TaxTMI 
TaxTMI 
2004 (7) TMI 351
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.... the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992, hereinafter referred to as 'the Act'. 2. In the year 1991-92, Reserve Bank of India noticed that large scale irregularities and malpractices were committed in transactions in both the Government and other securities, by some brokers in collusion with the employees of various banks 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. 'The Act' was enacted to deal with this situation and, in particular, to ensure speedy recovery of the huge amount involved and to punish the guilty and restore confidence in and maintain the basic integrity and credibility of the banks and financial institutions. The Special Courts were to be presided over by a sitting Judge of the High Court to be nominated by the Chief Justice of the High Court within the local limits of whose jurisdic-tion the Special Court is situated, with the concurrence of the Chief Justice of India. The Act also provided for appointment of one or more Custodian for attaching the properties of the offenders wit....
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....01 to CANFINA, a fresh banker receipt of Citibank for Rs. 40 crores was issued and sent to CANFINA alongwith bankers receipt No. 1541 of Rs. 65 crores. These bankers receipts were accepted by CANFINA against the Citibank's liability to CANFINA for Rs. 105 crores of 9% of IRFC Bonds. According to the Citibank, as banker receipt No. 1401 of CANFINA was not utilised the Citibank cancelled the endorsement written on the reverse of the bankers receipt No. 1401. According to Citibank CANFINA's liability continued to remain subsisting under the said BR. 5. On or about 19th February, 1992 Citibank sold to SCB 9% IRFC Bonds of the face value of Rs. 72.50 crores. Citibank received payment for the same and issued BR No. 47, dated 19th February, 1992 in favour of the SCB in the sum of Rs. 72.50 crores. 6. On 28th February, 1992, CANFINA wrote a letter to the Citibank requesting the Citibank to collect the IRFC Bonds of the face value of Rs. 50 crores from SCB and release their bankers receipt No. 1401. 7. On 4-3-1992 SCB discharged BR 47, dated 19-2-1992 for Rs. 72.50 crores and returned the same to Citibank with an endorsement of due discharge on the reverse of the BR in exchange for CANFI....
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....e ground that SCB could have no claim against it and therefore it was neither a necessary nor a proper party. The learned Special Court by its order dated 7th February, 1995 held that CANFINA was a necessary and proper party to the suit and the question as to whether the SCB could have any claim against CANFINA or not was a question on merits which would be decided at the final hearing of the suit. 11. Reversing its stand SCB on 2nd January, 1996 made an application to drop CANFINA as a party defendant in Suit No. 24 of 1994. CANFINA opposed this application as well but the learned Judge by an order dated 22nd January, 1996 allowed SCB to drop CANFINA from the said suit and adjourned the suit for 2nd March, 1996 for final hearing. The learned Judge thus de-linked the two suits, although both the suits concerned the same question i.e., whether the Citibank or CANFINA were liable for the outstanding bankers receipt No. 1401 of CANFINA. 12. On 1st March, 1996, Citibank made an application to the Special Court in Suit No. 1 of 1995 that both the suits, Suit No. 24 of 1994 and Suit No. 1 of 1995 be heard together as common questions of law and facts arise for consideration in both the....
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....the learned Judge did not grant the Citibank interest @ 20% per annum as had been granted in Suit No. 24 of 1994 and also that costs were not awarded, the Citibank has filed Civil Appeal No. 9138 of 1996. 16. Facts in nutshell around which the controversy revolves are that Citibank held BR No. 1401 of face value of Rs. 50 crores issued by CANFINA in its favour. On 19th February, 1992 Citibank sold to SCB bonds of the face value of Rs. 72.50 crores. Citibank received payment for the same and issued original BR No. 47, dated 19th February, 1992 in favour of SCB in the sum of Rs. 72.50 crores. On 28th February, 1992 CANFINA wrote a letter to the Citibank requesting the Citibank to collect the IRFC Bonds of the face value of Rs. 50 crores from SCB and release their bankers receipt. On March 4, 1992 SCB "discharged" original BR 47, dated 19-2-1992 and took from Citibank the CANFINA BR No. 1401 of the face value of Rs. 50 crores and Citibank's fresh BR No. 47, dated 4th March, 1992 of the face value of Rs. 22.50 crores. Almost after three months of discharge of the original BR 47 and after break up of the scam, SCB by its attorney dated 4-6-1992 made a demand for delivery of bonds from ....
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....alue of Rs. 72.50 crores mentioned therein, the said discharge being in view of the plaintiffs accepting unconditionally from the defendants the said CANFINA Bankers Receipt No. 1401 for Rs. 50 crores and the defendants Bankers Receipt for IRFC Bonds of the face value of Rs. 22.50 crores as alleged in paragraph 8 of the written statement? (iii )Whether there was an established and accepted market practice to deliver and accept Bankers Receipts in effective discharge of the obligations to deliver physical securities as stated in para 6(c) and para 12 of the written statement? (iv)Whether the plaintiffs are estopped from denying that the defendants have discharged their obligations in respect of the IRFC Bonds of the face value of Rs. 50 crores or from contending that the defendants obligations in that behalf remains outstanding or subsisting as alleged in paragraphs 3 and 12 of the written statement? (v )Whether the plaintiffs remedy is against CANFINA only and not against the defendants as alleged in paragraphs 12 and 13 of the written statement of the defendants? (vi)Whether the plaintiffs are entitled to any relief and if so, what relief? No oral evidence was led by SCB in t....
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....ctive learned counsel appearing for the parties in these appeals. In those cases also the SCB had a transaction in securities with the Citibank on 18th and 19th September, 1991. In those cases as well the original SGL transfer form which had been issued by the Citibank to the SCB was exchanged by another SGL of a smaller amount of the Citibank and SGL transfer form issued by CMF to the Citibank. SGL transfer forms of CMF were handed over to SCB on the basis of a letter issued by an officer of the SCB. SCB filed Suit No. 22 of 1994 against the Citibank and Canara Bank and others, trustees of CMF. Citibank filed Suit No. 20 of 1994 against the brokers in the transaction, (1) Hiten P. Dalal, (2) the SCB, and (3) CMF. Suit No. 20 of 1994 was termed as a third party proceedings as has been contended in Suit No. 1 of 1995. 21. One of the question which arose for consideration before the Special Court was whether the mere handing over of the SGL transfer form there could be any discharge of liability. It was held that mere handing over of SGL transfer form would not amount to discharge of the original consideration. There could be no discharge unless there was a satisfaction. Special Co....
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....cability of sections 41, 62 and 63 of the Indian Contract Act were reiterated. The benefit of illustrations ( i) and (g) of section 114 of the Indian Evidence Act was denied to the Citibank. It was held that the plaintiff SCB at the highest agreed to act as an agent of the defendant (Citibank) and collect the 50 Crores Bonds from CANFINA and appropriate them towards the Citibank obligation to deliver 50 crores Bonds. On the failure of the CANFINA to honour the commitment there was no way that the SCB could enforce any claim against CANFINA as there was no privity of contract between SCB and CANFINA. As the CANFINA had refused to honour the BR, the Citibank was not discharged of its obligation until such time as CANFINA honoured its commitment. The Citibank's obligation to deliver the bonds could not be deemed to be discharged unless such time as SCB received the bonds. On the failure of the CANFINA to honour the commitment the SCB could fall back on the original consideration. 24. Shri Andhyarujina, learned senior advocate appearing for the appellant submitted that this Court in Citibank's case (supra) reversed the previous judgment of the Special Court in Suit Nos. 20 and 22 of 1....
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....ima facie, therefore, any discharge of Citibank's obligation was conditional upon CANFINA in fact delivering the bonds to SCB in satisfaction of Citibank's obligation. That Citibank failed to produce any evidence to rebut this presumption. Under the circumstances a due inference can be drawn that the discharge given by SCB was merely conditional. The legal presumption reflects the practical realities of business: and SCB's case that Citibank's obligation was only discharged on condition that BR 1401 was honoured by CANFINA makes legal, commercial and practical sense. That the stand taken by the Citibank that SCB unconditional gave up its legal rights against Citibank in return for BR 1401 which did not give any legal rights to SCB against CANFINA defies commercial logic. Unlike the position in Citibank's case (supra), there are no special facts on which the Citibank could rely to displace the presumption. On failure of CANFINA to deliver the bonds to SCB, SCB could fall upon its original consideration against the Citibank. Learned counsel for the parties have been heard at length. Fate of these appeals depends upon the answers to issue Nos. 2 and 4, as framed by the Special Court....
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....it has proceeded on certain admitted facts i.e.: (a )that the defendants sold to the plaintiffs Rs. 72.50 crores 9 per cent IRFC (1/1) Bonds on 19th February, 1992; (b )that the defendants received full consideration for this sale; (c )that the defendants issued Bankers Receipt No. 47 (Ex.B) for Rs. 72.50 crore Bonds; (d )that on 4th March, 1992, the original bankers Receipt No. 47 was returned discharged to the defendants on the defendants handing over to the plaintiffs Canfina Bankers Receipt No. 1401 for Rs. 50 crores and their own fresh Bankers Receipt No. 47 for Rs. 22.50 crores." SCB neither in the plaint nor in the submissions made before the Special Court says that discharge of BR 47, dated 19-2-1992 was in any manner conditional. 29. The fact that original BR 47 was unconditionally discharged and returned to Citibank is established by the SCB's endorsement made on the reverse of the original BR 47, dated 19-2-1992 which makes no qualification or condition, which reads : "BRX for Canfina F.V. 50 crs. Sd." 30. The fact that original BR 47, dated 19-2-1992 was unconditionally discharged is also corroborated by SCB's own document namely BR held Register which records r....
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....ession of the Citibank would raise a presumption in law under section 114 illustration (i) of the Evidence Act, 1872 that the BRs stood duly discharged. Section 114 provides that the Court may presume the existence of any fact which it thinks likely to have happened regard being had to the common course of natural events human conduct and public and private business, in their relation to the facts of the particular case. Illustration (i) provides that Court may presume 'that when a document creating an obligation is in the hands of the obligor, the obligation has been discharged'. The two BRs were in the custody of the Citibank. The possession of two BRs with the Citibank would raise a rebuttable presumption of discharge of the two BRs. Onus to rebut the presumption was upon the SCB. SCB has failed to rebut the presumption by leading any evidence that the obligation under the two BRs did not stand discharged. Finding recorded by the Special Court that there was nothing on the record to show that there was an absolute discharge granted by the Citibank to the SCB cannot be accepted because the two BRs were returned with the stamp of SCB duly signed by an officer of the SCB authentica....
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....bsolute or unconditional is a question of fact. In view of the presumption of discharge arising from illustration (i) of section 114 of the Evidence Act, the burden of disproving discharge was on SCB and factual evidence had to be led by SCB to prove whether discharge was conditional. No such attempt was made by SCB. 33. SCB voluntarily and unconditionally received and accepted CANFINA BR 1401 knowing fully well that the said BR was non-transferable. The obvious inference is that SCB desired the said CANFINA BR for its own purpose inasmuch as the said BR otherwise is useless. It may be noticed that SCB took BR 1401 within 14 days of the original transaction of 19-2-1992 in exchange. It owed an explanation as to why it took BR 1401, a non-transferable document. SCB has not given any explanation either in its plaint or in evidence as to why it took BR 1401. The intention of SCB was to take BR of CANFINA which was in possession of Citibank. SCB being a business house presumably was aware of the terms of BR of CANFINA from Citibank when it took, accepted and retained the BR of CANFINA from Citibank. The obvious inference is that the SCB did not take BR 1401 from Citibank as an authori....
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....SGL of CMF. Admittedly, SGL of CMF was not honoured by the PDO twice and an endorsement to that effect had been made on the SGL. As to why a creditor like SCB had asked for and accepted the instrument which was on the face of it unrealizable from the debtor which is even described by it as 'useless and worthless'? It owed a duty of explanation to the Court as to why did it ask for or accepted the delivery of such an instrument. SCB has conspicuously and completely failed to give any explanation either in its plaint or even in evidence. It is difficult to import an implied condition or warranty, as was sought to urged at the hearing in the absence of such an explanation by the SCB. Contention that the words 'in our favour' be read as introduced by necessary implication in the SCB's request for SGL of CMF and the expression - 'We now request you to give us SGLs of Canbank Mutual Fund in exchange of the same' be read as 'we now request you to give us SGLs of Canbank Mutual Fund in our favour in exchange of the same' to give it a commercial sense cannot be accepted. Such a re-writing of SCB letter of request of 19th September, 1991 and imposing a qualification in the acceptance of the ....
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....ot have double satisfaction of its claim i.e., from the promisor as well as a third party. It does not give a cause of action to the promisee, but, to the promisor, to contend that the promisee who has accepted satisfaction from the third party cannot insist on the satisfaction of its claim from the promisor as well. The case of the Citibank would squarely falls under section 63 of the Indian Contract Act, as was held in Citibank's case (supra). It was observed as follows : "50. Under section 63, unlike section 62, a promisee can act unilaterally and may: ( i)dispense with wholly or in part, or (ii )remit wholly or in part, the performance of the promise made to him, or (iii )may extend the time for such performance, or (iv )may accept instead of it any satisfaction which he thinks fit. 51. It is Citibank's case that SCB of its own asked for and voluntarily accepted two SGLs from Citibank as satisfaction which it deemed fit in exchange for the Citibank's obligation to deliver GOI bonds of the face value of Rs. 50 crores under the two BRs. Such a plea would fall under section 63. Special Court concluded that provisions of section 41 of the Contract Act would be applicable to ....
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....ed another satisfaction, deemed fit by it, in terms of section 63 of the Indian Contract Act." 35. Learned Special Court recorded a finding that SCB by accepting BR 1401 of CANFINA at the highest agreed to act as an agent of Citibank and collect bonds of the face value of Rs. 50 crores from CANFINA and appropriate them towards Citibank's obligation to deliver the bonds of the face value of Rs. 50 crores. If CANFINA refused, then, there was no way that the SCB could enforce any claim against CANFINA as there was no contract between CANFINA and SCB. Under the circumstances the obligation of the Citibank to deliver the bonds would not stand discharged unless such time the SCB received the said bonds. The learned Special Court has erred in recording the abovesaid finding. The question of conferring authority or constituting SCB agent of Citibank for receiving bonds from CANFINA are matters of fact. In the absence of any issue or evidence led by SCB, the burden cast on SCB could not be deemed to be discharged. The finding recorded by the Special Court that SCB acted as an agent of Citibank is not sustainable. When SCB discharged Citibank from its obligation under BR 47 by endorsement ....
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....tice. It was contended that irrespective of any view this court may take on documents, the Court has the power to do complete justice between the parties under article 142 of the Constitution of India by maintaining the decree in favour of SCB. Suit No. 24 of 1994 and Suit No. 1 of 1995 were back to back suits and the enforcement of decree in Suit No. 1 of 1995 was contingent upon a decree being passed in Suit No. 24 of 1994. Acceptance of the submission of SCB would be that this Court would be passing a decree against CANFINA indirectly. Submission of SCB that since a decree has been passed in the contingent suit, to the extent of decretal amount paid in the contingent suit, suit filed by SCB should be decreed, cannot be accepted. Similar submission was rejected after elaborate discussion by this Court in Citibank's case ( supra). It was observed that 'acceptance of the submission of SCB would mean that though SCB's suit does not deserve to succeed but still it be maintained by passing a decree in the contingent suit which cannot be done. It would be a travesty of justice rather than doing justice'. (refer to para 60). For the reasons stated above, Civil Appeal No. 7426 of 1996 f....