such as by the 1 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
JUDGMENT
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
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to the first defendant under a covering letter dated 3
January, 1992 of Harshad S. Mehta containing instructions
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to the first defendant to make certain payments as
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detailed in the letter.
19. The second defendant Harshad S. Mehta filed a
written statement. According to him, the entire
transaction in question occurred in the following manner:-
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“…(a) This Defendant states that on 3 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
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(a) The said cheque for Rs. 95,39,78,082.19 p. dated 3 January, 1992 was to the knowledge of the
plaintiff issued for the sole benefit of Defendant No. 2.
rd nd
(b) Under cover of a letter dated 3 January 1992 the 2 Defendant delivered the said cheque
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to this Defendant. Pursuant to the instructions contained in the said letter dated 3 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
JUDGMENT
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
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(c) Defendant No. 2, thereafter, by a letter dated 6 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
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date fell due on 1 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.
JUDGMENT
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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
JUDGMENT
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)
JUDGMENT
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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st
between the plaintiff and the 1 defendant and issues
nd
Nos. 6 and 7 between the plaintiff and the 2 defendant
imply (though inelegantly) that there was a sale
transaction of the IRFC bonds of face value of Rs.100
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crores between the plaintiff which the 1 defendant Bank
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routed through the 2 defendant. In view of the specific
nd
assertion of defendants 1, 2 and 5 and particularly the 2
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
st
Bonds and that the 1 defendant also issued a B.R.
(obviously for the value of the cheque in issue) in favour
nd
of the plaintiff bank and the further assertion of the 2
defendant that he “ arranged for physical delivery of
9% IRFC bonds” to CANFINA and instructed CANFINA to
JUDGMENT
return the duly discharged B.R. issued by the plaintiff
bank in order to enable the plaintiff to discharge the B.R.
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allegedly issued by the 1 defendant bank – in our
opinion, a more specific issue - whether there were two
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transactions as alleged by the 2 defendant and also
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whether the 1 defendant also issued a B.R. for the value
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nd
of the cheque in issue as averred by the 2 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
JUDGMENT
nd
custodian of the 2 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”.
st
28. The 1 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
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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
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justice and has the power to regulate its own procedure.
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31. Under Section 9-A(1) of the Act , 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.
JUDGMENT
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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
JUDGMENT
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
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terms of which were acted upon by the 1 defendant.
nd
34. 2 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.
”
JUDGMENT
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35. Though not expressly stated, in the written
statement but it was argued that the cumulative effect of
nd
all the above-mentioned factors is that the 2 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
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transaction between the plaintiff and the CANFINA on 3
January, 1992 (as alleged by the second defendant in his
written statement) and in that context, the plaintiff issued
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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
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delivering the said IRFC Bonds to CANFINA
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
th
dated 10 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.
2
Page 22
37. The fifth defendant, the custodian also filed a written
statement. It is recorded by the judgment under appeal
at para 37 as follows:-
th
“37. The 5 Defendant i.e. the Custodian avers that
he is filing the Written Statement only for the purpose
th
of placing facts before the Court. The 5 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
10
statement 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
rd
defendant on 3 January, 1992 and also that CANFINA had
confirmed by its letter to the Custodian stating that the
st
B.R. issued by the plaintiff was discharged on 31 March,
JUDGMENT
1993 and IRFC Bonds of face value of Rs. 100 crores were
10 th
Relevant portion of the 5 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.”
2
Page 23
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
JUDGMENT
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.
2
Page 24
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
nd
entire amount but should share a part of it with the 2
defendant.
42. Such conclusions are recorded on the basis of
the following findings :-
st
1. That the 1 defendant received the cheque in
JUDGMENT
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
2
Page 25
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
nd
by the 2 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
st
obviously based on the admission made by the 1
JUDGMENT
defendant in his written statement. The content of para 8
st
of the written statement of the 1 defendant has already
st
been taken note of wherein the 1 defendant admits
nd
receipt of the cheque in question through the 2
defendant. It is further specifically stated in para 8(d) of
st
the written statement of the 1 defendant as follows:-
rd
“8(d) On 3 January, 1992 no amount was due and
payable by the plaintiff to this defendant. The
2
Page 26
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
rd
transaction on the 3 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
JUDGMENT
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
nd
is the case of the 2 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
nd
a plea, the 2 defendant examined a witness. The
2
Page 27
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
rd
(as alleged by the second defendant) on 3 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.
JUDGMENT
45. From the judgment under appeal, it is obvious that
nd
the Special Court accepted the defence of the 2
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.
2
Page 28
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
JUDGMENT
appeal, it is recorded in this regard as follows:
“46. The Plaintiffs have led no oral evidence. The
st
Plaintiffs merely tendered documents. The 1 Defendant
attempted to lead evidence of a witness from Canfina.
nd
However, the witness had no personal knowledge. 2
Defendant then led no further oral evidence. It also
nd
merely tendered some documents. The 2 Defendant has
led evidence of his dealer at the relevant time and
rd th
tendered documents. The 3 and 4 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
2
Page 29
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
nd
positive evidence. As stated above, except for 2
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
JUDGMENT
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
3
Page 30
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
11
Jankiraman Committee on the ground that the same was
12 st
tendered by the 1 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
nd
is substantially in accordance with the version of the 2
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
rd
notes that on 3 January 1992 the Plaintiffs had entered into
back to back transactions to purchase 9% IRFC Bonds face
st
value Rs.100 crores from the 1 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
st
Receipt stood discharged by Canfina on 31 March 1992 by
taking physical delivery of the Bonds from Defendant No.2
(herein). The Janakiraman Committee notes that for the
st
amount paid to the 1 Defendant, the Plaintiffs (herein) have
st
made a claim which claim is being disputed by the 1
JUDGMENT
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 st
Para 62 of the judgment – “As this document is tendered and relied upon by the 1 defendant they are
bound by what it contains.
3
Page 31
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
13
pronouncements 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.”
JUDGMENT
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
3
Page 32
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
14
as well as financial institutions in this regard.
”
15
Its terms of reference are :
54. The report of such a Committee in our view can at
best be the opinion of the Committee based on its own
JUDGMENT
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.
3
Page 33
examination of the records of the various banks (including
st
the plaintiff and the 1 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
JUDGMENT
rd
transaction dated 3 January, 1992 between the plaintiff
16
and the CANFINA. 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 rd
On 3-1-1992 there were transactions in securities. On 3 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.
3
Page 34
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
JUDGMENT
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
nd
the 2 defendant is based on the contents of the
Janakiraman Committee Report and the
“correspondence”. The Special Court recorded that-the
3
Page 35
th
plaintiffs had on 30 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,
nd
took a stand that at the behest of the 2 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
JUDGMENT
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
17
the other hand, the Special Court recorded with respect
17 nd
The correspondence suggests that Canfina received 9% IRFC Bonds f.v. Rs.100 crores from the 2
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
st th
make a claim against the 1 Defendant. However, it then turns out that the Plaintiffs had on 30
March 1992 issued a R.B.I. cheque in the name of Standard Chartered Bank in a sum of
3
Page 36
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
JUDGMENT
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
nd
2 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
nd
for the sum of Rs.55,18,43,657.07. Standard Chartered bank then claimed that, at the behest of the 2
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
nd
Bonds f.v. Rs.100 crs. received from 2 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.
3
Page 37
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
st st
of the 1 defendant in respect of the sale by the 1
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
JUDGMENT
order to discharge its obligation to CANFINA to deliver the
abovementioned Bonds, the plaintiff sought to purchase
st
the Bonds from the 1 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
st
statement. Plaintiffs were aware of the stand of the 1
defendant in the light of the correspondence that took
3
Page 38
st
place between the 1 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
st
itself. In the background of such a stand of the 1
defendant and the stand of the plaintiff in the unamended
plaint that its record revealed that the cheque in question
st
was issued “in respect of the sale by the 1 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
st
purchase the IRFC Bonds from the 1 defendant, (iii) who
nd
signed the cheque in question and (iv) how the 2
defendant got custody of the cheque. None of this
JUDGMENT
information is given in the plaint.
66. On the other hand, we cannot ignore the pleading of
rd
the 3 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
3
Page 39
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
nd
in question came to be handed over to the 2 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
JUDGMENT
st
very fact that the 1 defendant paid various amounts in
nd
accordance with the instructions of the 2 defendant after
st
encashing the cheque in question coupled with the 1
defendant’s consistent stand that the cheque was issued
nd
for the benefit of the 2 defendant, leads us to a possible
st
inference that the 1 defendant acted on the instructions
of some body high up in the administration of the plaintiff
4
Page 40
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
nd
procedure when it came to the dealings in which the 2
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.
JUDGMENT
st
to recover the money paid by the plaintiff to the 1
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
4
Page 41
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
st
the 1 defendant to have acted on the instructions of the
nd
2 defendant without there being any legal authority in
nd
writing on the part of the 2 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
JUDGMENT
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
4
Page 42
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 , ………….”
JUDGMENT
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
4
Page 43
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.
th
72. By a letter dated 11 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
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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
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any costs.
…………………………….J.
( R.M. Lodha )
…………………………….J.
( J. Chelameswar )
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…………………………….J.
( Madan B Lokur )
New Delhi;
July 31, 2013.
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