State Bank of India Thr. General Manager Vs. National Housing Bank & Ors.
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Civil Appeal Nos. 2294 & 3647 of 1999
[Appeal under Section 10 of Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, judgement and decree passed by the Special Court on February 24/25.02.1999 in Suit No. 2 of 1995]
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Civil Appeal Nos. 2294 & 3647 of 1999
[Appeal under Section 10 of Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, judgement and decree passed by the Special Court on February 24/25.02.1999 in Suit No. 2 of 1995]
Mr. Harin P. Raval, ASG, Mr. Bishwajit Bhattacharya, Senior Advocate, Mr. Sanjay Kapur, Ms. Priyanka Das, Mr. Anmol Chandan, Ms. Shubhra Kapur, Mr. Mohammed Himayatullah, Mr. Pradeep Kumar Tiwari, Mr. Nand Laud, Mr. Mahesh Agarwal, Mr. E.C. Agarwal, Ms. Megha Mehta Agrawal, Mr. Abhinav Agarwal, Mr. Anirudh Sharma, Mr. Palash Kanwar, Respondent-In-Person, Mr. Amit Yadav, Mr. Shishir Deshpande, Mr. Kaushal Narayan Mishra, Ms. Sujata Kurdukar, Mr. Subramonium Prasad, Advocates, with them for the appearing parties.
Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992
Sections 9A(1), 3(2), 3(1) – Civil Procedure Code, 1908, Order 8 – Jurisdiction of Special Court – Power/jurisdiction to adjudicate any matter where claim arises out of transaction, in which ‘notified person’ is involved. Held that a Special Court has the jurisdiction to adjudicate all/any matter where claim arises out of transaction in Securities, where a ‘notified person’ is involved and in whatever capacity. (Para 31)
Sections 3(2), 3(1), 9A(1) – Civil Procedure Code, 1908, Order VIII – Decreeing a suit partly in favour of plaintiff and partly in favour of defendant – Security transaction involving Harshad Mehta, a ‘notified person’ – Validity – Suit by ‘N’ bank against ‘S’ bank and others including Mehta – ‘N’ bank allegedly drew a cheque on 03.01.1992 for Rs. 95.39 crores in favour of ‘S’ bank – In April 1992, ‘N’ bank found that certain transactions were outstanding, it did not possess BR or supporting documents or securities – Asked ‘S’ bank to deliver BR/Securities or return amount – ‘S’ bank denied any such transaction and claimed that amount was received for benefit of Mehta – Amount also disbursed as per directions of Mehta – Transaction of sale of 9% IRFC bonds by ‘S’ bank to ‘N’ bank, as claimed by ‘N’, also denied – As per Mehta, ‘N’ purchased those bonds under his instruction and delivered them to ‘C’ – BR also delivered to ‘C’ and ‘N’ received BR from ‘S’ – Sale of bonds, by ‘S’ to ‘N’ claimed to be on his behalf, and had arranged direct delivery of bonds to ‘C’ – Also direction to ‘C’ to tender discharged BR to ‘N’, the plaintiff, so as to enable ‘N’ to return discharged BR to ‘S’ – Findings of Special Court that claim for money had and received not maintainable and no evidence of fraud – Yet, suit decreed against ‘S’ for refund of money – Further, ‘N’ directed to deliver certain amount to custodian for Mehta, the notified person – No evidence led by ‘N’, yet suit decreed as above – If justified. Held that process followed by Special Court is ununderstandable. Decree was passed in favour of ‘N’, yet it was disallowed to retain entire amount as a part was to be shared by Mehta. Conclusions by the Court were based on correspondence between the parties, which were never proved. Suit of ‘N’ dismissed in toto. Ram Krishna Dalmia’s [AIR 1958 SC 538] referred.
Ed.: The Court has deprecated the inaction on parts of Government to find out the truth as to how such a high denomination cheque was given to Mehta and how Defendant bank paid various amounts to Mehta without instruction from plaintiff.
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. He got delivered the IRFC bonds to the satisfaction of CANFINA and on receipt of such bonds CANFINA returned the discharged B.R. of the plaintiff bank. In the written statement, the second defendant does not dispute the assertion of the plaintiff bank, that the second defendant got possession of the cheque which is the subject matter of dispute in the suit. It is also worthwhile noticing that the second defendant does not dispute (either in his written statement or by way of any rejoinder to the written statement of the first defendant) the categoric stand taken by the first defendant that the cheque in issue was in fact delivered by the second defendant to the first defendant with a covering letter dated 03.01.1992 the terms of which were acted upon by the 1st defendant. (Para 33)
The first defendant also in his (its) written statement categorically pleaded that there was a security transaction between the plaintiff and the CANFINA on 3rd January, 1992 (as alleged by the second defendant in his written statement) and in that context, the plaintiff issued a B.R. in favour of CANFINA. The first defendant further took a stand that the second defendant discharged the obligation of the plaintiff to CANFINA under the said BR by delivering the said IRFC Bonds to CANFINA. (Para 36)
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. (Para 45)
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. (Para 46)
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. (Para 47)
The course adopted by the learned Judge of the Special Court of looking into the correspondence between the parties, which even according to the learned Judge had not been proved is not permissible in law. The Special Court Act though declares that the Court is not bound by the Code of Civil Procedure, it does not relieve the Special Court from the obligation to follow the Evidence Act. Further, the learned Judge extensively relied upon the second interim report of the Janakiraman Committee [11*] on the ground that the same was tendered [12*] by the 1st defendant. (Para 50)
Courts are not bound by the conclusions and findings rendered by Commissions. The statements made before such Commission cannot be used as evidence before any civil or criminal court. It should logically follow that even the conclusions based on such statements can also not be used as evidence in any Court. (Para 53)
Conclusion of the Special Court that only a part of the IRFC Bonds are delivered to CANFINA by the 2nd defendant is based on the contents of the Janakiraman Committee Report and the correspondence. The Special Court recorded that-the plaintiffs had on 30th March, 1992 issued a cheque drawn on RBI in favour of the Standard Chartered Bank for a sum of Rs. 55,18,43,647.07. When the plaintiff sought to recover the said amount, the Standard Chartered Bank, took a stand that at the behest of the 2nd defendant they had delivered to CANFINA, IRFC Bonds of face value Rs.80 crores and therefore, it was under no obligation to refund to the plaintiffs the amount of Rs.55 crores (approx.) as the same was paid to the Standard Chartered Bank towards the price of IRFC Bonds of face value Rs.80 crores which eventually came to be delivered to CANFINA by the Standard Chartered Bank on behalf of the plaintiff-Bank. (Para 60)
The plaintiff did suppress the truth. We are of the opinion that the plaintiff approached the Special Court with unclean hands by suppressing the relevant material. (Para 63)
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 above-mentioned IRFC Bonds. (Para 64)
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 defendants consistent stand that the cheque was issued for the benefit of the 2nd defendant, leads us to a possible inference that the 1st defendant acted on the instructions of some body high up in the administration of the plaintiff Bank. (Para 68)
Whether the payment in question was made in discharge of any existing legal obligation such as the one set up by the defendants 1 and 2 or not could be known only when the full facts are disclosed. But disclosure of full facts might (though we are almost certain) lead to trouble to somebody or the other in the management of the plaintiff-Bank or perhaps both the Banks and God knows who else. It is equally irresponsible on the part of the 1st defendant to have acted on the instructions of the 2nd defendant without there being any legal authority in writing on the part of the 2nd defendant to issue instructions regarding the disbursement of the proceeds of the cheque in question. (Para 69)
1. These statutory appeals are filed under Section 10 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act 27 of 1992 (hereinafter referred to as the Special Court Act). An appeal both on questions of fact and law under the above-mentioned provision is provided directly to this Court from any judgment, decree, sentence or order of a Special Court established under Section 5 of the above-mentioned Act.
2. The Special Court Act was made in the aftermath of a scandal in the stock market in the year 1991-1992 when large scale irregularities and malpractices were noticed in both the Government and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions1. [1*]
3. Under Section 3(2) [2*] of the said Act, the Custodian appointed by the Government of India, if satisfied that any person was involved in any offence relating to transactions in securities during the period falling between 01.04.1991 to 06.06.1992 is empowered to notify the name of such person in the official gazette. Upon such notification, all the properties whether movable or immovable belonging to any person so notified stand attached. The custodian is required to deal with such attached properties in such manner as the Special Court may direct. The Act further authorises the Government of India to establish a Special Court to be presided over by a sitting Judge of a High Court to be nominated by the Chief Justice of the High Court within the local limits of whose jurisdiction the Special Court is to be located. The concurrence of the Chief Justice of India is required to be obtained for such nomination of a sitting Judge of the High Court.
4. The Special Court is invested with jurisdiction both criminal and civil to deal with the offences committed by the notified persons and also with the properties and transactions in securities in which a notified person is involved and any matter or claim arising therefrom. An appeal to this Court, is provided from the judgment, decree, sentence or order of such Special Court.
5. The entire scandal and the present litigation revolves around the second defendant (since deceased) – one Harshad S. Mehta (a notified person under Section 3(2) of the Act). The scandal exposes the shortcomings and loopholes in the administration of banking sector of this country, more particularly, the State-owned/controlled banks.
6. The National Housing Bank (hereinafter referred to as the Plaintiff) a statutory Corporation created by an Act of Parliament (Act No. 53 of 1987) filed two suits, one invoking the original jurisdiction of Bombay High Court (Suit No. 211 of 1995) and another before the Special Court established under the Act No. 27 of 1992 being Suit No. 2 of 1995. The said suits came to be filed against (i) the State Bank of Saurashtra which at that point of time was a subsidiary bank of the State Bank of India but later got amalgamated with the State Bank of India, (ii) Harshad S. Mehta, (iii) two of the employees of the plaintiff bank and (iv) the Custodian appointed under Section 3(1) of the Act 27 of 1992.
7. It appears that the relief sought in both the above-mentioned suits is substantially the same i.e. the recovery of an amount of Rs. 95.39 crores with interest. By an Order dated 17th April, 1995, the Special Court directed the plaintiff bank to elect one of the two fora for pursuing its litigation.
8. Aggrieved by the said direction, the plaintiff bank approached this Court. This Court directed that both the suits be placed before the learned Judge who had been nominated to be the Judge presiding over the Special Court (Hon. Justice Variava of Bombay High Court, as His Lordship then was) for disposal in accordance with law. Consequently, a preliminary question regarding the forum which had jurisdiction to adjudicate the dispute which is the subject matter of the two suits came to be considered by Hon. Justice Variava. By an order dated 3rd February, 1996, the learned Judge held that in view of the language of Section 9-A(1)(b) of the Special Court Act, it is the Special Court alone which had the jurisdiction to adjudicate the dispute as the dispute centres around a claim arising out of a transaction in which a person notified under the Special Court Act is involved. The above-mentioned Suit no. 211 of 1995 came to be dismissed.
9. Subsequently, the plaintiff bank moved an application to amend the pleadings in Suit No. 2 of 1995. The said application was allowed by an order of the Special Court dated 16th October, 1996. The frame of Suit No. 2 of 1995 and the nature of the amendment made will be discussed later in this judgment.
10. In view of the amendment in the plaint, the 1st defendant bank once again raised a preliminary issue regarding the maintainability of the suit before the Special Court. The Special Court rejected the preliminary objection by its order dated 22nd November, 1999. Aggrieved by the same, the 1st defendant Bank carried Civil Appeal No. 2294 of 1999 to this Court.
11. During the pendency of the said appeal, Suit No. 2 of 1995 itself came to be disposed off on 24th February, 1999. Challenging that part of the decree [3*] which was against it, the 1st defendant Bank once again carried Civil Appeal No. 2155 of 1999 to this Court. Aggrieved by that part of the decree of the Special Court wherein the Special Court directed the plaintiff to deliver certain amounts to the Custodian [4*], the plaintiff bank filed Civil Appeal no. 3647 of 1999.
12. The prayer in Suit No. 2 of 1995 is as follows:
(a) that the 1st Defendant be ordered and decreed to pay to the Plaintiff a sum of Rs. 164,11,61,079.59 as per particulars at Exhibit B hereto with further interest thereon at the rate of 24% per annum from the date hereof till payment and/or realisation.
(b) In the alternative to prayer (a) above the Defendant Nos. 1 to 4 or any one or more of them be ordered and decreed to pay to the Plaintiff jointly and/or severally a sum of Rs. 164,11,61,079.59 p. as per particulars at Exhibit B hereto together with interest thereon at the rate of 24% per annum from the date hereof till payment and/or realisation.
(c) For costs; and
(d) For such further and other reliefs as the nature and circumstances of the case may require;
13. According to the facts pleaded in the amended plaint, the National Housing Bank drew a cheque on 3rd January, 1992 for an amount of Rs. 95.39 crores approximately on the Reserve Bank of India in favour of the State Bank of Saurashtra. Towards the end of April, 1992, the Plaintiff found that, while its records indicated that certain transactions had been entered into and were still outstanding, it did not possess any Bank Receipts (hereinafter referred to as B.R.) or supporting documents or any securities in respect of such transactions. On the basis of information gathered it was thought that the said transaction was outstanding and that the 1st Defendant had not delivered the related securities or any B.R. for the same. The Plaintiff, therefore, addressed letters to the 1st Defendant drawing its attention to the said fact and request the 1st Defendant for delivery of B.R./Securities or for return of the said amount.
14. A blissfully vague statement regarding the nature of the transaction.
15. Long correspondence ensued between the plaintiff and the first defendant bank. The first defendant bank denied the existence of any outstanding transaction between the two and its liability to issue either a B.R. or deliver any securities or refund of the amount as claimed by the plaintiff bank. The substance of the correspondence of the first defendant bank as narrated in the plaint is the 1st Defendant further stated that the amount of the cheque received by it had been for and on account and for the benefit of the 2nd Defendant. The 1st Defendant further stated that its action of crediting the proceeds of the said cheque to the account of the 2nd Defendant was justified by a certain market/banking practice. The 1st Defendant also stated that solely on the basis of instructions of the 2nd Defendant against the said cheque of the Plaintiff it issued cheque on behalf of the 2nd Defendant in favour of certain third parties.
16. The unamended plaint [5*] contained assertions that the plaintiff Bank drew the cheque in issue for the purpose of acquiring 9% IRFC Bonds of face value of Rs.100 crores, the same was omitted by the amendment of the plaint. However, vague references continued even in the amended plaint to a transaction pertaining to the sale of 9% IRFC Bonds.
17. The plaintiff based his prayers on grounds which are set out in the alternative and without prejudice to each other. The grounds of the plaintiff are:
1. As there was no transaction between the plaintiff and the 1st defendant, the 1st defendant was bound to hold the money realised by encashing the cheque in question until further instructions were issued by the plaintiff bank, but should not have paid the proceeds of the cheque on the directions of the 2nd defendant. Therefore, the 1st defendant is liable for conversion of the cheque. In the same breath the plaintiff also added in any case is liable to repay the amount on the basis of moneys had and received without any consideration.
2. The second ground on which the plaintiff based his case in the alternative is conspiracy, collusion and fraud between the defendant Nos. 1 to 4 thereby causing loss to the plaintiff bank.
18. On the other hand, the first defendant bank in its written statement took a categorical stand that the records of the bank did not show that the cheque in dispute was issued in respect of any alleged sale by the first defendant to the plaintiff of 9% IRFC Bonds of face value of Rs. 100 crores, but went on to say that the said cheque was issued for the benefit of the second defendant Harshad S. Mehta, through whose employee, the cheque was delivered to the first defendant bank. The first defendant also took a stand that the cheque was delivered to the first defendant under a covering letter dated 3rd January, 1992 of Harshad S. Mehta containing instructions to the first defendant to make certain payments as detailed in the letter. [6*]
19. The second defendant Harshad S. Mehta filed a written statement. According to him, the entire transaction in question occurred in the following manner:
(a) This Defendant states that on 3rd January, 1992, the Plaintiffs undertook a set of two transactions in respect of 9% IRFC Bonds with a view to make an assured profit, without outlay of any funds of the Plaintiffs, of 4 paise per face value of Rs. 100/- i.e. Rs. 4 lacs. Accordingly, the Plaintiffs purchased 9% Tax-free Indian Railways Finance Corporation (IRFC) Bonds of the face value of Rs. 100 crores @ Rs. 93.08 and delivered the same, under instructions of this Defendant, to Canfina. This Defendant states that accordingly the Plaintiffs delivered a Bankers Receipt to Canfina and received a Bankers 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 Defendants 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 bankers 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 bankers receipt to the Plaintiffs to enable the Plaintiffs to return the duly discharged bankers 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 bankers receipt issued by the Plaintiffs.
10. This Defendant says and submits that the above 9% IRFC Bonds of the face value of Rs. 100 crores covered under bankers receipt issued by Defendant No. 1 would now constitute an attached property of this Defendant together with all the accruals thereon. This Defendant, therefore, submits that the Plaintiffs should be called upon to surrender the said 9% IRFC Bonds of a face value of Rs. 100 cores together with accrued tax free benefits and interest on the same to Defendant No. 5 on behalf of this Defendant and accordingly this suit be dismissed with costs.
20. The Special Court framed a large number of issues arising between the plaintiffs and each of the defendants. The suit is decreed only against the first defendant Bank with a further direction to the plaintiff to make payment of certain amount to the second/fifth defendant.
21. The Special Court in the judgment under appeal clearly rejected the case of the plaintiff based on the principle of money had and received. The Special Court held as follows:
Thus on that ground, it will have to be held that the claim for money had and received would not be maintainable (Para 77)
22. Coming to the allegations of conspiracy, collusion and fraud, at para 92 of the judgment, the Special Court recorded it is absolutely unnecessary to decide the alternate case whether there has been any fraud or not.
22.1. 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).
23.1. On the other hand, the Special Court held:
Having received, encashed plaintiffs cheque without there being any transaction, the first defendant is now liable to refund the money on the basis of conversion, fiduciary obligation and moneys paid without intending to do so gratuitously. (para 84)
24. It can be seen from the judgment under appeal that some of the issues were not pressed even before the Special Court. The issue regarding suppression of material facts by the plaintiffs is common with reference to both the defendants. However, issues Nos. 4 to 6 between the plaintiff and the 1st defendant and issues Nos. 6 and 7 between the plaintiff and the 2nd defendant imply (though inelegantly) that there was a sale transaction of the IRFC bonds of face value of Rs.100 crores between the plaintiff which the 1st defendant Bank routed through the 2nd defendant. In view of the specific assertion of defendants 1, 2 and 5 and particularly the 2nd defendant in his written statement that the plaintiff entered into two transactions on 03 January 1992 one for the purchase and the other for the sale of 9% IRFC Bonds and that the 1st defendant also issued a B.R. (obviously for the value of the cheque in issue) in favour of the plaintiff bank and the further assertion of the 2nd defendant that he arranged for physical delivery of 9% IRFC bonds to CANFINA and instructed CANFINA to return the duly discharged B.R. issued by the plaintiff bank in order to enable the plaintiff to discharge the B.R. allegedly issued by the 1st defendant bank in our opinion, a more specific issue – whether there were two transactions as alleged by the 2nd defendant and also whether the 1st defendant also issued a B.R. for the value of the cheque in issue as averred by the 2nd defendant, ought to have been framed.
25. The Special Court opined that the plaintiff had disclosed all necessary facts in the plaint and was not guilty of suppression of material facts. A conclusion which in our opinion is wrong and the consequences of suppression of material facts require a further scrutiny at a later stage of this judgment.
26. We have already noticed that the decree under appeal is in two parts. The first part of the decree is in favour of the plaintiff and the second part virtually in favour of the second defendant, though, the ultimate direction in this regard is that the plaintiff should pay certain amounts to the fifth defendant who is the statutory custodian of the 2nd defendants property under the Special Court Act.
27. The plaintiff preferred Civil Appeal No. 3647 of 1999 being aggrieved by the judgment of the Special Court insofar as it:
A) directs the plaintiff (NHB) to hand over Rs. 40.22 crores to the Custodian with interest thereon at 19% per annum from 30.3.92;
B) directs the Plaintiff to pay costs of Rs. 10,000 to Defendants 3 & 4 on the basis that no case of fraud had been made out against them
C) holds that the Plaintiff top management were aware of what was going on.
28. The 1st defendant also preferred an appeal being Civil Appeal No. 2155 of 1999 aggrieved by the decree directing the payment to the plaintiff.
29. Under the Code of Civil Procedure, 1908 (for short the Code), such a decree in favour of a defendant is permissible in a case where defendant either pleads a set off or makes a counter claim as contemplated under Order VIII of the Code.
30. The procedure that is required to be followed in the cases of set off or counter claim is detailed under Order VIII of the Code. From the record before us, it does not appear that the procedure contemplated under Order VIII of the Code is followed in the instant case. However, we do notice that under Section 9-A(4) of the Act, the Special Court is not bound by the procedure laid down by the Code but shall be guided by the principles of natural justice and has the power to regulate its own procedure. [7*]
31. Under Section 9-A(1) of the Act [8*], the Special Court has all jurisdiction to adjudicate any matter or claim arising out of a transaction in securities entered into during the period specified in the said section in which a notified person is involved in whatever capacity. We therefore, proceed on the basis that the Special Court is authorised by law to adjudicate the claim of the second defendant without being shackled by the procedural fetters imposed under the Code.
32. In exercise of such jurisdiction, the Special Court partially accepted the counter claim made by the second defendant. Which counter claim as already noticed from the written statement of the second defendant (relevant parts already extracted) is based on the existence of two transactions in securities that is (i) the sale and purchase of IRFC bonds between the plaintiff and CANFINA (which is not a party to the suit), (ii) between the plaintiff and the first defendant bank. According to the second defendant, both the transactions were routed through him.
33. According to the second defendant under the first of the above-mentioned transactions, the plaintiff bank agreed to sell the IRFC bonds to CANFINA and received the agreed price of the bonds without actually delivering the bonds and issued a B.R. for the amount so received. The further case of the second defendant is that he got delivered the IRFC bonds to the satisfaction of CANFINA and on receipt of such bonds CANFINA returned the discharged B.R. of the plaintiff bank. In the written statement, the second defendant does not dispute the assertion of the plaintiff bank, that the second defendant got possession of the cheque which is the subject matter of dispute in the suit. It is also worthwhile noticing that the second defendant does not dispute (either in his written statement or by way of any rejoinder to the written statement of the first defendant) the categoric stand taken by the first defendant that the cheque in issue was in fact delivered by the second defendant to the first defendant with a covering letter dated 03.01.1992 (the content of which has already been taken note of) the terms of which were acted upon by the 1st defendant.
34. 2nd Defendant further took a categoric stand at para 9 of the written statement;
9. ..This Defendant arranged for physical delivery of 9% Tax- free IRFC Bonds of a face value of Rs. 100 crores directly to Canfina and instructed Canfina to tender the discharged bankers receipt to the Plaintiffs to enable the Plaintiffs to return the duly discharged bankers 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 bankers receipt issued by the Plaintiffs.
35. Though not expressly stated, in the written statement but it was argued that the cumulative effect of all the above-mentioned factors is that the 2nd defendant though appropriated the proceeds of the cheque in issue, such an appropriation is supported by consideration i.e. he relieved the plaintiff bank of its obligation to deliver the IRFC bonds which it was obliged to deliver to CANFINA. In the process of the said transaction, the plaintiff Bank made a profit of Rs.4 lakhs in one day.
36. The first defendant also in his written statement categorically pleaded that there was a security transaction between the plaintiff and the CANFINA on 3rd January, 1992 (as alleged by the second defendant in his written statement) and in that context, the plaintiff issued a B.R. in favour of CANFINA. The first defendant further took a stand that the second defendant discharged the obligation of the plaintiff to CANFINA under the said BR by delivering the said IRFC Bonds to CANFINA. [9*]
37. The fifth defendant, the custodian also filed a written statement. It is recorded by the judgment under appeal at para 37 as follows:
37. The 5th Defendant i.e. the Custodian avers that he is filing the Written Statement only for the purpose of placing facts before the Court. The 5th Defendant clarifies that the facts placed before the Court are on the basis of the correspondence carried out by the Custodian with the Plaintiffs, Standard Chartered Bank and Canfina.
38. The substance of the fifth defendants written statement [10*] as culled out in the judgment under appeal in paragraph 38 is also to the effect that there were two transactions in securities contended by the second defendant on 3rd January, 1992 and also that CANFINA had confirmed by its letter to the Custodian stating that the B.R. issued by the plaintiff was discharged on 31st March, 1993 and IRFC Bonds of face value of Rs. 100 crores were delivered by the second defendant on behalf of the plaintiffs.
39. It is not clear either from the written statement of the fifth defendant or from any other material on record, what was the occasion for correspondence between the custodian and the various parties whether the statements made to the custodian by various parties involved in the transaction in the letters allegedly written by them contained any facts relevant to the adjudication of the issues in the suit, and whether such statements are evidence at all in the eye of law and if those statements are evidence what is the probative value of such evidence are questions which are required to be decided if such documents are sought to be proved. But we only note that the fifth defendant also pleaded that there were two transactions in securities as alleged by the first defendant and a B.R. was issued by the plaintiff in favour of the CANFINA and the same was returned discharged to the plaintiff bank.
40. It is on the basis of such pleadings of the parties, the Special Court passed the decree which is the subject matter of these two appeals, though the plaintiff did not choose to adduce any evidence in support of its pleadings.
41. Apart from the problem of the plaintiff not adducing any evidence, it is rather difficult to understand the process followed by the Special Court to reach the conclusion that the plaintiff is entitled to the decree as prayed for and at the same time not entitled to retain the entire amount but should share a part of it with the 2nd defendant.
42. Such conclusions are recorded on the basis of the following findings:
1. That the 1st defendant received the cheque in issue without there being any consideration for the same.
2. There was a transaction between the plaintiff and CANFINA where the plaintiff agreed to sell IRFC Bonds of face value Rs.100 crores to CANFINA for a consideration of Rs. 95.43 crores (appx.). Initially the plaintiff issued a B.R. in favour of CANFINA without actually delivering the bonds though the plaintiff received the sale price of the bonds.
3. The said B.R. was returned discharged by CANFINA to the plaintiff.
4. Such discharge was a consequence of the receipt of the IRFC bonds of face value of Rs. 100 crores by CANFINA.
5. The said bonds were delivered to CANFINA partly by the 2nd defendant and partly by the Standard Chartered Bank.
43. We are, therefore, required to examine the factual correctness of the above-mentioned five conclusions reached by the Special Court. The first conclusion is obviously based on the admission made by the 1st defendant in his written statement. The content of para 8 of the written statement of the 1st defendant has already been taken note of wherein the 1st defendant admits receipt of the cheque in question through the 2nd defendant. It is further specifically stated in para 8(d) of the written statement of the 1st defendant as follows:
8(d) On 3rd January, 1992 no amount was due and payable by the plaintiff to this defendant. The proceeds of the said cheque were intended for the benefit of defendant No.2. The said cheque was, in fact, handed over by the plaintiff to defendant No.2. The said cheque was drawn in favour of this defendant to facilitate defendant No.2 to obtain same day credit of the proceeds of the said cheque. Defendant No.2 was the intended beneficiary and real owner of the proceeds of the said cheque.
44. Insofar as the remaining four conclusions are concerned, such findings can arise only out of the pleadings of the defendants 1 and 2 as the plaintiff never made any reference to any transaction between the plaintiff and CANFINA. However, it is the specific defence of the defendants 1 and 2 that there was another transaction on the 3rd January, 1992 whereunder the plaintiff agreed to sell IRFC Bonds of face value Rs.100 crores to CANFINA and received the price of the same of Rs. 95.43 crores (appx.) by a cheque which was acknowledged by the plaintiff by issuing a B.R.. The said receipt was subsequently returned discharged by CANFINA on receipt of the above-mentioned IRFC Bonds. It is the case of the 2nd defendant that the said bonds were delivered to CANFINA by him and secured the discharge of B.R. given by the plaintiff to CANFINA. In support of such a plea, the 2nd defendant examined a witness. The witness of the second defendant clearly spoke to the fact that there were two transactions in securities, i.e. the sale and purchase of IRFC Bonds of face value Rs. 100 crores (as alleged by the second defendant) on 3rd January, 1992, whose evidence remains undisturbed as there were no cross examination on this aspect by the plaintiff. Further, the said witness also spoke to the facts pleaded by the second defendant that the plaintiff had issued a B.R. to CANFINA acknowledging the receipt of the payment made by CANFINA towards the price of the IRFC Bonds agreed to be sold by the plaintiff and the said B.R. was returned discharged by CANFINA to the plaintiff in view of the fact that CANFINA had received the delivery of the IRFC Bonds of face value Rs.100 crores.
45. From the judgment under appeal, it is obvious that the Special Court accepted the defence of the 2nd defendant at least to the extent of (i) the existence of an obligation on the part of the plaintiff to deliver IRFC Bonds of face value Rs.100 crores, (2) the factum of delivery of the said bonds to CANFINA and (3) the return of the duly discharged B.R. by CANFINA.
46. Whether the cheque in question was issued as a part of the transaction which is alleged to be a back to back transaction between the CANFINA Ltd., the plaintiff and the first defendant is one of the issues which necessarily arose on the above extracted pleadings. The second defendant specifically pleaded and adduced some evidence to prove the existence of back to back transaction which remained unrebutted. The said transaction is completely suppressed by the plaintiffs.
47. Scandalous thing about the litigation is that the plaintiffs led no evidence. They merely tendered certain documents but did not bother to prove them in spite of a caution by the Special Court. By the judgment under appeal, it is recorded in this regard as follows:
46. The Plaintiffs have led no oral evidence. The Plaintiffs merely tendered documents. The 1st Defendant attempted to lead evidence of a witness from Canfina. However, the witness had no personal knowledge. 2nd Defendant then led no further oral evidence. It also merely tendered some documents. The 2nd Defendant has led evidence of his dealer at the relevant time and tendered documents. The 3rd and 4th Defendants have led no oral evidence, but merely tendered documents. At the time when these documents were being tendered it was clarified to all parties that mere tendering of documents would only establish that there was in existence such a document and that it stated what is stated. It was clarified that the contents of the documents would not be deemed to have been proved. It was clarified that any party who wanted to prove the truth of the contents had to do so by positive evidence. As stated above, except for 2nd Defendant, no other party has led any oral evidence.
48. Further at para 48 the judgment under appeal records as follows:
48. Apart from this oral evidence, Court has before it the evidence of what was claimed by the parties in correspondence. The truth of what was claimed in the correspondence and in the various documents has not been proved. However, in the absence of any contrary evidence Court is proceeding on footing that what parties have stated to the Custodian is true.
49. The Special Court based its conclusions on Janakiraman Committee Report and the correspondence between the various parties (whose details are not even specified in the judgment).
50. We regret to say that the course adopted by the learned Judge of the Special Court of looking into the correspondence between the parties, which even according to the learned Judge had not been proved is not permissible in law. The Special Court Act though declares that the Court is not bound by the Code of Civil Procedure, it does not relieve the Special Court from the obligation to follow the Evidence Act. Further, the learned Judge extensively relied upon the second interim report of the Janakiraman Committee [11*] on the ground that the same was tendered [12*] by the 1st defendant.
51. Irrespective of the fact whether such a report is admissible in evidence or not, it appears from the judgment under appeal that the relevant part of the report is substantially in accordance with the version of the 2nd defendant, as contained in his written statement. It is recorded by the judgment under appeal at para 45:
In respect of the Suit transactions the Janakiraman Committee notes that on 3rd January 1992 the Plaintiffs had entered into back to back transactions to purchase 9% IRFC Bonds face value Rs.100 crores from the 1st Defendant and sell the same to Canfina. The Janakiraman Committee notes that the Plaintiffs Bankers Receipt to Canfina stands discharged without the Plaintiffs having made any delivery whatsoever. The Janakiraman Committee notes that the Plaintiffs Bankers Receipt stood discharged by Canfina on 31st March 1992 by taking physical delivery of the Bonds from Defendant No.2 (herein). The Janakiraman Committee notes that for the amount paid to the 1st Defendant, the Plaintiffs (herein) have made a claim which claim is being disputed by the 1st Defendant (herein).
52. It is well settled by a long line of judicial authority that the findings of even a statutory Commission appointed under the Commissions of Inquiry Act, 1952 are not enforceable proprio vigore as held in Ram Krishna Dalmia v. Justice S.R. Tendolkar and Others [AIR 1958 SC 538] and the statements made before such Commission are expressly made inadmissible in any subsequent proceedings civil or criminal. The leading judicial pronouncements [13*] on that question were succinctly analysed by this Court in [2001 (6) SCC 181], Paras 29-34. Para 34 of the judgment inter alia reads:
34 In our view, the courts, civil or criminal, are not bound by the report or findings of the Commission of Inquiry as they have to arrive at their own decision on the evidence placed before them in accordance with law.
53. Therefore, Courts are not bound by the conclusions and findings rendered by such Commissions. The statements made before such Commission cannot be used as evidence before any civil or criminal court. It should logically follow that even the conclusions based on such statements can also not be used as evidence in any Court. Janakiraman Committee is not even a statutory body authorised to collect evidence in the legal sense. It is a body set up by the Governor of Reserve Bank of India obviously in exercise of its administrative functions,
the Governor, RBI set up a Committee on 30 April, 1992 to investigate into the possible irregularities in funds management by commercial banks and financial institutions, and in particular, in relation to their dealings in Government securities, public sector bonds and similar instruments. The Committee was required to investigate various aspects of the transactions of SBI and other commercial banks as well as financial institutions in this regard. [14*]
53.1. Its terms of reference are [15*]:
54. The report of such a Committee in our view can at best be the opinion of the Committee based on its own examination of the records of the various banks (including the plaintiff and the 1st defendant) and the statements recorded (by the Committee) of the various persons examined by the Committee. In our considered view the report of Janakiraman Committee is not evidence within the meaning of Evidence Act which the Special Court is bound to follow.
55. We find it difficult to approve the procedure followed by the Special Court to record such conclusions.
56. The first defendant summoned the Executive Vice President, one Mr. Prabhu of the CANFINA and examined him. The said Mr. Prabhu in his chief examination categorically admitted that there was a security transaction dated 3rd January, 1992 between the plaintiff and the CANFINA. [16*] Interestingly, the plaintiff did not choose to cross-examine the said witness.
57. The only other witness examined in this case before Special Court is one Hiten B. Mehta who claimed that he was working at the relevant point of time (1992) with the second defendant as a Chief dealer. He also spoke to the existence of two transactions and the issue of a B.R. by the plaintiff to CANFINA as pleaded by the second defendant. He made a categoric statement in his chief examination as follows:
I got the discharged B.R. from Canfina and delivered the same to NHB
58. There is no cross-examination on behalf of the plaintiff in this regard.
59. Unfortunately, even the custodian himself did not choose to prove the various letters alleged to have been received by him from various parties involved in the transaction, though the entire written statement of the custodian is based on such correspondence.
60. Coming to the conclusion of the Special Court that only a part of the IRFC Bonds are delivered to CANFINA by the 2nd defendant is based on the contents of the Janakiraman Committee Report and the correspondence. The Special Court recorded that-the plaintiffs had on 30th March, 1992 issued a cheque drawn on RBI in favour of the Standard Chartered Bank for a sum of Rs. 55,18,43,647.07. When the plaintiff sought to recover the said amount, the Standard Chartered Bank, took a stand that at the behest of the 2nd defendant they had delivered to CANFINA, IRFC Bonds of face value Rs.80 crores and therefore, it was under no obligation to refund to the plaintiffs the amount of Rs.55 crores (approx.) as the same was paid to the Standard Chartered Bank towards the price of IRFC Bonds of face value Rs.80 crores which eventually came to be delivered to CANFINA by the Standard Chartered Bank on behalf of the plaintiff-Bank.
61. There is absolutely no evidence on record regarding the payment of the above mentioned amount of Rs.55 crores (approx.) by the plaintiff-Bank to the Standard Chartered Bank except the Janakiraman Committee Report and the correspondence which is neither proved nor the content of the correspondence is explained. On the other hand, the Special Court recorded [17*] with respect to the payment of Rs.55 crores (approx.) to the Standard Chartered Bank by the plaintiff
In the plaintiffs record there is no clear indication as to for what transaction this cheque had been issued. The plaintiffs were, therefore, not sure for what this cheque had been issued.
62. In the background of the above discussed pleadings and evidence, we are of the opinion the suit is required to be dismissed on the ground that there is no evidence led by the plaintiff to establish its case.
63. We must also record our disapproval of the finding recorded by the Special Court that the plaintiff did not suppress the truth. We are of the opinion that the plaintiff approached the Special Court with unclean hands by suppressing the relevant material. We shall first discuss the nature of the suppression and then examine the legal consequences that should follow.
64. As already noticed that the plaint, as originally filed, stated that the cheque in question was drawn in favour of the 1st defendant in respect of the sale by the 1st defendant to the plaintiff of 9% IRFC Bonds of face value Rs.100 crores. But subsequently the plaint was amended omitting the reference of the purchase of the above-mentioned 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 above-mentioned Bonds, the plaintiff sought to purchase the Bonds from the 1st defendant and drew the cheque in question. We may also note that such a stand is not taken by the defendants for the first time in the written statement. Plaintiffs were aware of the stand of the 1st defendant in the light of the correspondence that took place between the 1st defendant and the plaintiff prior to the filing of the suit. Such knowledge on the part of the plaintiffs is obvious from the averments made in the plaint itself. In the background of such a stand of the 1st defendant and the stand of the plaintiff in the unamended plaint that its record revealed that the cheque in question was issued in respect of the sale by the 1st defendant to the plaintiff of 9% IRFC Bonds, the plaintiff owes a basic duty to the Court to explain in the plaint and prove by producing its records in evidence (i) as to how such a transaction came to be entered in its records, who was responsible for such entry, (ii) who took the decision to purchase the IRFC Bonds from the 1st defendant, (iii) who signed the cheque in question and (iv) how the 2nd defendant got custody of the cheque. None of this information is given in the plaint.
66. On the other hand, we cannot ignore the pleading of the 3rd defendant who took a categoric stand that the decision such as the one to purchase or sell securities are taken at a higher level of the plaintiff-Bank. It is only on the instructions of the appropriate higher authorities, cheques such as the one in question, are prepared.
67. Assuming for the sake of argument that the cheque in question came to be handed over to the 2nd defendant without the knowledge of the higher authorities, it is difficult to believe that those who are responsible for the management of the plaintiff bank at a higher level did not bother to verify till the scandal broke out as to how a debit of Rs. 95 crores came to be made to the account of the plaintiff-Bank – we are unable to believe that such a failure is only an accident. Even the judgment under appeal records that the plaintiffs 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 defendants consistent stand that the cheque was issued for the benefit of the 2nd defendant, leads us to a possible inference that the 1st defendant acted on the instructions of some body high up in the administration of the plaintiff Bank. Neither of the banks explained the genesis of such practice. But from the very history of this litigation and the background in which the Special Court Act came to be passed, we can safely presume that both the banks herein, (along with other banks), did not follow any procedure when it came to the dealings in which the 2nd defendant was involved. Eventually when the bubble burst, everybody tried to disown the responsibility trying to project an image of innocence. The entire effort of the plaintiff in the suit, according to us, is to suppress all the relevant information we are convinced that such a process is resorted to in order to shield the delinquent officers of the bank (whoever they are) who are responsible for such dealings by taking shelter under the legal principles such as unjust enrichment and moneys had and received etc. to recover the money paid by the plaintiff to the 1st defendant through the cheque in question.
69. Whether the payment in question was made in discharge of any existing legal obligation such as the one set up by the defendants 1 and 2 or not could be known only when the full facts are disclosed. But disclosure of full facts might (though we are almost certain) lead to trouble to somebody or the other in the management of the plaintiff-Bank or perhaps both the Banks and God knows who else. It is equally irresponsible on the part of the 1st defendant to have acted on the instructions of the 2nd defendant without there being any legal authority in writing on the part of the 2nd defendant to issue instructions regarding the disbursement of the proceeds of the cheque in question. We may not be far from truth if we draw an inference that such payments were obviously made on the unwritten instructions by somebody in the plaintiff bank. The whole attempt of both the banks is to shield the officers on either side taking refuge under attractive legal pleas which if examined in the context of the limited facts pleaded give a picture that the suit transaction is an innocuous transaction which unfortunately for the country is not. In our opinion the suit is a sheer abuse of the legal process.
70. On the other hand, the dispute such as the one on hand, where the contesting parties are either organs of the State or its instrumentalities, is better resolved through a Committee of Secretaries of the Government of India or the States, as the case may be, as directed by this Court on more than one occasion. Unfortunately, such orders remain unimplemented. In fact, it appears from the judgment under appeal that even in this case the Special Court had directed such a settlement without any success. The Special Court in paras 2 to 5 of the judgment under appeal elaborately recorded the legal requirement of settling the dispute to the Committee of Secretaries and efforts made by the Special Court to have the matter so settled and eventually directed
Officer on Special Duty is directed to send a copy of this judgment to the Ministry of Law and Ministry of Finance and the Governor of Reserve Bank of India with a request to take action on this and on the aspect set out in paras 27, 73, 74 , .
71. Even during the pendency of the instant appeal, this Court on 18.02.2009, passed an order to the following effect:
These appeals are filed by the State Bank of Saurashtra against the National Housing Bank and others. Having regard to the dispute between these two Public Sector Banks, we feel it appropriate that the matter be considered at the level of the Finance Minister, Union of India to explore the possibility as to whether there could be any settlement between the parties. Therefore, we adjourn these appeals and request the Finance Minister, Union of India to look into the matter and suggest any possibility of settlement between the parties. Parties would be at liberty to bring this order to the notice of the Finance Minister, Union of India.
Adjourned by three months.
71.1. 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 Honble 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 Honble Court has also observed that each transaction has to be dealt with independently and did not agree with the contention of SBS about satisfaction of its liability by delivery of bonds by Harshad Mehta to Canfina. As far as an amicable solution is concerned, all along SBI has insisted that it be given 50% of total amount received by NHB for which NHB is not agreeable. Thus, it was felt that the Special Court has looked into all the above aspects of the matter and has given its well reasoned judgement. It has therefore been decided, with the approval of Finance Minister, that there seems to be no reason to suggest any change in the decision of the Special Court.
72.1. A reading of the letter demonstrates utter callousness on the part of the Government in dealing with the matter. We must also place our disgust at the audacity of the author of the letter to state-
that there seems to be no reason to suggest any change in the decision of the Special Court.
73. Apart from the question of propriety of the language employed in the said suggestion, the content of the letter indicates that both the plaintiff and respondent Banks simply reiterated their respective stands before the Committee of Secretaries. No attempt appears to have been made by the Government to find out the truth as to (1) how the plaintiff Bank parted with a high denomination cheque and gave custody of the same to Harshad Mehta and (2) as to how the first defendant Bank paid the various amounts to the dictation of Harshad Mehta in the absence of any authorisation by the plaintiff Bank. Be that as it may, if really the Government believed that the judgment of the Special Court does not require any interference, nothing stopped the Government from directing both the Banks to withdraw their appeals before this Court.
74. The whole exercise appears to be an eye wash. A thinly veiled scorn for the orders of this Court.
75. The professed purpose of the Special Courts Act – the back drop of the scandal that shook the nation – and the manner in which the litigation was conducted coupled with the absolute indifference of the Government to get at the truth only demonstrates the duplicity with which Governments can act.
76. We dismiss the suit and set aside the decree in toto. The consequences follow insofar as the appeals are concerned. But in the circumstances, we do not award any costs.
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