Company Law Board
Abn Amro Bank vs Indian Railway Finance Corporation ... on 25 August, 1994
Equivalent citations: [1996]85COMPCAS689(CLB)
ORDER
1. This is a petition under Section 111 of the Companies Act, 1956, filed on February 10, 1993, by the ABN Amro Bank (hereinafter called "Amro Bank") a banking company incorporated under the laws of the Netherlands having a branch office at DLF Centre, New Delhi-1. Subsequently, on April 13, 1993, an application for amendment of the petition under regulations 44 and 46 of the Company Law Board Regulations, 1991, was filed, on the plea that these amendments were necessary for the purpose of determining the real questions in controversy between the parties. After due consideration, the amendments were allowed and the amended petition was taken on record.
2. The respondents in this case are :
(1) Indian Railway Finance Corporation Ltd. (IRFC).
(2) Karur Vysya Bank Ltd. (KVB).
(3) Naresh K Agarwala and Co., a firm of stockbrokers (NKA).
Subsequently, an application was received from the Standard Chartered Bank to be impleaded as a party. After opportunity to the other parties on this application, the Standard Chartered Bank (SCB) was included as respondent No. 4.
3. The facts as per the petition are that in early March, 1992, Amro Bank purchased purportedly from the Andhra Bank, through NKA 17 per cent. NPC bonds of Rs. 100 each at a price of Rs. 97 plus accrued interest for a value of Rs. 9.76 crores, In accordance with the instructions of NKA, Amro Bank issued an account payee cheque/pay order in favour of Andhra Bank, Fort Branch, Bombay, for the above said amount with an attached memorandum stating that it represents the cost of 17 per cent. NPC bonds purchased on behalf of the petitioners' customer, the Punjab Housing Development Board (PHDB). It was delivered to NKA on March 9, 1992, and was encashed by the payee on the same day. NKA failed to deliver the 17 per cent. NPC bonds in spite of repeated reminders and instead, on or about March 18, 1992, NKA delivered the original letter of allotment covering 1 lakh, 9 per cent. (tax-free) secured redeemable non-convertible bonds of Rs. 1,000 fully paid up (VIth A series) Railway bonds 1991-92, issued by the Indian Railway Finance Corporation Limited. The Amro Bank also received a contract note and transfer deed executed in blank by KVB the previous registered holder of this letter of allotment. The allotment letter bears No. 160016 and represents bonds with distinctive numbers 1500001 to 1600000. The petitioner-company accepted the delivery of the IRFC bonds on the understanding that it would hold these bonds as alternate security pending delivery of the 17 per cent. NPC bonds. It is the petitioner's contention that on delivery of the letter of allotment the ownership of the IRFC bonds was transferred to them, as a purchaser in due course and in good faith for valuable consideration without notice of defect in writing or lack of authority from the mercantile agent/broker, in the ordinary course of business. Since NKA did not deliver the NPC bonds by June 25, 1992, which was the ultimate date fixed by the petitioners for delivery, on the same date the petitioner-bank lodged the bonds with IRFC who did not register the same as the ownership was disputed. According to the petitioner, respondent No. 1, the Indian Railway Finance Corporation Ltd. (hereinafter called "IRFC") is bound to register the bonds on intimation of the transfer submitted along with the letter of allotment, as per the terms and conditions of issue. It is further stated in the petition that IRFC has failed to register the bonds despite representations and expiry of the statutory period for registering the transfer. Due to the failure of the IRFC to register the transfer the petitioner-bank is disentitled to tax benefit otherwise available on the interest as they are tax-free bonds, Consequently, the petitioner has claimed not only the interest after grossing up for taxation but also additional interest at the rate of 25 per cent. per annum on the arrears. Interest is due and payable half-yearly on July 1 and January 1, each year. The petitioner-bank, therefore, has prayed for:
(a) Rectification of the register of bondholders to include its name as the bondholder ;
(b) Payment of interest due and payable along with compensation ;
(c) Compensation in respect of further instalments of interest.
4. Indian Railway Finance Corporation Ltd. in its reply raised certain preliminary objections mainly on the ground that the matter covered by the petition is sub judice in the Bombay High Court as a suit has been filed by SCB being Suit No. 3810 of 1993, with regard to the very same bonds, prior to the present petition which fact has been suppressed though the petitioner is a party there and as such the petitioner has not come with clean hands. It is also contended that the petition is barred by limitation under Section 111(3). The petitioner cannot also avail of the remedy under Section 111(4) as it has not availed of the remedy already available under Section 111(2). The Standard Chartered Bank is a necessary party in this case. Further, the jurisdiction conferred on the Company Law Board does not exclude the jurisdiction of the civil courts and this is not an exclusive jurisdiction of the Company Law Board. These objections were withdrawn after the inclusion of SCB as a party.
5. The petitioners' action of accepting the bonds initially as security, meanwhile getting the same registered in its name and also reserving a right to enforce delivery of the NPC bonds and/or refund of the amount allegedly paid to the Andhra Bank were questioned and such authority to exercise option could not have been given or exercised. It is further stated that mere delivery of the letter of allotment and transfer form does not vest the title but it has to be preceded by consideration and since there is failure of consideration between the petitioner and the KVB, no title passes to the petitioner. Naresh K. Agarwala and Co. had no authority to deliver the letter of allotment and transfer form, as alternate security and as such the petitioner has no right to have the bond registered in its name. There was no consensus ad idem between the registered holder, viz., KVB and the petitioner. Karur Vysya Bank Ltd. has issued the BRs to SCB and the petitioner is not vested with any right of ownership. The company has justified its withholding the transfer pending determination of the rightful owner.
6. Karur Vysya Bank Ltd. in its reply stated that it did not receive any payment from the petitioner in respect of the bonds. In January, 1992, NKA issued a contract note for the sale of these bonds owned by it and accordingly a cost memo was prepared on SCB. Standard Chartered Bank paid KVB by a pay order, a sum of Rs. 9.36 crores through NKA, and accordingly KVB issued a BR No. 2 which was handed over to the broker. The letter of allotment was also subsequently delivered to the broker, NKA, who was to deliver the same to the SCB which is the normal practice. According to KVB, its obligation was over with the delivery of the letter of allotment through NKA who in turn delivered the same to Sh. Hiten Dalai, the broker of SCB. According to KVB, the petitioner had no contract to purchase 9 per cent. IRFC bonds from NKA. This is evident from the copies of the correspondence between the petitioner and NKA. The purchase by the petitioner of NPC bonds was on behalf of the Punjab Housing Development Board and nowhere in the correspondence between the petitioner and PHDB was there any reference to the purchase of IRFC bonds. Karur Vysya Bank Ltd., therefore, submitted that the company may be directed to register SCB as the holder of the bonds and to declare that the petitioner is not the owner of the said bonds.
7. Respondent No. 3, namely, NKA, in his reply raised the following preliminary objections ;
(i) There is a misjoinder of himself as a party though no relief is claimed from him.
(ii) There is non-joinder of necessary parties, namely, SCB and Andhra Bank.
(iii) The petition requires to be stayed since a similar matter is pending before the Bombay High Court in a suit and the relief claimed therein are similar and the issue is substantially the same.
(iv) The petitioner has tried to mislead the Company Law Board with regard to the date of the receipt of 9 per cent. IRFC bonds from NKA, which turned out later to be an obvious error.
8. As regards preliminary objections (i), (ii) and (iii), the advocate did not press for the same later.
9. Apart from the above, NKA has narrated the sequence of events which transpired between him and the petitioner. According to him, KVB placed an order with him for sale of 9 per cent. IRFC Ltd. bonds which he sold to SCB through their broker for which the necessary consideration was paid to KVB by SCB. Karur Vysya Bank Ltd. also handed over the bonds to be transmitted to SCB. The bonds were duly received by Sh. Hiten Dalal, representative/broker of SCB. In the meantime, an order was placed on him (NKA) by the petitioner for purchase of 9 per cent. Indian Railway Finance Corporation Ltd. bonds against which a contract note was issued. This order was fulfilled by obtaining from Hiten Dalai the 9 per cent. IRFC bonds which was duly received and handed over to the petitioner-bank. Earlier the petitioner-bank placed another order for purchase of 17 per cent. NPC bonds which was arranged from Andhra Bank for which payment was also made to that bank. However, despite his best efforts Andhra Bank has failed to deliver the 17 per cent. NPC bonds. The petitioner has either as a cover up or as a pressure tactic on him refused to make the payment for 9 per cent. IRFC bonds and is now taking the stand that he (NKA) has handed over 9 per cent. IRFC bonds as an alternative security. It is irrational to presume that he would take the liability of the Andhra Bank and there was no need for any alternative security. The petitioner-bank also tried its level best to have the delivery from the Andhra Bank. Finally, he was left with no other option but to insist on the petitioner-bank for payment of 9 per cent. IRFC bonds, which the petitioner has denied. It is also stated that in the light of the impeccable documentary evidence either SCB or KVB is the rightful owner and the petitioner-bank has no right.
10. After admitting SCB as respondent No. 4, they filed their reply. According to them, the only issue which ought to be decided is the question of title of SCB in priority to all other parties. Karur Vysya Bank Ltd. is dispossessed of all its rights, title and interest on January 21, 1992, by way of sale to SCB and KVB has received full consideration but SCB has not received the delivery. Karur Vysya Bank Ltd. remains the registered owner and remains liable to SCB to deliver the bonds. Thereafter, the facts as narrated by KVB have been set out. After ascertaining that the letter of allotment, though purportedly delivered by KVB, has not reached them, SCB took up the matter with the IRFC, and became aware of the controversy. It is the contention of SCB that KVB is liable to fulfil its obligations. Delivery to NKA or Hiten Dalai is not delivery to SCB and such dealings were not authorised by SCB. The petitioner-bank in any case acquired no title to the bonds allegedly received as alternate security. The Standard Chartered Bank has also admitted that a suit has been filed by them in the Bombay High Court, being Suit No. 3810 of 1993, with regard to the same bonds. In the circumstances, it prayed that SCB may be declared as the true, rightful and legal owner and IRFC be directed to rectify the register and enter SCB's name as the holder of the bonds. Further, directions to IRFC to pay SCB such benefits and interest as agreed to on the bonds from January 20, 1992, were also prayed for.
11. Pending final hearing and disposal, we directed IRFC to deposit the six-monthly interest falling due, in a fixed deposit with the State Bank of India, the main bankers of the company.
12. Arguments were advanced by Shri V.N. Koura, Advocate, on behalf of the Amro Bank. He stated that there was only one order for purchase of 17 per cent. NPC bonds on March 3, 1992, and there was no order for purchase of IRFC bonds. Since NKA failed to deliver the 17 per cent. NPC bonds in spite of repeated reminders and since he delivered the IRFC bonds together with transfer deed duly executed it was taken as alternate, security. As per the instructions on the bank of the allotment letter these bonds were transferable by mere endorsement and delivery and, therefore, the transfer is complete.
13. Though IRFC was informed before hand about the alternate security being taken in place of NPC bonds, it expressed its inability to effect the transfer on the ground that KVB to whom these bonds belonged had reported that the scrip along with the transfer deed was lost and had fallen into the hands of unauthorised persons and as such KVB not only demanded a duplicate letter of allotment from IRFC but also requested not to transfer or issue interest warrant to any person without their approval. Counsel also drew our attention to the report of the Janakiraman Committee to establish the fact that the petitioners did make the remittance of Rs. 9.75 crores to the Andhra Bank which has been credited to the account of Hiten Dalal by the Andhra Bank. He pointed out the observations of the Second Report of the Janakiraman Committee to the effect that KVB has not been maintaining proper records. This he said was the reason why the relevant BR has not been cancelled.
14. Counsel argued at length regarding Section 27 of the Sale of Goods Act to indicate that a broker is a mercantile agent and in this capacity he has a right to deal with the goods and to pass on better title. He further cited the case of Fazal D. Allana v. Mangaldas M. Pakvasa, AIR 1922 Bom 303, to the effect that delivery of share certificates with transfers executed in blank passes not only the property in the shares but also legal and equitable title which will enable the holder to vest himself with the shares without the risk of his right being defeated by the registered owner or any other person deriving the title from the registered owner. He also cited S. Rama Rao v. Dasarathy Rao, AIR 1955 Mys 43, to establish that under the Sale of Goods Act proper title has been passed on to the bank by the mercantile agent. As regards consideration, valid consideration has been already given and past consideration is a valid consideration for which he cited Union of India v. Chaman Lal Loona and Co., AIR 1957 SC 652.
15. Shri G. Sarangan, appearing on behalf of KVB, questioned as to why payment was made by the petitioner to the Andhra Bank while the transaction was with the broker ; as such the deal for 17 per cent. NPC bonds was actually with the Andhra Bank. He further stated that under Section 178 of the Indian Contract Act, pledge of goods is permissible only when somebody is in judicial possession and in the present case the pledge is not in the normal course of business and it was totally outside the knowledge of the original owner.
16. Shri K.S. Cooper, senior advocate, appearing on behalf of SCB stated that :
(a) The cost memo dated January 20, 1992, of KVB clearly reflects the transaction between SCB and KVB, supported by a contract note dated January 13, 1992, of NKA.
(b) The BR of KVB is still lying with SCB which shows that the bond/LOA has not been delivered.
(c) The petitioners have not submitted any contract note regarding the purchase of 17 per cent. NPC bonds whereas NKA claims that he had a contract note for NPC bonds, thus raising rival contentions. The presence of the contract note confirms that NKA has acted only as a broker and not as a principal.
(d) There is no cost memo by Andhra Bank to establish that there was no purchase of 17 per cent. NPC bonds from that bank.
(e) Though NKA sent a letter along with the impugned letter of allotment it does not mention anything about 17 per cent. NPC bonds nor that it is an alternate security which establishes that NKA did not intend to offer any alternate security.
(f) The two main oral agreements, according to the petitioner, are regarding purchase of NPC bonds from NKA on principal to principal basis and regarding the acceptance of IRFC bonds as alternate security are not substantiated by any evidence and also contradicted by NKA.
17. Regarding the delivery of 9 per cent. IRFC bonds by NKA to Amro Bank as alternate security, Shri K.S. Cooper referred to the decision of the Chancery Division in France v. Clark [1884] 26 Ch D 257 to establish that a person who without enquiry takes from another an instrument, signed in blank by a third party and fills up the blanks, cannot, even in the case of a negotiable instrument, claim the benefit of being a purchaser for value without notice so as to acquire a greater right than the person from whom he himself received the instrument. He further cited Hutchinson v. Colorado United Mining Co. and Hamill [1886] 3 TLR 265 (CA) to state that any fraudulent disposal of shares by an agent of the owner does not operate against the title of the original owner. He also referred to Fox v. Martin [1895] 64 LJ Ch. 473 to state that following the decision in France v. Clark [1884] 26 Ch D 257 that the registered owner of a share does not lose his title if the broker to whom instructions were given to sell the same deposits the blank transfer form and certificate with the defendant as security for his own debt. He also cited Fazal D. Allana v. Mangaldas M. Pakvasa, AIR 1922 Bom 303, where a deviation from the decision in France v. Clark [1884] 26 Ch D 257 and Fox v. Martin [1895) 64 LJ Ch. 473 would be found. However, later a Division Bench of the same High Court in Abdul Vahed Abdul Karim v. Hasanali Alibhai Ghasia, AIR 1926 Bom 338, has reversed this decision. In this case the following question has been answered by the Bench directly (at pages 339 and 340) :
" Does a registered owner of shares, by handing over the share certificates and blank transfers signed by him to another person, make a representation to the world that such person is entitled to deal with the shares, so that any honest purchaser from that person obtains a good title to the shares. In my opinion, until the decisions in France v. Clark [1884] 26 Ch D 257 and Fox v. Martin [1895] 64 L) Ch. 473 are directly overruled, the answer to that question must be in the negative."
18. According to Shri Cooper, the above case law clearly brings out that NKA cannot pass on any title to the IRFC bonds, particularly when Amro Bank is aware that it is dealing with a broker.
19. On the facts Shri Cooper submitted that the letter of NKA/KVB dated May 28, 1992, only shows that the letter of allotment was delivered to Hiten P. Dalai and not to SCB. Thus, no delivery was given to SCB. Though KVB is representing as if SCB has received documents and lost the same, he demonstrated from the correspondence between the Andhra Bank and the Amro Bank and that between NKA and KVB that the petitioner-bank had been dealing with Hiten P. Dalai and has not been able to recover the amount remitted to the Andhra Bank and has been wrongfully holding on to a security which belongs to SCB.
20. Shri G. Sarangan, representing KVB, further pointed out from the correspondence on record between PHB and the petitioner that Amro Bank was aware of the defect in title and that is why it wrote to the Deputy Governor, Reserve Bank of India (letter dated June 25, 1992), claiming the money from the Andhra Bank. He also agreed with the submissions of Shri Cooper with regard to the decisions in France v. Clark [1884] 26 Ch D 257 and Fox v. Martin [1895] 64 LJ Ch, 473 which has been endorsed by the Division Bench of the Bombay High Court in Abdul Vahed Abdul Karim v. Hasanali Alibhai Ghasia, AIR 1926 Bom 338.
21. Submissions were made by Shri G. Ramaswamy, senior advocate and Shri R.S. Suri, Advocate, on behalf of NKA on different dates. According to them, NKA is made a party by Amro Bank in the 17 per cent. bonds transaction though the deal was with the Andhra Bank, so that it may he convenient for the petitioner to claim the title for the IRFC bonds. He cited the correspondence between the Amro Bank and the Punjab Housing Board on whose behalf the NPC bonds were stated to have been purchased, which was taken on record, which shows that IRFC bonds were not an alternate security. Further, the correspondence with the Reserve Bank of India also clearly indicates that there was a deal between Amro Bank and the Andhra Bank with regard to NPC bonds. He further stated that if IRFC bonds is only an alternate security then the petitioner should have questioned the contract note of NKA. According to him, Amro Bank paid one consideration to the Andhra Bank and is putting forward a claim for two securities, namely, 17 per cent. NPC bonds and 9 per cent. IRFC bonds. According to him, as per the Janakiraman Committee (Fourth Report, page 57), there was a close nexus between Hiten P. Dalai and SCB and that the former had the liberty to act on behalf of SCB for all transactions. He also cited instances to indicate that even though the scrips are delivered, BRs are not delivered immediately to suggest that though he has given delivery of the IRFC bonds, SCB has not returned the BRs which is not unusual.
22. Shri V.N. Koura, advocate, strongly refuted the decision in the cases cited by Shri Cooper and insisted that even in the case of blank transfer if the intermediary is a broker then the provisions of Section 27 of the Sale of Goods Act would apply. In this connection, he drew our attention to the specific statement in the decision in France v. Clark [1884] 26 Ch D 257 cited by Shri K.S. Cooper to indicate that "the decision would have been different if there had been a mercantile usage which if approved would be sufficient to make a blank transfer negotiable in law". In the present case, the intermediary is a broker and hence the ruling in France v. Clark [1884] 26 Ch D 257 or of the decision of the Division Bench of the Bombay High Court in Abdul Vahed Abdul Karim v. Hasanali Alibhai Ghasia, AIR 1926 Bom 338, would not apply. Shri Koura further attacked the precedents cited by Shri Cooper by submitting subsequent judgments of the Supreme Court in V.P. Shelat v. P.J. Thakar, AIR 1974 SC 1728 ; [1975] 45 Comp Cas 43 (SC), to state that the right to ownership is conferred on the execution of the documents. Even in the case of a gift, the right to obtain the transfer of the shares is complete on the handing over of the share certificates and signing blank transfer forms. Such a view has also been upheld in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 ; AIR 1986 SC 1370. Further, reinforcing his arguments with regard to the Sale of Goods Act he reiterated the decision in S. Rama Rao v. Dasarathy Rao, AIR 1955 Mys 43, to show that where, in a sale of shares through a broker, the delivery of the share certificates with the transfers executed in blank passes not the property in the shares but a title legal and equitable. It was his confirmed view that a bona fide purchaser of shares for value without notice of any fraud or of any defect acting in good faith has a better title.
23. He further refuted the stand of SCB that Amro Bank had no contract for NPC bonds. As regards SCB's claim to title, he stated that in the suit before the Bombay High Court with regard to the same bonds, SCB is claiming specific performance or return of the money against KVB, but it is not claiming title. As such when there is no other claimant to the title, the claim of Amro Bank to title should be accepted.
24. Refuting the arguments on behalf of NKA, Shri Koura pointed out the discrepancies in the contract note regarding IRFC bonds sold by KVB as submitted by respondents Nos. 2 and 3, with regard to the number, type of letter and other particulars. Similarly, he drew our attention to the cost memo of KVB and pointed out the discrepancy in the value between the contract note and the cost memo. All these were submitted to show that apparently these documents were ,all fabricated. The documents filed by KVB do not establish that the broker has confirmed delivery to SCB. He also referred to the letter of March 18 (1992), from Hiten P. Dalai to NKA which talks about Rs. 9.74 crores in respect of IRFC bonds which tallies with the remittance made by the petitioner in early March, 1992, to the Andhra Bank. Shri Koura further submitted that NKA never asked for any payment in respect of IRFC bonds till June 15, 1992, nor KVB asked for return of any BR while delivering the IRFC bonds. While concluding Shri Koura also made a plea for compensation for loss of tax incentives to the petitioner because, for claiming incentive the documents are to be lodged with the company within two months' time, as per the relevant notification of the Finance Ministry.
25. On a further opportunity, Shri Cooper stated that the petitioner has raised a new issue of the role of NKA as principal in the 17 per cent. NPC bonds deal but there is no evidence for such a contention. Even if that be so, the entire subsequent claim of the petitioner is not maintainable on that basis. He further charged the petitioner with suppression of correspondence with the Andhra Bank asking for refund of the money. The petitioner should not have accepted a substitute security from a broker with definite knowledge that the broker cannot pass on the title and, therefore, he does not get a title.
26. Shri P.A.S. Rao, advocate, appearing on behalf of the company, justified the delay in transferring the bonds and stated that no claim for compensation can arise and also stated that there was no such claim in the original petition or in the oral pleas of the petitioner. The advocate for the Punjab Housing Board was also given opportunity and he raised the demand for the balance interest due from the petitioner-bank in case the bonds are ordered to be registered in Amro Bank's name.
27. After the completion of the hearing in this case, it was brought to our notice that an Ordinance has been promulgated on January 25, 1994, namely, the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, which has now become an Act on receipt of the assent of the President on April 28, 1994. It was argued before us, in yet another similar case relating to securities that by virtue of this Ordinance, the jurisdiction of the Company Law Board in relation to any matter arising out of the transactions in securities entered into after April 1, 1991, and on or before June 6, 1992, in which a notified person is involved, has been withdrawn. In the present case also since the transaction was entered into on a date which falls within the period referred to in the Ordinance and there were references to involvement of a notified person, we decided to afford an opportunity to the parties concerned to argue on the applicability of the Ordinance to the present case. Accordingly, a hearing was given on May 2, 1994. At this hearing both the petitioner-bank and respondent No. 4, namely, SCB, argued that the Ordinance is not applicable to cases before the Company Law Board, On behalf of respondent No. 3, NKA, an argument was already advanced right in the beginning of the case, that the matter falls within the jurisdiction of the Special Court. This argument was made even before coming into force of the Ordinance and hence the promulgation of the Ordinance further reinforced the stand of NKA in this regard.
28. Since this particular question is applicable to yet another case as well, we had kept a combined hearing in the matter. Shri J.C. Seth, advocate, who appeared in the other case for a similar, public sector respondent-company took a stand that the Ordinance applies to proceedings before the Company Law Board. He proceeded with the definition of "court" as contained in Section 2(11) of the Companies Act, 1956, which states that "court" means the court having jurisdiction under this Act with respect to that matter relating to that company as provided in Section 10. Section 10 relates to the jurisdiction of the High Court and the District Courts. The argument of Shri Seth was that Section 10E which deals with the Company Law Board should be considered as part of Section 10 and since the definition of a court as contained in Section 2(11) is linked with Section 10, the Company Law Board is also a court as contemplated in the Companies Act itself. Shri Seth also referred to Baliram Waman Hiray (Dr.) v. Justice B. Lentin [1988] 176 ITR 1; AIR 1988 SC 2267, to state that the apex court has laid down certain tests regarding what a court is. He further submitted that in Chandrapal Singh v. Maharaj Singh, AIR 1982 SC 1238, even the Rent Control Officer has been deemed to be a court. He also referred to Noreen R. Srikantaiah (Mrs.) v. L. Dasarath Ramaiah, AIR 1985 Kar 208, to state that a court can be constituted with a limited jurisdiction. He also stated that even the exception with regard to the appeal as provided in the Ordinance is applicable to appeal under Section 111(2) of the Companies Act because such petitions are in the nature of appeals and hence exempted. He also drew our attention to letter No. 335/ CUS/ANL/CLB/Pt 3 126, dated January 20, 1994, of the Custodian appointed under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. In this letter addressed to the Company Law Board, in reply to a reference made to him in the other case, the Custodian has expressed a view that since a notified person is involved the matter falls within the jurisdiction of the Special Court. He further added that the Company Law Board has already taken a decision to transfer its proceedings in a similar matter in A.N.Z. Grindlays Bank v. National Hydro Electric Power Corporation Ltd. [1995] 82 Comp Cas 747 (CLB) to the Special Court after considering the provisions of the Ordinance. Accordingly, the same ratio should be applied in this case as well, he stressed.
29. Arguments were submitted by Shri K.S. Cooper, senior advocate, on behalf of SCB to the effect that the Ordinance has no applicability to the Company Law Board. He pointedly drew our attention to Section 9A(1) of, the Ordinance which reads as follows :
"9A(1). On and from the commencement of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 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 Sub-section (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 any other manner. "
30. According to him, the specific reference is to a civil court. According to Shri Cooper, the Company Law Board is not a court and even if it be considered as a court, it is not a civil court either. On a plain reading of Section 9A(1), the jurisdiction of a civil court in relation to the matter or claims which immediately before the commencement of the Ordinance were in seisin of the civil court shall be exercisable by the Special Court. Section 9A(3) denies any civil court the authority, power or the jurisdiction to deal with or be entitled to deal with such suits, matters or claims, as mentioned in Section 9A(1).
31. The matters pending before all courts are not transferable. There are several types of courts, namely, civil courts, criminal courts, revenue courts, family courts or special courts and the Ordinance contemplates only those cases which are pending in the civil courts to be transferred. The Company Law Board is exercising both judicial and non-judicial functions whereas a court in the strict sense exercises only judicial functions. For example, granting approvals under Sections 17, 113(1), 141 are non-judicial functions, where there is no lis or dispute between the two or more parties. He also cited the decision of the Company Law Board, Western Region Bench in Carbon Corporation Ltd. v. Abhudaya Properties P. Ltd. 11992] 73 Comp Cas 572 (CLB) which has recorded the reasons as to why the Company Law Board is not a court. The Company Law Board is even now entitled to exercise and discharge such functions and powers as are entrusted by the Central Government under the Companies Act. Section 10E(4C) recognises the Company Law Board as a civil court for certain limited purposes only. He explained the purpose of the Ordinance in the background of the Special Court Act, 1992, and stated that the Spegial Court is already vested with the powers of a criminal court, but it did not have the powers of a civil court. However, in order to expedite the disposal of cases relating to notified persons, it was considered necessary to clothe the Special Court with the powers of a civil court and as such the Ordinance took away the jurisdiction of civil courts in respect of those transactions which are spelt out in Section 9A(1). The purpose of this Ordinance is only to transfer cases relating to security transactions of notified persons, but other matters pending before any other court will not be transferred to the Special Court. Sub-section (4D) of Section 10E of the Companies Act, 1956, further makes the position very conclusive by the use of the words with regard to the Company Law Board "every Bench shall be deemed to be a civil court". Sub-section (5) further makes it clear that "natural justice shall prevail". This need not be stated specifically in the case of a court. Moreover, in the case of a civil court, the Civil Procedure Code, 1908, will apply, whereas in the case of the Company Law Board, as per Sub-section (6), it has got to follow its own procedures and as such the Civil Procedure Code, 1908, is not applicable.
32. From the pleadings and arguments advanced, the following issues emerge for our decision :
(i) Whether the Special Court Amendment Ordinance, 1994 (which has since become an Act), takes away our jurisdiction in the instant case ?
(ii) What is the nature of delivery of 9 per cent. IRFC bonds, made by NKA to Amro Bank ?
(iii) Does this delivery convey a good title to Amro Bank ?
(iv) If so whether its name, and if not, whose name should be entered in the register of bonds ?
Regarding the first issue, we carefully considered the contentions of Shri J.C. Seth, advocate, on behalf of the respondent-company with regard to our order in ANZ Grindlays Bank v. National Hydro Electric Power Corporation Ltd. [1995] 82 Comp Cas 747 (CLB). In that case, both the petitioners and the respondents did not have any conflict of views on the applicability of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, to the Company Law Board. We have specifically recorded in our order that the same counsel, who is appearing for the petitioners in the present case, had stated that "as per the new Section 9A(2), introduced by Clause 3 of the Ordinance, all suits, claims and other legal proceedings pending before any court before the commencement of the Ordinance relating to the securities arising out of the transactions entered into between April 1, 1991, and June 6, 1992, in which a notified person is involved as a party/broker/ intermediary or in any other manner the entire proceedings stand transferred to the Special Court on the coming into force of the Ordinance. According to him, the jurisdiction of the Company Law Board has been completely withdrawn with regard to the matter relating to these transactions as respondent No. 4, Fair Growth Financial Services Limited, is a notified person. Hence, the present proceedings before the Company Law Board including the main petition has to be transferred to the Special Court". Counsel on the other side in that case, Shri L.R. Gupta, submitted only with regard to an exception for the transfer as provided in Section 9A(2) in respect of appeals. He did not challenge the basic applicability of the Amendment Ordinance to the Company Law Board. In the above circumstances, there was no opportunity available to us to get the point relating to whether the Company Law Board was a civil court or not, argued as there was unanimity of views on both the sides.
33. We have now gone into the question of applicability of the relevant provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Amendment Act, 1994 (Act 24 of 1994), as assented to on March 28, 1994. The words "court" or "civil court" have not been generally defined in the judicial dictionary or in any enactment. The characteristic features of a court are also not clearly spelt out specifically anywhere.
34. However, the pronouncement of a distinctive judgment is considered an essential sine qua non to a court and unless and until a binding and authoritative judgment can be pronounced by a person or body of persons it cannot be concluded that he or they constitute a court. Justice Venkatarama Iyer in Virindar Kumar Satyawadi v. State of Punjab, AIR 1956 SC 153, 157, after setting out a catena of judgments by the Privy Council, etc., has pronounced "it may be stated broadly that what distinguishes a court from a quasi-judicial Tribunal is that it is charged with a duty to decide disputes in a judicial manner and declares the rights of parties in a distinctive judgment", The Supreme Court, again in Baliram Waman Hiray (Dr.) v. Justice B. Lentin [1988] 176 ITR 1 ; AIR 1988 SC 2267, has cited the same court's judgment in Jagannath Prasad v. State of U. P. [1963] 14 STC 536 ; AIR 1963 SC 416, which merely enumerates some negative propositions like, a tribunal is not necessarily a court in the strict sense because it gives a final decision, etc. The Supreme Court has examined the question of whether a particular tribunal is a court or not with reference to a particular Act and not as a general proposition. Shri K.S. Cooper has submitted the decision of the Company Law Board (Western Region Bench) in Carbon Corporation Ltd. v. Abhudaya Properties P. Ltd. [1992] 73 Comp Cas 572 which again has been decided in the context of the applicability of the Limitation Act. Similarly, the question whether a tribunal is a court or not has been decided by the Supreme Court with reference to the Commission of Inquiry Act, Evidence Act, Contempt of Court Act, Income-tax Act, etc., but there is no general proposition in this regard. To the question whether the Company Law Board is a court or not under the Companies Act, the reply has to be only in the negative because court has been defined under Section 2(11) to mean the courts which have jurisdiction under Section 10 and the Court of the Magistrate of the First Class or, as the case may be, a Presidency Magistrate having jurisdiction to try offences. Section 10E is not part of Section 10, but it constitutes a separate section itself. As such, in our view, under the Companies Act, the Company Law Board is not recognised as a court by the Act itself. Since the context in the present case is with reference to a civil court it is necessary for us to examine whether we constitute a court under the Civil Procedure Code, 1908, rather than under the Companies Act, 1956. A civil court is to be distinguished basically from a criminal court. However, all civil courts are bound by the provisions of the Civil Procedure Code, 1908. In the case of the Company Law Board, however, Section 10E(6) makes it abundantly clear that it shall have power to regulate its own procedure which, in other words, means the Company Law Board is not required to adhere to the provisions of the Civil Procedure Code, 1908. Moreover, Section 10E(4C) clothes every Bench of the Company Law Board with the powers of a court under the Civil Procedure Code, 1908, in respect of certain limited matters which, in other words, means that otherwise the Company Law Board does not have the powers of a civil court in all matters excepting those spelt out under that section. In View of these, we are unable to agree to the proposition that the Company Law Board is a civil court.
35. We also observe that the objective of the Amendment Ordinance appears to be in consonance with the objective of the Special Court Act of 1992, namely, expeditious disposal in respect of civil matters wherever notified persons were involved. We also find that as at present the Company Law Board has parallel jurisdiction with the civil courts in respect of matters relating to companies by which an option is available to the litigants either to go to the civil court in a suit or to come to the Company Law Board, under the specific provisions of the Companies Act. It appears that due to the unavoidable pendency of cases in civil courts involving a long waiting period, the Legislature has considered it appropriate to amend the Special Court Act to clothe the Special Court with the powers of a civil court with the objective of expeditious disposal especially in matters where notified persons were involved. The Amendment Act, however, does not intend to disturb the proceedings before the Company Law Board as it will not in any way conflict with the objective of amendment. We, therefore, hold that the Special Court Amendment Act, 1994, does not apply to the proceedings before us and that our jurisdiction and powers to deal with matters relating to securities as provided in the Companies Act, 1956, continue to remain with us.
36. The crucial question in this case is regarding the nature of delivery of IRFC bonds given by NKA to the petitioner-bank and the consequence of such delivery on the title to these bonds.
37. The following chronology of events emerges from the pleadings and submissions :
(1)March 3, 1992 Order by Amro Bank for purchase of 17 per cent. NPC bonds placed on NKA.(2)
March 3, 1992 Contract note for 17 per cent. NPC bonds prepared by NKA with the indication of date of delivery as March 9, 1992.(3)
March 9, 1992 Payment made by Amro Bank to Andhra Bank for 17 per cent. NPC bonds by pay order, as desired by NKA and the amount collected on the same date and credited to the account of Hiten Dalai.(4)
March 10, 1992 Delivery of 9 per cent. IRFC bonds by KVB to NKA.(5)
March 12, 1992 9 per cent. IRFC bonds forwarded by NKA to Hiten Dalal for further forwarding to SCB.(6)
March 12 to March 18, 1992 NKA still unable to arrange NPC bonds to Amro Bank.
(7)March 18, 1992 Receipt by NKA of 9 per cent. IRFC bonds back from Hiten Dalai. Deli-very of 9 per cent. IRFC bonds by NKA to Amro Bank.
38. Whereas Amro Bank categorically states that there is only one order dated March 3, 1992, for purchase of 17 per cent. NPC bonds, respondent No. 3 cites evidence in the form of (submitted by the petitioner-bank itself as part of the petition) another contract on March 9, 1992, for the purchase of 9 per cent. IRFC bonds. What is the correct position ? Before we decide this we have to get two sub-issues out of the way, viz., (a) whether the contract note of March 9 was pre-dated, and (b) whether NKA was being considered as a principal. The contract note dated March 9, 1992, issued by respondent No. 3 must have been actually prepared only after March 9, 1992, because on that date there was evidently no seller of 9 per cent. IRFC bonds, nor did he have its possession. NKA could not prove that on or before March 9, 1992, there was an order for sale of IRFC bonds and as such in its absence he could not have made a sale. No broker makes a contract note without a seller and buyer or at least another broker in view as otherwise it would amount to a fictitious transaction. In fact, it is doubtful whether the contract note was delivered on March 18, as even the covering letter does not say so and Amro Bank also does not say so in the petition, though they say so in their written submissions much later.
39. The contention of Amro Bank that the contract note was pre-dated to March 9, 1992, is plausible. NKA did not have on hand the IRFC bonds on March 9 as KVB sent the letter of allotment of IRFC bonds only on March 10, 1992. NKA forwarded the LOA on March 12 to Hiten Dalai and as such it was out of his hands from March 12 to March 18. These circumstantial evidences indicate that NKA has pre-dated the contract note on or after March 18, to establish that there was a contract with Amro Bank. This was done probably to cover up the petitioners for interest due to them from March 9, 1992, onwards.
40. The other sub-issue is that though the stand taken initially by Amro Bank has been consistent with its correspondence with NKA, viz., that Amro Bank was dealing with him as a broker, the subsequent arguments indicated as if they treated NKA as the principal or as an agent of an undisclosed principal probably to justify the delivery of the IRFC bonds. Actually, Amro Bank had been consistently dealing with NKA only as a broker and not as a principal. The letter dated June 19, 1992, from Amro Bank to IRFC as well as the correspondence with the Punjab Housing Development Board clearly indicate that they have purchased 17 per cent. NPC bonds from the Andhra Bank through NKA and that the broker or the bank failed to deliver the NPC bonds. The letter dated June 19, 1992, from Amro Bank to NKA also confirms that the role of NKA is to "arrange for investment" in 17 per cent. NPC bonds from the Andhra Bank. Thus, Amro Bank had been treating respondent No. 3 only as an intermediary and not as a principal party. Even on March 9, they knew the money had gone to the Andhra Bank which is the principal. This is the reason why, as transpired from the subsequent correspondence filed by the Punjab Housing Development Board, Amro Bank had been independently following up the payment made to the Andhra Bank. Thus, it is clear that Amro Bank was aware that it was dealing with a broker who was acting on behalf of a disclosed principal, viz., the Andhra Bank. Yet, based on the contract note, a genuine buyer can always insist on delivery by the broker and it is the obligation of the broker to deliver the goods or return the money. Now, coming to the question of nature of delivery the letter dated June 19, 1992, addressed by the petitioner to NKA clearly indicates that IRFC bonds are supposed to be held by the petitioner-bank for a short while until the delivery of the 17 per cent. NPC bonds. The following extract from that letter is relevant :
" While receiving the said 9 per cent. IRFC bonds as security, we had specifically informed Mr. Naresh Agarwala that our customers PHDB were interested in investment in 17 per cent. bonds and not in 9 per cent. IRFC bonds. It was thereupon agreed that we should hold the said letter of allotment along with transfer forms duly signed for a short while and that you would make arrangements for exchange of 17 per cent. NPC bonds for the said 9 per cent. IRFC bonds (emphasis added). On the basis of such assurance from Mr. Agarwala, we had not forwarded the said letter of allotment for endorsement in our favour or in favour of our customers and we are holding the said bonds along with the transfer forms."
41. The letter dated June 18, 1992, addressed to IRFC by the petitioner-bank also indicates the arrangement between NKA and the petitioner-bank. The following sentence from the letter is relevant :
" Since the said security was given to us as an alternate security for the original security, namely, 17 per cent. bonds, sought to be purchased through the said brokers, we were pressing the said brokers who had promised to replace the said security by 17 per cent. NPC bonds. Till date we have not received the said original security."
42. The nature of delivery was also explained by the petitioner-bank to PHDB in a letter dated April 8, 1993 :
" We have no contract for purchase of 9 per cent. IRFC bonds at 95.3233 with any party and the facts are that these IRFC bonds were delivered to us by Naresh K. Agarwala as alternate security since Andhra Bank had not delivered the 17 per cent. NPC bonds paid for by us on March 9, 1992, and we had been following up for delivery."
43. The petitioner-bank has also threatened in their letter of June 19, 1992, as follows :
" Please note that unless we receive the replacement security on or before June 25, 1992, we will lodge the said bonds with IRFC after transfer in favour of our customers."
44. Now, coming to the substantive issue, we deal with the nature of the delivery, i.e., whether it is a pledge or a sale or any other means. The petitioner had been riding two horses at the same time in its pleadings and arguments, viz., (a) that the delivery of the IRFC bonds to the petitioner-bank was as an alternate security which means it is a pledge for due performance of the broker's obligation to deliver the NPC bonds, and (b) that there was a sale in the capacity of a mercantile agent which falls within the purview of Section 27 of the Sale of Goods Act, 1930, against consideration already paid. The contention of the petitioner that it is a pledge is not, however, supported by NKA. Even if the argument of pledge is accepted then the provisions of Section 178 of the Indian Contract Act are to be satisfied to constitute a valid pledge. The section reads as follows :
" Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods any pledge made by him, when acting in the ordinary course of business of mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same ; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge."
45. From a study of the section, it is clear that one of the prerequisites of a valid pledge is that the mercantile agent should be able to pledge the goods in the ordinary course of business. In other words, pledging of the securities either for raising money or as security for performance of a contract should be in the ordinary course of the business of a broker. In this connection, it may be noted that NKA is a member of the Delhi Stock Exchange and the contract note also specifies that the contract is subject to the bye-laws of the Delhi Stock Exchange Association Ltd. We have gone through the bye-laws of the stock exchange. We find that there is only one situation when a broker can exercise the right of lien and shall be also at liberty to pledge the securities of his clients. This is dealt with in bye-law 226(a) and (b) of the bye-laws updated up to March 1, 1994. The broker has a right of lien and, therefore, a right to pledge whenever a constituent is indebted to a member? In the present case, neither KVB nor SCB is shown to be indebted to NKA and as such the latter could not have a right of lien or a pledge in accordance with the bye-laws of the stock exchange which governs respondent No. 3. Therefore, the argument of NKA that there is no valid pledge is acceptable.
46. The petitioners advocate has also simultaneously adopted the line of argument that the case falls under Section 27 of the Sale of Goods Act. Section 27 deals with the sale by a mercantile agent in the ordinary course of business. A mercantile agent, though he is not the owner of the goods, can pass a valid title on a sale made by him of such goods while acting in the ordinary course of business of a mercantile agent provided that the buyer acts in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell. The petitioner-bank cannot pursue this argument because they themselves, by their own contemporary correspondence, admit that they held the IRFC bonds only as a temporary measure till the NPC bonds are delivered meaning thereby that it is a pledge.
47. Even if the argument on the applicability of Section 27 is accepted, that a mercantile agent can pass on good title by sale, it is to be established that there was a contract for sale between the mercantile agent and the bank. To complete a contract of sale there should be a consideration, which, in the present case of IRFC bonds, is absent. The petitioner-bank is taking the plea of Section 27 only for the limited purpose of conveying a good title to an innocent buyer. However, the essential part of a contract, namely, consideration has been left out or is being linked to the payment made to the Andhra Bank for the purchase of 17 per cent. NPC bonds. Though the argument "past consideration is valid consideration" is acceptable, adjustment of consideration paid against one contract with a party with another contract of another party without the consent of the latter is not understandable. It is more so when in one contract, the principal is the Andhra Bank and in the other contract the mercantile agent is acting on behalf of an undisclosed principal. The case of the petitioners with regard to the adjustment of the consideration is further weakened by the fact that they were independently following up with the Andhra Bank for repayment of the remittance made and had also taken up the matter with the Reserve Bank of India. It is further found from the petitioner-bank's letter dated April 8, 1993, addressed to the Punjab , Housing Development Board that the RBI had already directed the Andhra Bank to honour the claim of the petitioner-bank though the former has represented their case to the RBI. In view of this in equity also the petitioner cannot have a double advantage of pursuing the payment with the Andhra Bank and claiming title to the IRFC bonds without paying any consideration.
48. Thus, our conclusion on the first substantive issue is that the transaction was neither in the nature of a valid pledge nor in the nature of a sale as the petitioner-bank is itself challenging the second contract and there is no valid consideration.
49. As regards the question whether title is conveyed or not by the delivery, a share broker, in the ordinary course of business, while making a sale of securities along with blank transfer forms, does convey a good title. This has been confirmed in Fazal D. Allana v. Mangaldas M. Pakvasa, AIR 1922 Bom 303, as well as by the Mysore High Court in Rama Rao (S.) v. Dasarathy Rao, AIR 1955 Mys 43. In the absence of such a recognition, all stock exchange transactions will come to a standstill. This is perhaps the exception which was contemplated in France v. Clark [1884] 26 Ch D 257 to the effect that though normally a non-owner cannot pass on a good title, the situation would be different if there is a mercantile agent involved. However, this does not mean that a mercantile agent in the ordinary course of business can appropriate the goods belonging to another person and convey a good title by such appropriation. All the more so, when the person who is taking such goods should have been put on an enquiry.
50. By bringing in the concept of alternate security and mercantile agent the petitioners have mixed up the authority of a stock broker to sell the securities or pledging the securities for their own obligations. The cases cited by both the parties with regard to the authority of a mercantile agent to convey a good title to an innocent buyer are of two categories : (a) broker is entrusted with blank transfer deeds and share certificates for the purpose of sale, and (b) a broker pledges blank transfer deeds along with the share certificates for fulfilment of his own obligations.
51. Wherever a broker entrusted with documents in the normal course of his business, sells such securities, he certainly conveys a good title as he carries out the transactions in the normal course of his business which is well covered under Section 27 of the Indian Sale of Goods Act, 1930. The decision of the Bombay High Court in Fazal D. Allana v. Mangaldas M. Pakvasa, AIR 1922 Bom 303, deals with such a situation. An observation has also been made in France v. Clark [1884] 26 Ch D 257 to the effect that in case a mercantile agent is involved the decision would have been different. Thus the sale, of securities through a mercantile agent and conveying of title to a genuine buyer stand on a totally different footing. Courts have accepted such a possibility even under the Indian Sale of Goods Act, 1930. Similar is the decision of the Supreme Court cited by Shri Koura, viz., Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 and of the Mysore High Court. This situation should be distinguished from a broker who misappropriates the securities. Though in a sale as a non-owner he can convey a good title he cannot do the same by appropriating someone else's securities for his own obligation. We have already come to the conclusion that the present case is neither one of a valid pledge nor of sale. The facts of this case are identical with the case decided by the Chancery Division in Fox v. Martin [1895] 64 LJ Ch. 473 cited by Shri K.S. Cooper. In that case, a broker who had a brief to sell a security pledged the same for his own debt and the court held that no valid title was passed on. Similar were the facts and decision in Colonial Bank v. Cady [1890] 15 AC 267.
52. If wrongful pledging of a third party's securities is recognised as valid for the purpose of conveying title, the investors will be in for a raw deal. The securities market being a wide network, it is essential to rely on the services of intermediaries who take upon themselves the responsibility of delivering the scrips or receiving the price. Every such transaction has to be as per the rules of the stock exchange and should be evidenced by a contract note as the brokers being members of the stock exchange are governed by the rules and regulations of the exchange. If such wrongful pledging is recognised, there will be total chaos in the securities market. As such the stock exchange regulations do not permit this in the ordinary course. Thus, we come to the inevitable conclusion that the delivery of the IRFC bonds does not convey a good title to the petitioner-bank, and they cannot appropriate the same to themselves.
53. In fairness to both the parties, viz., Amro Bank and NKA, we should also deal with one relevant question raised by them, viz., if it is a separate contract as asserted by NKA why did he not follow up the payment till June 15, when only a letter was received by the petitioner for the price ? NKA has also raised a relevant question : why did the petitioner-bank not raise any objection to the second contract note but tacitly accept the same ? The only answer to these questions is that in the heydays of the securities market perhaps no one bothered about the propriety of an action. It is evident that both the petitioner-bank and NKA had colluded to retain the IRFC bonds belonging to a third party, as security till the 17 per cent. NPC bonds were obtained. If the market had continued to boom perhaps NKA would have arranged for the 17 per cent. bonds and the bank would have compensated its clients PHDB with adequate interest. As hectic business was done, all norms of banking and stock exchange regulations were openly flouted. For example, Andhra Bank receiving a pay order in its name and crediting the proceeds to the account of Hiten Dalai, NKA preparing a contract note for sale of NPC bonds wriggling out of his obligations. Again NKA preparing a contract note for IRFC bonds, without a seller identified or without a counter-party. So long as the going was good perhaps such indiscipline passed off unnoticed. But when the scam broke out everyone perhaps wanted to hold on to whatever he had in his possession.
54. This case not only brings out the onerous responsibilities of the players in the securities market, viz., the brokers and bankers but also the serious adverse consequences arising out of indiscipline on their part. If such tendencies spread all around, the effect on the economy is bound to be disastrous. Therefore, the role of an effective foolproof system to flash timely warning signals need not be overemphasised.
55. Now, coming to the question of whose name is to be put in the register of bondholders of the company, the transaction between KVB and SCB appears to be well documented, viz., the cost memo, the BR and contract note which clearly establish the existence of an earlier contract. There is no difference in the stand between KVB, NKA and SCB as to the identity of the parties in this transaction. If Amro Bank concedes that it has purchased the IRFC bonds through the second contract from NKA, we would have accepted the petitioner-bank as the owner of the bonds. However, the petitioner-bank disowns the second contract and has gone on a theory of implied bailment/pledge or alternate security for the first contract. In the circumstances, the only transaction that subsists regarding IRFC bonds is the one between KVB and SCB. Though the petitioner-bank has attempted to challenge the transaction by pointing out certain discrepancies in figures, the overwhelming evidence submitted by all the other parties shows the genuineness of the transaction.
56. Consequently, we are of the opinion that the true owner of these IRFC bonds should be SCB. Accordingly, we direct IRFC to register SCB as the holder of the 9 per cent. IRFC bonds covered in the petition and deliver the securities in its possession to SCB after due registration. IRFC shall also pay all arrears of interest due on these bonds. Consequently, the interim order with regard to the deposit of interest stands vacated and the FD along with interest shall also be paid to SCB. No order as to costs.