Delhi High Court
Nabha Investment Pvt. Ltd. vs Harkishan Dass Lukhmi Dass on 1 September, 1998
Equivalent citations: 1998VAD(DELHI)745, 4(1998)CLT449, 76(1998)DLT7
Author: K. Ramamoorthy
Bench: K. Ramamoorthy
ORDER K. Ramamoorthy, J.
1. The plaintiff had originally filed the suit against defendants 1 and 2 seeking to recover 86469 shares of HMM held by it. Third defendant is a Company HMM and no relief was asked for against that Company. Later on, Unit Trust of India, 4th defendant, sought to implead itself as a party and that was granted by this Court. The plaintiff amended the plaint and sought for the following reliefs :-
"a) that this Hon'ble Court be pleased to declare that the plaintiff is the absolute owner of 86469 shares alongwith bonus shares of M/s. HMM Ltd., the details of which are mentioned in the Annexure III attached with the plaint and are entitled to deal with them in any manner desired by it;
b) for permanent injunction, restraining the defendants No. 1 & 2 & 4 from transferring 86469 equity shares and bonus shares either in their name or in the names of their nominees;
c) the decree for mandatory injunction directing the defendants No. 1, 2 & 4 to return the 86469 equity shares and bonus shares along with the blank transfer forms to the plaintiff.
d) the defendants No. 1 & 2 be directed to render accounts in respect of the dividend received by them on the aforesaid shares;
e) defendant No. 3 be refrained permanently from affecting transfer of the said 86469 equity shares and bonus shares of M/s. HMM Ltd. detailed in Annexure III of the plaint in the name of defendants No. 1, 2 & 4 or any of their nominees;
f) that defendant No. 3 be directed to pay all the dividends on 86469 equity shares and bonus shares to the plaintiff;
g) costs of this suit be awarded in favour of the plaintiff against the defendants No. 1 & 2."
2. The case of the first defendant briefly stated is that the plaintiff borrowed Rs. 14 lakhs from it. The plaintiff gave the shares to the first defendant with blank transfer deeds. The plaintiff did not pay any amount towards the principal and the full amount of interest was not paid. There-fore, it had dealt with these shares.
3. The case of the second defendant was that one Heritage Estate Pvt. Ltd. (hereinafter called the 'Heritage') placed the shares with the second defendant as cover for overdraft facilities given by the second defendant to the Heritage. Heritage represented that it did not require any overdraft facility and took away the shares and, therefore, the second defendant had nothing to do with the shares and on 8.2.1983 the shares had been handed over to the Heritage.
4. The third defendant did not file any written statement because no relief is asked for against the third defendant.
5. The 4th defendant stated that it had purchased the shares through the market from B.C. Devidas for consideration and the 4th defendant is a bona fide purchaser for value, that the 4th defendant is entitled to be declared as the owner of the shares and that the 4th defendant is entitled to the dividend payable on the shares.
6. This is in short a panoramic view of the case.
7. On 6.5.1983 the plaint was presented. I shall note briefly the respective contentions of the parties as reflected in the pleadings before nar-rating the events in chronological order. The case set up in the original plaint by the plaintiff is this. The plaintiff is the owner of 86469 equity shares, faced value of which was Rs.10/- each, in third defendant Co. In the first week of April 1982 the plaintiff raised a loan of Rs. 14 lakhs with the first defendant. On 3.4.1982 the Board of the plaintiff passed a resolution resolving to borrow from the first defendant Rs. 14 lakhs. The first defendant wanted security. First defendant paid Rs. 4 lakhs on 8.4.1982, Rs. 2.50 lakhs on 28.4.1982 and Rs. 7.50 lakhs on 1.5.1982. First defendant wrote to the plaintiff seeking 15 new share transfer forms re-questing the plaintiff to send them back duly signed promising to send the old one received from the plaintiff. This was on 6.8.1982. On 7.9.1982 the plaintiff in response to the letter dated 6.8.1982 sent 15 new transfer deeds. On 13.11.1982 the plaintiff received a telegram from the first defendant asking for its willingness to sell the shares. On 19.11.1982 a telegram was issued by the first defendant demanding a sum of Rs.1,81,972.56 towards interest. The plaintiff paid Rs. 40,000/- towards interest on 30.11.1982. The plaintiff had calculated the dividend payable as on 17.12.1982 at Rs. 1,34,892/- deducting the tax deducted at source. On 23.12.1982 the plaintiff paid a further sum of Rs. 40,000/- towards inter-est. According to the plaintiff, as on 23.12.1982 the plaintiff had paid Rs.2,14,892/- towards interest. In the first week of February 1983 Mr. Chander Kant of first defendant telephoned to the plaintiff again asking for willingness to sell the shares. The plaintiff said no and asked the first defendant to send back the shares to Grindlays Bank, New Delhi to enable the plaintiff to get the shares returned against payment. On 9.2.1983 the plaintiff sent a telegram confirming the message. On 25.2.1983 the plaintiff requested the first defendant to send the shares back to the plaintiff and if it was not done within 15 days the plaintiff would not be liable to pay any interest on the amount borrowed. The plaintiff had come to know that the first defendant had placed the shares with the second defendant State Bank of India. The second defendant had approached the third defendant for the transfer of the shares in the name of the second defendant or his nominees. Shares are in the name of the plaintiff. They cannot be transferred in the name of the second defendant or its nominees without its consent. Plaintiff is entitled to ask for the return of the shares. Plaintiff is prepared to pay the amount due. The dividend on the shares are received by the first defendant or the second defendant. If proper account is taken, it will be found that no amount is due from the plaintiff. The second defendant has no right to approach the third defend-ant for transfer.
8. The second defendant State Bank of India filed its written statement on 16.8.1993. In that written statement, the case put forth by the second defendant could be briefly mentioned in the following terms. Plaintiff is not the owner of the shares. The shares along with the transfer deeds duly signed by the plaintiff were handed over by the Heritage. By resolution dated 25.10.1982 the Board of the Heritage had resolved to place the shares with the second defendant with the request to the second defendant to transfer the shares in its name. The Heritage gave the shares along with the blank transfer deeds duly signed by the plaintiff as security for the overdraft facilities to be granted by the second defendant to the Heritage. After the transfer of shares in favour of the Bank, the Heritage stated that they did not require any overdraft facilities and wanted the return of the shares. On 8.2.1983 the second defendant had given back the said shares to the Heritage. Therefore, the second defendant had no interest in the shares. The suit against the second defendant had become infructuous be-cause of the transfer by the second defendant to the Heritage having been completed on 8.2.1983.
9. On 12.12.1983 the first defendant filed its written statement. Mr. Hanumant Singh, one of the directors of the plaintiff agreed and authorised the first defendant to the transfer of the shares. Having agreed to the transfer of the shares in favour of the second defendant, the plaintiff had waived and abandoned all rights, if any, to claim the relief of the return of the shares. The first defendant denied that the shares were offered only as security. First defendant denied that it had pledged the shares with the second defendant and handed over blank transfer forms which were got exe-cuted by the first defendant in blank. First defendant was not aware of the fact that whether the second defendant had approached the third defendant for transfer. The first defendant denied the fact of telegram issued by the plaintiff on 9.2.1983. The plaintiff had acquiesced in the transfer of shares in favour of the State Bank of India. The plaintiff was liable to pay interest @ 24% per annum on Rs. 14 lakhs. Having agreed and consented to the transfer in favour of the second defendant (State Bank of India) the first defendant was unable to return the shares to the plaintiff whether on payment of Rs. 14 lakhs or otherwise in whatsoever manner. The suit had not been properly valued. The suit should be dismissed with costs as against the first defendant.
10. On 24.1.1984 the 4th defendant Unit Trust of India moved an applica-tion to implead itself as a party to the suit. On 27.9.1985 the Unit Trust of India was imp leaded as the 4th defendant.
11. On 14.10.1985 the plaintiff filed the amended plaint introducing paragraphs 22(a) to 22(f), which are as under :-
"(a) That at the time of the filing of the suit, the plaintiff had also moved a petition being IA No. 2073 of 1983 under Order 39 Rules 1 & 2 read with Section 151 CPC praying therein that this Hon'ble Court be pleased to restrain defendant Nos. 1 & 2 from transferring the said 86469 equity shares of M/s HMM Ltd. Vide order dated 24.5.1985, ex-parte injunction order was issued which was duly confirmed after hearing the parties in the case.
(b) That both defendant Nos. 1 & 2 have filed their written statements in the case. In the written statement filed by the defendant No. 1, it is alleged that the plaintiff had agreed and authorised defendant No. 1 to transfer the shares in dispute in favour of State Bank of India, i.e. defendant No.2. Whereas in the written statement filed by defendant No. 2, i.e. State Bank of India, it is alleged that one M/s Heritage Estate Pvt. ltd. had their account with the State Bank of India and gave these shares along with blank transfer deeds duly signed by the plaintiff as a security for the overdraft to be granted against the said shares and the said defendant No. 2 granted the facility of overdraft and the shares in dispute were lodged for transfer in favour of the Bank. It is further alleged by the Bank that after the transfer of these shares in favour of the Bank, the said M/s. Heritage Estate Pvt. Ltd. informed the Bank that they do not require any overdraft facility against the said shares and, therefore, M/s Heritage Estate Pvt. Ltd. requested the Bank for return of these shares and that the Bank had returned the said shares to M/s Heritage Estate Pvt. ltd. against proper acknowledgement dated 8.2.1983. It is further alleged by defendant No. 2 that the said Bank had nothing to do with these shares. it is also stated in the written statement of the defendant No. 2 that the said defendant had already returned the said shares to M/s Heritage Estate Pvt. Ltd. and the Bank had left no interest in the said shares. It is further alleged by the said defendant Bank that in view of the transfer of these shares much before the institution of the present suit, the said defendant Bank had no control over the said shares as they have already been returned to M/s Heritage Estate Pvt. Ltd.
(c) That on or about 24.1.1984, defendant No. 4 made an application under Order 1 Rule 10(2) read with Section 151 CPC praying therein that Unit Trust of India be imp leaded as defendant No. 4 on the allegation that the said defendant No. 4 had purchased from the market 86469 equity shares, which is subject matter of the suit, from defendant No. 2, the State Bank of India and this transfer took place by means of two contracts dated 15.2.83 and 10.2.83.
(d) That vide order dated 27.9.1985, Hon'ble Mr. Justice H.C. Goel was pleased to allow that application and directed the plaintiff to implead the defendant No. 4 as a party to the suit and also allowed the plaintiff to make consequential amendment arising therefrom.
(e) That the plaintiff submits that defendant No.1 never sold the shares to defendant No. 2. The defendant No. 2 if at all, had the shares with it, it was only as a security and could never become the owner thereof by any lawful transfer. There was never any proper or legal right of ownership in respect of these shares vested in defendant No.2. This being so, the defendant No. 2 could not, in law, confer any right in defendant No.4. In view of this, none of the defendants, namely defendant Nos. 1,2 and 4 or for that matter, any other person claiming in that, could claim any right, title or interest in the shares in question. As stated above, the alleged transfer in favour of defendant No. 2 was only by way of security and not as owner to confer any right with the said Bank to deal with the said shares by getting the same transferred in the name of the Bank and thereafter enter into alleged contract for transfer of these shares in favour of defendant No. 4 or any other person.
(f) That the plaintiff submits that plaintiff is the absolute owner of the said 86469 equity shares along with bonus shares of defendant No.3. The plaintiff has never authorised any of the defendants to have the shares transferred on the basis of blank transfer deeds, which as stated above, were given to the defendant No. 1 only as a security for the loan of Rs. 14,00,000/- which the plaintiff had raised from defendant No.1. From the pleadings on record, it is quite clear that the defendant No. 2, State Bank of India was given the shares by M/s Heritage Estate Pvt. Ltd. with which the plaintiffs have absolutely no dealings whatsoever. Even the defendant No. 1 has nowhere alleged in their written statement that the shares were ever given to the said M/s Heritage Estate Pvt. Ltd. In view of the averments made in the written statements by the defendants, it is submitted that transfer of shares in favour of defendant No. 2 was void ab-initio for the reasons mentioned in the preceding para of the plaint and also because defendant No. 2 claims to acquire the right from M/s Heritage Estate Pvt. Ltd. who had nothing to do with the shares and had never acquired any right, title or interest in the said shares. The defendant No. 2 claiming interest in the shares from M/s Heritage Estate Pvt. Ltd. could not legally acquire any right in those shares. The defendant No. 2 became the holder of the shares in question only as a security for the amount, if any, advanced against that. The defendant No. 2 was entitled only to inform Defendant No. 3 of its lien, if any, on these shares and could not get the same transferred as no legal document of authority or transfer was in possession of defendant No.2. In any case, the first transaction being without any authority whatsoever, all subsequent transactions relating to the shares are void ab-initio and do not confer any title or right in respect of these shares on any of the defendants. Since defendant No. 2 could not have got the shares transferred in their name for the reasons mentioned hereinbefore, it could not enter into any lawful transaction for transfer of these shares in favour of defendant No.4. The plaintiff further submits that the plaintiff had never given any right to any of the defendants to have the shares transferred as owner thereof and therefore, the first transaction if any, claimed by defendant No. 2 being void abinitio, all subsequent transactions are void and are not enforceable against the plaintiff."
12. On 27.1.1986 4th defendant filed its written statement. Tersely stated the case put forth by the 4th defendant is as under. The 4th defendant in the usual course of its market operations had purchased from the market 86469 equity shares from second defendant through brokers M/s. B.C. Devi-dass under the following contracts:-
"1) Contract No. 15/12/83/12 dated 15.2.1983 for - 58,989 - Equity Shares of Rs.41/- each of HMM Limited
2) Contract No. 10/2/83/013 dated 10.2.1983 for - 27,571 - Equity Shares of Rs.41.25 each of HMM Limited."
The transfer of shares was effected under duly executed transfer deeds. The shares had been registered in the name of the second defendant in the books of the third defendant Company with effect from 9.12.1982, the plaintiff cannot be said to be the owner of the shares. As the holders of the shares, the second defendant did have a good and marketable title in the shares. The 4th defendant is a bona fide purchaser for value which was done under duly executed transfer deeds and by the actual delivery of the shares by the second defendant. The 4th defendant disputed the claim of the plaintiff relating to the telegram dated 9.2.1983. The 4th defendant is entitled to declaration as the absolute owners of the shares. This Court had only restrained the defendants 1 & 2 from receiving dividend from the third defendant Company. There was no order restraining the transfer of shares or registration of shares had been passed. The 4th defendant disput-ed the title of the plaintiff in the shares. The main claim of the 4th defendant is that the shares were only transferred and registered in the name of the second defendant on 9.12.1982.
13. On these averments the 4th defendant prayed for the dismissal of the suit and also claiming the relief that the 4th defendant should be declared as the owners of the shares with all attendant benefits accruing as being the owner.
14. On 19.8.1987 the plaintiff made an application to amend the plaint.
15. On 28.2.1989 the application for amendment by the plaintiff was al-lowed by this Court. By this amendment paragraph 22(g) was added :-
"It is stated that neither defendant No. 1 nor defendant No. 2 made any demand nor gave any notice to the plaintiff before allegedly selling the shares in question which were pleaded goods and, therefore, the sale, if any, of the said shares is void ab initio. It is stated that the alleged sale of shares to defendant No. 4 was on the basis of the transfer forms signed by defendant No.2. However, the said defendant was merely holding the shares as pledgee and as security. Defendants 1 & 2 only had possession and not title to the said shares and, therefore, they would not give title not vested in them by the alleged sale of the said shares in question. It is also important to state that defendants 2 & 4 have acted malafide by allegedly selling/purchasing the shares. As stated above, neither defendant No. 1 nor defendant No. 2 had any authority or right to sell the shares particularly without giving the mandatory notice which is required to be given by the pledgee before selling the pledged goods. The defendant No. 2 allegedly sold the shares and also bought the shares as bolder of General Power of Attorney of defendant No.4. Defendant No. 2 had full knowledge of the shares being held by it only as security and pledgee and as it was/is the agent of defendant No. 4, the transaction in respect of the alleged shares in question is wholly mala fide. Defendant No. 4 has not acted with reasonable care, bona fide and in good faith, particularly in view of the fact that it bought the shares through defendant No. 2, the holder of its General Power of Attorney who had full knowledge that the shares were held as security/pledge and that the same were in trust as they belonged and were/are owned by the plaintiff being the registered owner of the shares in question. It is stated that the alleged sale of shares in question is a fraudulent transaction to deprive the plaintiff of its valuable property. Neither defendant No. 1 nor defendant No. 2 had title or ownership in the shares in question and, therefore, defendant No. 4 could neither acquire nor has it acquired any title better than the alleged vendor/s. Assuming though not admitting that the shares could be sold; although it is the case of the plaintiff that the same could not be sold either without the consent of the plaintiff or without notice to the plaintiff or without the authority of the plaintiff; only shares worth the principal amount of loan and interest, if any, could have been sold and there is no reason or justification whatsoever for selling shares worth Rs.42,00,000/- for a loan worth Rs.14,00,000/- only. This clearly establishes the mala fide of the transaction. The mala fide of the transaction is further evident from the fact that defendant No. 2 signed as the transferor and also as the transferee being the holder of the General Power of Attorney of defendant No. 4. It is stated that General Power of Attorney of Defendant No. 4 in favour of defendant No.2 is dated 11.5.1964 and is still valid and subsisting. In any case, it was valid and subsisting at the relevant point of time. Besides, defendant No. 4 should have checked with defendant No. 2 whether it was only a pledgee of the shares in question holding the same as security since normally, Banks do not purchase shares in Companies, but only hold/take them on pledge/as security. Defendant No. 2 allegedly sold the shares illegally and it is on the signatures of defendant No. 2 that the shares were sold although the plaintiff was/is the registered owner of the shares in question."
16. On 5.5.1989 the second defendant filed its written statement to the amended plaint. The case set up by the second defendant can be related shortly in the following words. The relief claimed for by the plaintiff cannot be granted because plaintiff is not in possession of the shares. In paragraph 6 of the preliminary objections, it is stated :-
"That the suit against the second defendant is wholly misconceived and is false. The facts are that on 3rd November, 1982, the shares in question numbering 86469 of M/s Hindustan Milkfood Manufacturers Ltd. were handed over to the Backbay Reclamation Branch of the second defendant by M/s Heritage Estates Private Ltd. a firm having its registered office at 83, Jolly Makers Chambers, Bombay with blank transfer forms duly signed by M/s. Nabha Investments Pvt. Ltd. Shri Byram M. Jeejeebhoy is the Director of M/s Heritage Estate Pvt. Ltd. and the firm maintained a current account with the answering defendant. The said Heritage Estates Pvt. Ltd. desired to have an overdraft facility against the aforesaid shares purchased by them through their brokers M/s Mathuradas Mohta, with blank transfer forms executed by the registered owner Nabha Investments Pvt. Ltd. The answering defendant did not insist upon first getting the shares registered in the name of M/s Heritage Estates Pvt. Ltd. as the said Heritage Estates Pvt. Ltd. were the answering defendant's valued clients and depositors. On 3rd November, 1982, the Managing Director of Heritage Estates Pvt. Ltd. wrote to the answering defendant that he was enclosing the aforesaid shares and the same may be kept as security in their overdraft account No. 60426 with the answering defendant Bank. It was stated that the shares were held in the name of Nabha Investments Pvt. Ltd. and that these shares have to be transferred in the Bank's name and to be held in their account. The relative transfer deeds duly signed by Nabha Investments Pvt. Ltd. were enclosed and handed over to the answering defendant. It was stated that the shares be got transferred in the Bank's name. The copy of the resolution of the Board of Heritage Estate Pvt. Ltd. was also sent to the answering defendant. The resolution of its Board passed on 25th October, 1982 reads as under:
"Resolved that 86469 shares of Hindustan Milkfood Manufacturing Co. Ltd. be placed as security against overdraft account in the State Bank of India, Backbay Reclamation Branch. Resolved further that the State Bank of India be requested to transfer the said 86469 equity shares of Hindustan Milkfood Manufacturers Ltd. into the name of the plaintiff Bank."
In view of the request by Heritage Estates Pvt. Ltd., the plaintiff by letter dated 10th November, 1982 wrote to M/s Hindustan Milkfood Manufacturers Ltd., Patiala House, Nabha to transfer the shares in the name of State Bank of India in terms of the transfer deeds. On the request of the answering defendant, the said 86469 ordinary shares of Hindustan Milkfood Manufacturers Ltd were transferred in the name of the answering defendant on or about November/December, 1982.
That thereafter, a sum of Rs.1,32,832/- was received by the answering defendant as a dividend in December, 1982 and the same was credited to the account of M/s Heritage Estates Pvt. Ltd.
That by letter dated 8th February, 1983, M/s Heritage Estates Pvt. Ltd. advised the answering defendant that they were no longer interested in the overdraft facility and the shares in question be delivered to them with blank transfer forms duly signed by the Bank as a transferor. In accordance with the instructions of M/s Heritage Estates Pvt. Ltd., the answering defendant returned the shares on 8th February, 1983 with blank transfer forms as advised by the Heritage Estates Pvt. Ltd. As such, the answering defendant has nothing to do with the aforesaid shares and the answering defendant thereafter was informed that the said shares were sold through M/s Mathuradas Mohta on or about 8th February, 1983.
It is submitted that the plaintiff has no cause of action against the answering defendant as the answering defendant in due course of business and on the instructions of Heritage Estates Pvt. Ltd. got the shares transferred in its name and thereafter when Heritage Estates Pvt. Ltd. wrote to the answering defendant that they were no more interested in the overdraft facility, the said shares were duly returned with blank transfer certificates.
It is further submitted that the answering defendant was advised that Heritage Estates Pvt. Ltd. sold these shares through their brokers M/s Mathuradas Mohta. Thereafter, on 24th February, 1983, the Security Division, Bombay Main Branch of the Ban received instructions from the Unit Trust of India vide their telex to receive from M/s Bhupinder Singh Champak Lal Devi Dass, Shares Brokers, two lots comprising 86469 shares of HMM Ltd. against payment of consideration of Rs.35,52,121.75 paise (plus the Bank's commission Rs.8,880.25) which amounts were debited to the Unit Trust of India on 25th February, 1983 and payment was made to M/s Bhupinder Singh Champak Lal Devi Dass by means of Banker's cheques. The share certificates received from M/s Bhupendra Champaklal Devidas were sent to the Bank for registration in the name of Unit Trust of India in March, 1983 by the Security Division. But Hindustan Milkfood manufacturers Ltd. returned 22 shares certificates comprising 77969 shares on some technical objection in May, 1983, which were immediately resubmitted by the Security Division after removing the objections. It is submitted that the plaintiff has no cause of action against the answering defendant. The suit filed by the plaintiff is misconceived and may kindly be dismissed."
17. In reply on the merits, it is stated that as per the request of the Heritage the second defendant by its letter dated 10.11.1982 wrote to the Hindustan Milkfood Products Manufacturers Pvt. Ltd., the third defendant, to transfer the shares in the name of the second defendant. It is stated:-
"The said Heritage Estates Pvt. Ltd. desired to have an overdraft facility against the aforesaid shares, purchased by them through their broker M/s Mathuradas Mohta with blank transfer forms executed by the registered owner Nabha Investments Pvt. Ltd. It is submitted that the said shares were kept as security by the answering defendant against over draft account No.60426. It is submitted that by letter dated 8th February, 1983, Heritage Estates Pvt. Ltd. advised the answering defendant that they were no longer interested in the over-draft facilities and the shares in question be delivered to them with blank transfer forms duly signed by the Bank as a transferor. In accordance with the instructions of M/s Heritage Estates Pvt. Ltd. the answering defendant returned the shares on 8th February, 1983 with blank transfer forms as advised by M/s Heritage Estates Pvt. Ltd. It is, therefore, submitted that the plaintiff is not the owner of 86469 equity shares of the face value of Rs.10/- each of M/s HMM Ltd."
18. The second defendant is not aware of the loan transaction between the plaintiff and the first defendant. The second defendant denied that the first defendant had pledged the shares with the second defendant. It is stated :-
"It is submitted that Heritage Estates Pvt. Ltd. having their account with State Bank of India, gave these shares along with blank transfer deeds duly signed by the plaintiff as security for the over-draft to be granted against the said shares and the answering defendant granted over-draft facilities to Heritage Estates Pvt. Ltd. The said shares were lodged for transfer in favour of the answering defendant as Heritage Estates Pvt. Ltd. requested the answering defendant to get the shares transferred in its name."
In paragraph 15A, it is stated:-
"On the instructions of the plaintiff, Heritage Estates Pvt. Ltd. got the shares transferred in its favour. Thereafter, Heritage Estates Pvt. Ltd. informed the answering defendant that the said shares should be returned to them with blank transfer deeds as they were no more desirous of the over-draft facilities against the aforesaid shares."
In paragraph 22-C, it is stated:-
"Para 22-C of the plaint is wrong. As already stated, defendant No. 1 returned the shares with blank transfer deeds to Heritage Estates Pvt. Ltd. and Heritage Estates Pvt. Ltd. further transferred the shares in favour of defendant No.4."
The other averments in the plaint are denied by the second defendant. The second defendant prayed for the dismissal of the suit.
19. On 3.10.1989 4th defendant filed its written statement to the amended plaint. The suit based on the ground that the plaintiff is the owner of the shares. It is admitted by the plaintiff that the original subject shares scripts were handed over by the plaintiff to the first defendant, a share broker, with blank transfer deeds signed by the plaintiff. The original owner after parting with the original shares scripts and the blank transfer deeds executed by it can no longer exercise the right of ownership in respect of the shares or in any way deal with the shares. There was no indication that the shares were pledged with the first defendant. The shares stood transferred in the name of the second defendant in the statu-tory records of the third defendant Company on 9.12.1982. The suit against the 4th defendant is barred by time. There is no averment in the plaint that the 4th defendant is not a bona fide purchaser for value. In paragraph 8 of preliminary objections it is stated :-
"That assuming, though vehemently denying, that there was any collateral agreement between the plaintiff and defendant No. 1, by which the shares were merely hypothecated/handed over as security, by the plaintiff to defendant No. 1, the plaintiff is precluded from enforcing its beneficial right in the said shares, because of the express provisions of sub-section 6 of section 187-C of the Company's Act. The suit is, therefore, not maintainable at all."
The 4th defendant had purchased the shares from the market. It is stated in paragraph 15-A :-
"It is specifically denied that the shares were registered in the name of the plaintiff on the dates viz. 10.2.1983 and 15.2.1983 on which dates the contracts for purchase of the shares were executed alongwith the transfer deeds duly signed by the defendant No. 2. On the said date, shares were admittedly registered with defendant No. 3 in the name of defendant No. 2 and the sale in favour of this defendant is valid in law."
It is asserted:
"On the date this defendant had purchased the shares in question, the defendant No. 2 was the owner according to the Register of shares maintained by the defendant No.3."
The shares in question, were deposited with the second defendant not by the first defendant but one by M/s Heritage Estates Pvt. Ltd. as dis-closed by the second defendant. According to the 4th defendant, the plain-tiff can claim relief only against the first defendant and not against any other defendant. According to the 4th defendant, from the records the following facts emerge:-
"i) The shares were deposited by one M/s Heritage Estate Pvt. Ltd. with the 2nd defendant and not by the Ist defendant;
ii) The shares were deposited as security by the said Heritage Estate Pvt. Ltd. with the 2nd defendant in view of the over-draft facility enjoyed by the Heritage Pvt. Ltd.
iii) The 2nd defendant had got the shares transferred in its name at the instance of the Heritage Estate Pvt. Ltd. as the owner and not at the instance of the plaintiff or the defendant No.1. Even the Dividend amount received by the defendant No. 2 was credited to the account of Heritage Estate Pvt. Ltd. (and not to the account of plaintiffs or the Ist defendant).
iv) The 2nd defendant had returned the original share certificates (in respect of the said shares) together with blank transfer forms duly executed by the 2nd defendant to Heritage Estate Pvt. Ltd. on 8th February, 1983 thus empowering Heritage Estate Pvt. Ltd. to sell the said shares in market to any 3rd party."
According to the 4th defendant :-
"This defendant further submits that the facts revealed by the 2nd defendant clearly demonstrate how the shares were transferred in the name of the 2nd defendant and thereafter handed over by the 2nd defendant to M/s. Heritage Estate Pvt. Ltd. with blank transfer forms duly signed by it (i.e. the 2nd defendant the last registered owner) entitling in law the said M/s Heritage Estate Pvt. Ltd. or the shares holder/purchaser to have the same transferred in its name in the statutory records of the 3rd defendant Company or otherwise deal with the same on the basis of the blank transfer deeds, of the last recorded owner. Moreover, the fact disclosed by the 2nd defendant regarding the deposit of shares and its return to M/s Heritage Estate Pvt. Ltd. completely belies the story trotted out by the plaintiff. This defendant states that the reliefs, if any, can be claimed by the plaintiff only against the person to whom the plaintiff claims to have handed over the duly completed transfer forms and original share certificates on certain alleged conditions and which alleged conditions the said person had allegedly not adhered to. This defendant says and submits that at the highest, the plaintiff would be entitled to claim damages from such person if the plaintiff is able to prove the allegations made in the plaint but not any other reliefs prayed for. This defendant respectfully says and submits that even if the allegations regarding the factual position made by the plaintiff is proved by the plaintiff, the plaintiff is not entitled to any reliefs against this defendant."
The averments in paragraph 22-G is denied. It is asserted that the second defendant had title to the shares.
20. On 20.12.1991 the first defendant filed its written statement dated 27.11.1991 to the amended plaint. According to the first defendant, there was no valid or binding contract between the plaintiff and the first de-fendant. Mr. Chandra Kant Dalal had acted without any consent and without the knowledge of Mr. Mukul Harkishan Das Dalal. Plaintiff had acquiesced in the transfer and cannot ask for the return of the shares. Admitting the receipt of the telegram in February 1983, the first defendant would state it was done after the transfer done. The second defendant being the trans-feree of the shares the plaintiff is not entitled to demand the return of the shares. It is asserted in paragraph 19 "in any event the first defend-ant denies that the said shares were pledged with defendant No. 2 by the defendant No. 1." In paragraph 25, it is stated :-
"In the alternative and without prejudice to the foregoing submissions the answering defendant submits that in the event of this Hon'ble Court holding in favour of the plaintiff on its pleas as to the nature of the transaction that the same was invalid and not binding of the answering defendants for the following amongst other reasons:
1. The transaction was handled and indulged in by Shri Chandrakant Dalal beyond the scope of his authority under the said Power of Attorney dated 6.7.1957 relied upon by the plaintiff.
2. Shree Chandrakant Dalal acted wrongfully and his actions do not bind the defendant No.1.
3. That the plaintiff was fully aware of the extent of the authority of Shri Chandrakant Dalal and actions of the latter which are now being impugned are with plaintiff's officials consent and are binding on them.
In any event the plaintiff is estopped from questioning the same."
21. The plaintiff had filed replications and it is wholly unnecessary to refer to the averments in the replications.
22. On the pleadings, the following issues were framed on 14.8.1991 :-
"1. Whether the suit as framed is not maintainable?
2. Whether this Court has jurisdiction to entertain and try the suit?
3. Whether the suit is bad for non-joinder of necessary parties?
4. Whether Shri Hanuwant Singh is competent to sign, verify and institute the suit on, behalf of the plaintiff company?
5. Whether 86,469 shares of defendant No. 3 with blank transfer forms signed by the plaintiff were given by the plaintiff to defendant No. 1 as security for a loan?
6. Whether the plaintiff permitted defendant No. 1 to give shares with blank transfer forms signed by the plaintiff to defendant No. 2 as security for loan?
7. Whether defendant No. 2 was aware that it was receiving shares with blank transfer forms signed by the plaintiff only as security by defendant No. 1?
8. Whether it was open to defendant No. 2 to take as security shares which were known to them to be the property of a person other than the borrower and were accompanied only by blank transfer forms signed by the plaintiff?
9. Whether it was open to defendant No. 2 to fill the blank transfer forms and get the alleged transfer registered in its name with the defendant No. 3?
10. Whether defendant No. 2 at any time acquired any right or title in the said shares?
11. Whether it was open to defendant No. 2 to collect dividend on the said shares?
12. Whether it was open to defendant No. 2 to give the said shares to a third party Heritage Estates Pvt. Ltd. with blank transfer forms signed by the defendant No. 2?
13. Whether any mandatory notice was given by the defendant No. 1 to the plaintiff to sell the shares in dispute? If not what is its effect?
14. Whether it was not open to defendant No. 2 to purchase the shares from itself as agent of defendant No. 4?
15. Whether shares in dispute were purchased by defendant No. 4 is open market and acquired valuable rights in respect of these shares under law?
16. Whether defendant No. 4 is a bonafide holder for value in good faith and without notice of any defect in the title of the respective shares held by the plaintiff or defendant No.1?
17. Whether there is any privity of contract between plaintiff and defendants No. 2 & 4. If not, what is its effect?
18. Whether the plaintiff is estopped by its conduct/acquiscence in not asserting their rights in respect of these shares in dispute, and are barred to claim the reliefs as prayed for in the plaint?
19. Whether the defendant No. 2 had acted only as an attorney on behalf of the defendant No. 4 to lodge the shares for transfer with defendant No. 3?
20. Whether the plaintiff is entitled to get the shares back in its own name together with accumulated dividend and bonus shares?
21. Relief."
23. The plaintiff examined P.W.1 Mr. Amritlal Jashraj Shah, Secretary, Stock Exchange, Bombay. Through him, documents PW1/1 to PW1/20 were marked. The newspaper Indian Express dated 23.3.1983 was marked as marked A.
24. P.W.2 is Mr. Somappa Poojari Paniyadi, Branch Manager, State Bank of India, Backbay Reclamation Branch, Bombay. Through him, documents PW2/1 to PW2/35 were marked. Besides this, the contract dated 8.2.1982 (8.2.1983) was marked as mark C. The contract from one Manak Lal to Heritage dated 25.4.1982 (30.4.1982) is marked as mark D.
25. P.W.3 is Mr. S.C. Gupta, Junior Technical Assistant, Registrar of Companies. Through him, documents PW3/1 to PW3/3 were marked.
26. P.W.4 is Mr. Ramesh Khosla, Record Clerk, Indian Express, New Delhi. Through him the Indian Express newspaper published from New Delhi on 23.3.1983 was marked as Ex.PW4/1. (earlier marked as A through PW1).
27. P.W. 5 is Mr. Sanjay Gogia, Banking Assistant, ANZ Grindlays Bank.
28. P.W.6 is Mr. Hanumant Singh, Director of the plaintiff Co. Through him, documents PW6/1 to PW6/15 were marked. Besides this, documents were also marked as E, F, G, I, J, Z, X and Y. In the cross-examination by the 4th defendant, D-1 was marked.
29. P.W.7 is Mr. Sikandar Girotra, Head Clerk, ANZ Grindlays Bank.
30. P.W.8 is Mr. Suresh Vasudeo Agnihotri, Officer, State Bank of India. In the chief examination, documents PW8/1 to PW8/31 were marked. In the cross-examination by the 4th defendant PW8/D-4/1 and PW8/D-4/5 were marked.
31. P.W.9 is Mr. Afzal Ahmed Khan, Bank Officer, State Bank of India. Through him, PW9/1 was marked.
32. P.W.10 is Mr. N.R. Mahadevan, Officiating Asstt. General Manager, State Bank of India, Bombay Main Branch. Through him, documents PW10/D-2/1 to PW10/D-2/4 and PW10/D-2/A were marked.
33. P.W.11 is Mr. Chander Prakash, working as Secretariat Officer in the third defendant Company (Smitch Cline (P) Ltd.). Through him, documents PW11/1 to PW11/41 were marked. In the cross-examination by the 4th defend-ant PW11/D-4/1 was marked.
34. The first defendant examined Mr. Mukul Harkishan Das Dalal as D.W.1.
35. The second defendant examined Mr. Madusudan Brij Lal Vakharia, a director of the Heritage Estates Pvt. Ltd. as D.2W.1. Through him, docu-ments D-2W1/1 to D-2W1/8 were marked.
36. Defendant No. 4 has examined Mr. Bhupenlal Champaklal Dalal. Through him, documents D-4/1 to D-4/5 and D-4W1/1 to D-4W1/14 were marked. D-4W1/A was also marked.
37. Mr. Manmohan Kapoor, Director, Unit Trust of India was examined as D4.W2.
38. I feel it necessary to chronicle the events from April 1982 upto the date of the plaint 6.5.1983 which would make us appreciate the the oral evidence let in and the contentions of the parties.
39. The genesis of the present suit is decision by the Board of the Direc-tors of the plaintiff on 3.4.,1982 (Ex.PW6/2) to borrow money from the first defendant. The first defendant wanted security. The plaintiff offered the shares 86469 held by it in the third defendant Company. On 7.4.1982 (Ex.PW6/4) the first defendant acknowledged the receipt of the shares from the plaintiff as security against a loan of Rs.15 lakhs. On 9.4.1982 the first defendant at Bombay had paid the plaintiff Rs. 4 lakhs. Ex.PW6/5 is the entry in the Cash Book of the plaintiff to show the receipt of the money from the first defendant. Ex.PW6/7 would show the receipt of Rs.7.50 lakhs by the plaintiff from first defendant. On 28.4.1982 (Ex.PW6/8) the first defendant had sent Rs. 10 lakhs by four drafts. Ex.PW6/6 ledger page of the plaintiff shows the receipt of the sum of Rs. 14 lakhs. Ex.PW6/7 is to be considered in the light of Ex.PW6/6.
40. The plaintiff had agreed to pay interest @ 24% per annum on the amount borrowed. On 30.4.1982 (marked D) a contract note was issued by M/s. Manub-hai Manaklal & Co. to a Company called the Heritage Estates Pvt. Ltd. stating that it had bought among other shares 86469 shares of HMM Ltd. @ Rs. 35/-. Apparently, the first defendant had handed over the shares to M/s. Manubhai Manaklal & Co. and they had landed in the Company, the Herit-age Estates Pvt. Ltd.
41. On 6.8.1982 9 (Ex.PW6/9) the first defendant wrote to the plaintiff to send the fresh transfer forms to the first defendant after duly signing the same. The first defendant undertook to send the old one after the receipt of the fresh transfer forms. Pursuant to this request on 7.9.1982 (marked E) the plaintiff sent the fresh transfer forms duly signed. The fact that the plaintiff had sent blank transfer deeds is not in dispute. The first defendant, therefore, was at liberty to deal with shares to realise the money lent by it to the plaintiff. By October 1982 the Heritage had come to possess the shares and the blank transfer deeds. On 25.10.1982 (Ex.PW2/4) the Board of Directors of the Heritage had passed a resolution to place the 86469 of HMM Ltd. as security with the second defendant State Bank of India with a request to the second defendant to get the shares transferred in the name of the second defendant. While so, on 3.11.1982 (Ex.D-2W1/1) the broker by name Mathura Dass Mohta had sent a note to the Heritage stating:
'bought for you 86469 shares @ Rs.35/- per share' and on the same date (Ex.D-2W1/2) the broker Mathura Dass Mohta issued a contract note stating :
'bought for you 86469 of HM for Rs.30,26,415/-'.
It is stated:
'balance due to Mathura Dass Mohta Rs.30,26,415/-'.
On 3.11.1982 (Ex.PW2/2 = D-2W1/8) the Heritage wrote to the second defendant State Bank of India requesting it to keep the shares as security for facilities to be granted. On the very day 3.11.1982 (Ex.D-2W1/9 = PW2/1) the Heritage wrote to the second defendant stating that the shares have to be transferred in the name of the second defendant. Yet another letter was written by the Heritage to the second defendant with reference to the transfer of shares.
42. By 3.11.1982 the position was, the Heritage, who had the custody of the shares and the transfer deeds, had offered them to the second defendant State Bank of India as security. The Heritage did not claim ownership of the shares as on 3.11.1982.
43. On 3.11.1982 (Ex.PW2/11) the second defendant sought advice from the Manager, State Bank of India, General Department, New Delhi, whether the acceptance of the shares would contravene of the provisions of Section 19(2) of the Indian Banking Companies Act, 1949. The Branch Manager of the second defendant wanted to know from the Service Department of the second defendant the correct position of the shares in the market on 10.11.1982 (Ex.PW2/9). The Manager, Securities Department immediately responded by communicating that the shares were easily marketable (Ex.PW2/12 dated 10.11.1982). On the same date 10.11.1982 (Ex.PW2/10) the Branch Manager of the second defendant wrote to the Manager, Securities Department to make arrangements to get the shares transferred in the name of the Bank.
44. Without any delay, the Securities Department of second defendant forwarded the shares to the third defendant on 10.11.1982 (Ex.PW11/24) for transfer of the shares. The transfer deed that was sent along with the shares was marked as PW2/3 dated 10.11.1982. It is clearly stated in the transfer deed that the transfer was from Nabha Investments Pvt. Ltd., the plaintiff and the shares held as cover for overdraft. The Heritage was well aware of the position, so too, the second defendant and the first defend-ant. On 13.11.1982 (Ex.PW6/10) the first defendant issued a telegram to the plaintiff stating that the shares of HMM are being transferred in the name of the second defendant.
45. The shares and the transfer deeds had gone into the hands of the Heritage in October 1982, in any event before 25.10.1982 when the resolu-tion was passed by the Board of Directors of the Heritage. What had hap-pened on 3.11.1982 and 10.11.1982 I had already adverted to. As on 13.11.1982 the State Bank of India, at the instance of the Heritage, had applied to the third defendant for transfer of the shares in a limited way. It is not explained by the first defendant in the written statement as to how the first defendant came to issue the telegram on 13.11.1982.
46. The plaintiff would not appear to have responded to the telegram immediately.
47. On 19.11.1982 (Ex.PW6/11) the first defendant sent a telegram to the plaintiff demanding payment of Rs. 1,81,972.50 towards interest.
48. On 30.11.1982 (Ex.PW6/12) the plaintiff had sent Rs. 40,000/- to the present defendant towards interest.
49. On 6.12.1982 (Ex.D-2W1/3) Mathura Dass Mohta had sent the contract note to Heritage stating:
'securities sold for you ready delivery 86469 shares HMM at Rs. 35/- per share'.
On the same date 6.12.1982 Mathura Dass Mohta sent a bill to Heritage stating:
'sold for you 86469 HMM shares at Rs.35/- per share, balance due to you Rs.30,26,460/-.'
50. On 17.12.1982 (Ex.PW2/13) the second defendant sent a reminder to the General Department, New Delhi to its letter dated 10.11.1982 (Ex.PW2/11) about the propriety of accepting shares as security from the Heritage.
51. On 23.12.1982 (Ex.PW6/13) Cash Book of the plaintiff showing the payment of Rs. 40,000/- and adjustment of dividend.
52. The Heritage who knew about the application for transfer made by the second defendant to the third defendant wrote on 4.1.1983 (Ex.PW2/14) to the second defendant requesting for information regarding the latest posi-tion of the shares. The third defendant on the strength of the application for transfer sent by the second defendant on 10.11.1982 had sent on 6.1.1983 (Ex.PW2/15) a sum of Rs.1,34,892/- towards dividend payable on the shares to the Securities Division and the Securities Division had informed the second defendant by the above said letter. The Securities Division also instructed the second defendant that the amount was to be credited to the accounts of the customer.
53. On 10.1.1983 (Ex.PW2/16) the second defendant sent its reply to the Heritage to its letter dated 4.1.1983 (Ex.PW2/14) informing that the shares had not yet been transferred in the name of the Bank and the sum of Rs. 1,34,892/- received towards dividend had been credited to the account of the Heritage.
54. By letter dated 30.1.1983 (Ex.PW2/17) the State Bank of India, General Department, New Delhi gave advice to the second defendant at Bombay that the acceptance of the shares of HMM would not contravene the provisions of Section 19(2) of the Indian Banking Companies Act, 1949.
55. The Manager, Securities Branch of the second defendant wrote to the third defendant authorising Mr. Kewal Ram C. Trivedi to collect the shares duly transferred. The third defendant informed the second defendant (Ex.PW11/26) that the shares had been transferred in the name of the Bank.
56. At about 14.35 hours on 4.2.1983 (Ex.PW11/27) the third defendant sent a telegram to the second defendant whether the transfer made was in order. At about 3.43 P.M. on 4.2.1983 (Ex.PW11/28) second defendant replied stat-ing that the transfer was in order. At about 15.50 hours on 4.2.1983 (Ex.PW11/29) third defendant informed the second defendant having delivered the shares to Mr. Kewal Ram C. Trivedi.
57. On 7.2.1983 (Ex.PW2/18) the Securities Division, State Bank of India, wrote to the Branch Manager, second defendant that the shares had been duly transferred in the name of the State Bank of India.
58. Mr. Mathura Dass Mohta on 8.2.1983 (marked as Z) issued a contract note to Heritage stating 'securities sold for you among other securities 86469 shares of HMM at Rs.35.49 per share.' Same document is marked as Ex.D-4W1/A and Ex. D4W1/P.3. In both the documents two dates are noted 8.2.1982 and 8.2.1983.
59. On 8.2.1983 (Ex.PW2/19) the Heritage wrote to the second defendant stating that it was no longer interested in taking advances and wanted the shares to be returned with blank transfer forms. On the same date 8.2.1983 (Ex.PW2/20) the Heritage wrote to the second defendant to deliver the shares to Mr.Rati Lal N. Vohra with transfer forms duly signed. On the same date 8.2.1983 (Ex.PW2/26) the Security Division, State Bank of India sent 31 transfer forms duly signed as transferor. On the very date 8.2.1983 the shares had been handed over to the Heritage by the second defendant (Ex.PW2/21).
60. Under these circumstances, on the 8th of February 1983 the second defendant could be said to have lost all its interest in the shares.
61. On 9.2.1983 (Ex.PW6/14) the plaintiff had sent a telegram to the first defendant that it was not interested in disposing of the shares. On the same date, letter was written by the plaintiff to the first defendant which is marked as mark H.
62. On 10.2.1983 (Ex.D-4/3 = D-4W1/2) a contract note was issued by M/s Bhupendra Champaklal Devi Dass to the 4th defendant stating:
'securities bought for you for cash delivery 27571 shares at Rs.41.25 per share.' The copy of the document is marked as Ex.D-4W1/P/1. On the same date 10.2.1983 Bhupendra Champaklal Devi Dass issued a contract note to the 4th defendant stating 'security bought for you 58898 equity shares of HMM at Rs.41/- per share.' This is marked as mark D-4/2 and Ex.D-4W.1/1. A copy of the same is marked as D4-W1/P-2. The 4th defendant had recorded in its Purchase Book, serial number, the purchase of shares on 10.2.1983 and 15.2.1983 and the serial number and page is marked as D4W2/1.
63. On 24.2.1983 (Ex.D-4W1/3) the 4th defendant sent a communication to the Registrar of Securities,State Bank of India with a copy to Bhupendra Champaklal Devi Dass and this document is the copy marked to share broker Bhupendra Champaklal Devi Dass. The copy of the communication sent to Bhupendra Champaklal Devi Dass is marked as D-4/4.
64. Here, the 4th defendant had authorised the Securities Branch of the State Bank of India to take delivery of 27571 shares referring to the contract dated 10.2.1983.
65. Ex.D-4W1/4 dated 24.2.1983 is similar communication sent to the Regis-trar of Securities, State Bank of India with reference to 58898 shares referring to contract dated 15.2.1983 with a copy to Bhupendra Champaklal Devi Dass. Mark D-4/5 is the copy of the communication sent to Bhupendra Champaklal Devi Dass from the 4th defendant. The extract from the Purchase Register maintained by the 4th defendant is marked as Ex.PW8/D-4/2 wherein the number of shares and the rate at which the shares are bought and the name of the broker are all mentioned. A xerox copy of the same document is marked as Ex.PW10/D-2/3.
66. At the time when the matter was being argued Mr. Tiwari, the learned counsel for the 4th defendant, submitted that the debit note dated 25.2.1983 issued by the State Bank of India to the 4th defendant for a sum of Rs.35,61,002/- should be exhibited. This is marked as Ex. X-1. The amount stated to have been paid to the broker Bhupendra Champaklal Devi Dass is said to be Rs. 35,52,121.75. The extract from the Ledger Folio of the Andhra Bank of the account of Bhupendra Champaklal Devi Dass is pro-duced to show that the amount had been realised by the said broker. The extracts are marked as D-4W1/5 and D4W1/6.
67. On 25.2.1983 the second defendant had calculated stamp duty payable on the shares and that is marked as Ex.PW8/D-4/4. The xerox copy of the cheque issued by the second defendant, Securities Branch in favour of Bhupendra Champaklal Devi Dass for Rs.35,52,121.75 dated 25.2.1983 is marked as Ex.PW8/D-4/1. The second defendant on the same date 25.2.1983 had prepared a statement showing the amount due from the Unit Trust of India. The amount due is shown to be Rs.35,61,002/-. It is marked as Ex.PW.10/D-2/A.
68. On 25.2.1983 the plaintiff wrote to the first defendant stating that it was not interested in selling the shares and requested the first defend-ant to send the shares to the Grindlays Bank, New Delhi and the amount due to the first defendant would be paid. If the request was not complied within 15 days, the plaintiff would not be liable to pay any interest. This is marked as mark I. The postal acknowledgement is marked as Ex.PW6/16. On 7.3.1983 the shares are stated to have been sold by the State Bank of India, second defendant, Securities Branch and purchased by Unit Trust of India represented by the State Bank of India, Securities Branch. The origi-nal share transfer forms are marked as PW8/1 to PW8/31. The documents were ordinarily would appear to have been executed on 25.2.1983 but in all the documents the date is struck off and stamp 7th March 1983 is put. The second defendant had signed in these documents purporting to act on its own behalf and on behalf of the 4th defendant. On the reverse side of the documents under the column name of delivering broker or Clearing Member the following two names are mentioned:-
1. Mathura Dass Mohta
2. Bhupendra Champaklal Devi Dass
69. I am in the process of narration of facts and these documents are to be dealt with at the appropriate stage.
70. On the 24th of March 1983 the State Bank of India, Securities Divi-sion, wrote to the third defendant to transfer the shares duly registered in the name of the 4th defendant Unit Trust of India. The same communica-tion is marked as Ex.PW11/30, PW10/D-2/2, PW8/D-4/3.
71. On 2.5.1983 Ex.PW8/D-4/5 the third defendant wrote to the Manager, Securities, State Bank of India for rectification of the few defects. Ex.PW11/1 is a copy of the same communication.
72. On the 25th of May 1983 (Ex.PW11/3) the Manager, Securities, State Bank of India wrote to the third defendant in reply to the letter dated 2.5.1983.
73. On the 25th of May 1983 (Ex.PW11/2) the third defendant wrote to the first defendant requesting it to seek clarification from the High Court of Delhi referring the order of injunction passed by this Court on 6.5.1983.
74. The third defendant wrote on 30.5.1983 (Ex.PW11/4) to the Manager, Securities.
75. On 4.6.1983 the Securities Division, State Bank of India wrote to the third defendant stating that the 4th defendant had purchased the shares through their brokers M/s. B.C. Devi Dass, Bombay.
76. On 9.7.1983 (Ex.D-4W1/11) Mr. Bhupen Dalal of M/s B.C. Devi Dass wrote to Mathura Dass Govind Dass Mohta enclosing the letter No. SD/UTI/CVP/3073 dated 6th June 1983 and a photostate copy of the letter written by H.M.M. Limited to State Bank of India and requested the first defendant to remove the objection.
77. On 18.7.1983 (Ex.D-4W1/8) in reply to that letter Mathura Dass Mohta wrote to Mr. Bhupinder Dalal stating that the shares were purchased by his clients in the month of April 1982. In the month of November 1982 his clients had forwarded the shares to the third defendant for being trans-ferred in the name of their bankers State Bank of India. M/s. Nabha Invest-ments Pvt. Ltd. had ceased to be holders or owners thereof. The shares were registered by the Company in the name of the State Bank of India. The Company had paid dividend to the State Bank of India and the Bank had credited the same to its client's account. The shares were delivered to M/s Bhupendra Champaklal Devi Dass in the month of February 1982 along with transfer forms duly signed by the State Bank of India.
78. On 18.7.1983 (Ex.D-4W1/8) Mathura Dass Mohta wrote to Bhupendra Cham-paklal Devi Dass about the shares. What is stated in the correspondence that passed between the parties after the institution of the suit and after that they had come to know about the institution of the suit is not at all relevant. For the sake of the completion of narration of facts the letters are referred to.
79. On 3.8.1983 (Ex.PW11/6) Manager, Securities, State Bank of India wrote to the third defendant.
80. On 6.8.1983 (Ex.PW.11/8) B.C. Devi Dass wrote to the third defendant.
81. On 12.8.1983 (Ex.PW11/10) Manager, Securities, State Bank of India wrote to the third defendant about the transfer of shares.
82. On 16.8.1983 (Ex.PW11/7) the third defendant wrote to the State Bank of India, Securities Division.
83. On 17/18.8.1983 (Ex.PW11/9) third defendant wrote to B.C. Devi Dass.
84. On 23.8.1983 (Ex.PW11/11) third defendant wrote to the Manager, Secu-rities Division, State Bank of India.
85. On 25.8.1983 (Ex.PW11/14) B.C. Devi Dass wrote to the third defendant.
86. On 1.9.1983 (Ex.PW11/12) Manager, Securities, State Bank of India wrote to B.C. Devi Dass with a copy to the third defendant.
87. On 9.9.1983 (Ex.PW11/5) third defendant wrote to B.C. Devi Dass.
88. On 9.9.1983 (Ex.PW11/13) third defendant wrote to the Manager, Securi-ties to the second defendant.
89. On 19.9.1983 (Ex.PW11/31) 4th defendant wrote to the third defendant about the transfer of shares.
90. On 7.11.1983 (Ex.D-4W2/3 = PW11/22) the 4th defendant wrote to the third defendant.
91. On 11.11.1983 (Ex.PW11/23) third defendant wrote to the 4th defendant about the shares.
92. On 29.6.1984 (Ex.D-4W1/P/4) the 4th defendant wrote to C.B. Devi Dass.
93. On 30.10.1985 (Ex.D-4W1/14) the 4th defendant wrote to B.C. Devi Dass.
94. On 20.1.1986 (Ex.D-4W1/3) B.C. Devi Dass wrote to the 4th defendant.
95. On 7.3.1986 (Ex.PW11/16) the 4th defendant wrote to the third defend-ant about the shares.
96. On 13.3.1986 (Ex.PW11/17 third defendant wrote to the 4th defendant.
97. On 24.8.1987 (Ex.D-4W1/9) B.C. Devi Dass wrote to the 4th defendant.
98. On 7.9.1991 Mathura Dass Mohta had sworn to an affidavit which is marked D-4W1/12.
99. On 12.9.1991 Bhupendra Champaklal Devi Dass had sworn to an affidavit which is marked as D-4W1/7.
100. As I had already referred to, on 30.1.1997 the 4th defendant filed the debit note issued by the second defendant dated 25.2.1983 for Rs.35,61,002/- which is marked as X-1.
101. In the context of the facts recounted above, providing a backdrop as it were, I am of the view I have to consider three main features. First is the borrower by the plaintiff from the first defendant, handing over the shares and ( blank transfer deeds). The ancillary question would be what was the exact terms of the contract between the plaintiff and the first defendant about the nature of the shares handed over to the first defend-ant?
102. The second point is after the shares and the blank transfer deeds had landed up with the first defendant how did Mathura Dass Mohta come to have the control of the shares and the transfer deeds. Here the subsidiary question would be what was the understanding between Mathura Dass Mohta and the Heritage?
103. The third point is in what manner the shares and the transfer deeds in the custody of the Heritage were placed in the hands of the State Bank of India, the second defendant. And here also the ancillary question is what was the understanding between the Heritage and the State Bank of India with reference to the shares and the transfer deeds?
104. After considering the three main features, the role played by the second defendant State Bank of India in purchasing and selling the shares to the 4th defendant would arise. Finally, it has to be considered what is the nature of the right acquired by the 4th defendant in the shares by the act of the second defendant. The fact that the 4th defendant had had con-tract with the second defendant and by virtue thereof the second defendant was the agent of the 4th defendant would take us to the point whether through the second defendant the 4th defendant could be said to have ac-quired valid title to the shares.
105. I shall now turn to the move of the plaintiff to borrow money from the first defendant. On 3.4.1982 the Board of Directors of the plaintiff Co. passed a resolution to borrow money from the first defendant to the tune of Rs. 16 lakhs against the loan of shares. The minutes of the Board meeting is marked as Ex.PW6/2. On 7.4.1982 Mr. Chandra Kant representing the first defendant firm acknowledged the receipt of the shares from the plaintiff in the following terms :-
"Received from Nabha Investments Pvt. Ltd. 86469 shares of Hindustan Milk Food Manufacturers Ltd. as security against loan of Rs. 15,00,000/- (Rupees fifteen lakhs only)."
The document is marked as Ex.PW6/4. It transpires from the evidence and the fact is not in dispute that on 9.4.1982 the first defendant paid the plaintiff a sum of Rs. 4 lakhs. The relevant entry in the Cash Book of the plaintiff showing the receipt of this amount is marked as Ex.PW6/5. It also emerges from evidence that the plaintiff had handed over the shares along with blank transfer deeds to the first defendant and that a sum of Rs. 4 lakhs was paid in Bombay on 9.4.1982. Ex.PW6/6 to PW6/8 would show the receipt of further amounts from the first defendant by the plaintiff and the plaintiff had entered in its records the receipt of the total amount of Rs. 14 lakhs. It also clear from the evidence that the plaintiff had agreed to pay interest @ 24% per annum on the amount brorrowed. The first defendant by letter dated 6.8.1982 (Ex.PW6/9) wrote to the plaintiff that it was sending 15 fresh transfer forms to be signed by the plaintiff and to be returned to the first defendant. The first defendant promised in that letter that on the receipt of the fresh forms the old ones would be returned to the plaintiff.
106. Complying with the request made by the first defendant in Ex.PW6/9 the plaintiff on 7.9.1982 (mark E) sent the blank transfer forms duly signed by it. The first defendant sent a telegram to the plaintiff on 13.11.1982 (Ex.PW6/10) in the following terms:-
"As discussed and agreed by you all shares of Hindustan Milkfood being transferred in the name of State Bank of India kindly send interest draft immediately - Harkishondass Lukhmidass"
107. The first defendant, it could be noted, did not inform the plaintiff that the shares had been handed over to the Heritage and it was the Herit-age that was going to deal with the State Bank of India, the second defend-ant. As on that date when the telegram was issued the shares had moved from Mathura Dass Mohta into the hands of the Heritage and from there to the State Bank of India.
108. Even so, the first defendant issued a telegram to the plaintiff on 19.11.1982 demanding a sum of Rs.1,81,972.56 towards interest. That is marked as Ex.PW6/11. The first defendant must have received by this time money for the shares which he had parted with to Mathura Dass Mohta and to the Heritage. First defendant had not produced any document to show how much money it had received from Mathura Dass Mohta and the Heritage.
109. The plaintiff apparently being under the impression that the shares were still under the control of the first defendant sent a sum of Rs.40,000/- by way of draft towards interest to the first defendant on 30.11.1982. The extract from the Cash Book entry is marked as Ex.PW6/12. According to the plaintiff by 17.12.1982 the shares could have earned a dividend of Rs.1,34,892/-. On that calculation the plaintiff sent another sum of Rs.40,000/- by way of demand draft to the first defendant on 23.12.1982. The extract from the entry of the Cash Book of the plaintiff is marked as Ex.PW6/13. The plaintiff sent a telegram to the first defendant on 9.2.1983 and the same is marked as Ex.PW6/14. The telegram reads as under:-
"ATTN: MR. CHANDRA KANT REF. YOUR TELEGRAM. NOT INTERESTED IN DISPOSING SHARES PLEDGED WITH YOU. CAN RETURN RS. 14 LAKHS BORROWED IMMEDIATELY. REGISTERED LETTER FOLLOWS."
The telegram was issued by Hanumant Singh P.W.6 on behalf of the plaintiff Co. This was followed up by a registered letter by the plaintiff dated 9.2.1983 conveying the same message and the letter is marked as H. The receipt of the letter is not disputed by the first defendant. The postal acknowledgement acknowledging the receipt of the letter is marked Ex.PW6/15. On 25.2.1983 the plaintiff wrote to the first defendant to send back the shares and the letter is marked as I. The postal acknowledgement is marked as Ex.PW6/16. On the third of March 1983 the plaintiff reiterated its request for return of the shares from the first defendant. The letter is marked J.
110. As there was no response from the first defendant the plaintiff coming to know about the transfer of the shares had instituted the suit on 6.5.1983.
111. In passing it can be noted that on 23.3.1983 the Solicitors Mulla & Mulla had issued notice to the Bombay Stock Exchange complaining about the conduct of the first defendant. That is marked as Ex.PW1/16. There was notice for the adjourned annual general meeting of the plaintiff and the same is marked as Ex.PW3/3. The first defendant informed the Stock Exchange about the death of a partner of the first defendant firm by letter dated 6.4.1984 (Ex.PW1/6). Ex.PW3/2 dated 23.8.1984 is the notice of the ad-journed meeting of the AGM of the plaintiff. To trace the movement of the shares and the transfer deeds from the plaintiff to the first defendant, to Mathura Dass Mohta and the Heritage the evidence of DW1, D.2W1 and evidence of P.W.6 could be considered.
112. DW-1 is Mr. Mukul Harkishan Das Dalal. He was a partner of the firm M/s Harkishan Dass Lakhmi Dass, i.e. the first defendant. He would depose that in the year 1982 the plaintiff approached Mr. Chandra Kant at Mumbai, one of the partners of the firm for raising finance. He would say :-
"The plaintiff offered a security of 86469 shares of HMM Ltd., the defendant No. 3."
The plaintiff offered to pay interest at 24% per annum with 15 days rest as per the market practice. The plaintiff handed over the shares in early 1982 along with blank transfer forms. The witness stated:
"It was understood that the firm defendant No. 1 could raise loan on the basis of shares accompanied with blank transfer forms."
The question was objected to by the learned counsel for the plaintiff as beyond the pleadings. The first defendant never made any such proposal to the plaintiff and it is not borne out from any record and there is no pleading to that effect. Therefore, this question has to be eschewed from consideration. The witness also stated :-
"the borrowed amount was to be repaid by the plaintiff by the end of October 1982."
This question was also objected to by the learned counsel for the plaintiff as being outside the pleadings. The objection is justified. There is nothing on record to show such understanding. The first defendant had not explained as to why when it gave a telegram on 13.11.1982 the first defendant did not make any such stipulation. Therefore, the objection has to be sustained and this question has also to be taken out of considera-tion. It has to be noted here that the first defendant had accepted the sum of Rs. 40,000/- sent by the plaintiff in November 1982 and another sum of Rs.40,000/- sent by the plaintiff on 23.12.1982 and the first defendant did not raise any objection stating that the entire amount was payable by the end of October 1982. It is admitted by the witness:-
"The outstanding amount was arranged by Mr. Mohta, a broker of the Stock Exchange, who had arranged for the finance from one of his clients."
It is clear, therefore, from this that the first defendant was aware of the fact that Mr. Mohta had entered into a contract with the Heritage
113. The learned counsel for defendants 2, 3 and 4 did not want to cross-examine this witness.
114. In the cross-examination by Mr. J.M. Mukhi, the learned counsel for the plaintiff, it is admitted by the witness :-
"It is true that the entire transaction with the plaintiff was administered, controlled and managed by Chandra Kant on behalf of the firm defendant No. 1. Upto October, 1992 I have no personal knowledge about this transaction. It is only in October, 1982 when Chandra Kant and Manhar Kant told me that money was not coming back and broker Mohta was pressing hard for the money when they gave the information about this transaction to me."
The witness would state:-
"The firm defendant No. 1 had asked for fresh blank transfer forms from the plaintiff in August 1984."
The witness was not aware of any transaction between the plaintiff. The first defendant was asked about the market value of the shares. The question and answer are in the following terms :-
"Q. I put it to you in April 1982 the market value of the shares was Rs. 36 lakhs and in November 1982 it was Rs.40 lakhs and you are giving a false and evasive reply.
Ans. I am not giving any false reply. I am not aware of the market value."
The witness was deliberately trying to avoid answering the question. He must have been aware of the position of the shares on the date of the transaction. The witness would admit :-
"Except the two communications of November, 1982 I do not remember any communication in writing having been made by defendant No. 1 to the plaintiff demanding repayment of loan and informing that the shares would be sold and transferred in case of default. As per the market practice such communications are made orally. As I was not looking after the business of the firm defendant No. 1 I am not aware if any statement of account of the plaintiff has been maintained or sent by the defendant No. 1 to the plaintiff."
A question was put to the witness about the transaction with the State Bank of India, the second defendant. He would depose :-
"Q. Do you know if these shares were actually transferred to State Bank of India in sale?
A. The shares were transferred to State Bank of India because of default of the plaintiff. The way in which the shares were transferred to State Bank the effect would be sale.
(The question was repeated to the witness several times and the witness gave the same answer every time).
Because the dealings with State Bank were by the broker Mr. Mohata. I do not remember if the State Bank gave anything in consideration of securing the transfer of shares. The firm defendant No. 1 or I did not directly hand over the shares to State Bank. We had handed over the shares to Mr. Mohata. He had entered into the transaction with State Bank on behalf of his client. He or his client might have passed on the shares to State Bank but I do not know the exact details. The shares initially came into possession of the firm defendant No.1. The transaction was financed through broker Mr. Mohata. The amount was paid to the plaintiff in two instalments. The shares must have been passed on to Mr. Mohata or his client simultaneously with the finance having been arranged by him. I cannot give the exact date of parting with possession of the shares by defendant No.1. The shares were not physically passed on in my presence as I was not attending to the firm's business then."
The witness would admit :-
"We had no dealings with State Bank. Loan from State Bank was not obtained by defendant No.1. Defendant No. 1 never received any dividend on these shares from the State Bank. While parting with the shares the firm defendant No. 1 must have received some amount from Mr. Mohta."
Therefore, according to the witness, the first defendant did not have any knowledge about the dealings between the Heritage and the State Bank of India which cannot be true. The first defendant must have been aware of the fact that Mohta had handed over the shares to the Heritage. The witness would further admit:-
"The amount of finance arranged by defendant No. 1 to the plaintiff must have been received by defendant No. 1 from Mohta."
The first defendant must have received money from the Heritage and that is deliberately withheld by this witness. The witness would further admit :-
"I am not aware if the firm defendant No. 1 was maintaining any accounts books for recording transactions and receipts and payments of cash by the firm defendant No. 1."
115. It is quite inexplicable that the first defendant, who had admittedly sent Rs.4 lakhs on 9.4.1982 and Rs.10 lakhs by the end of April 1982, had not been maintaining any accounts and that shows the way in which the first defendant was carrying on its business. The first defendant as a Stock Broker must have been maintaining accounts but this transaction deliberate-ly was not brought into the accounts and the first defendant dealt with the Heritage and now trying to bring in Mr. Mohta. Whatever is stated by this witness, cannot at all be taken to be true because of the tenor of the evidence of this witness. The whole thing is a figment of the imagination of this witness. The witness would further admit :-
"My statement given in the Court is based on information given by Chandra Kant to me which I have already stated. That is why I am not aware if the firm was maintaining any accounts. No such accounts had been handed over tome by anyone at any time."
The witness admits that he is one of the partners. He cannot say that no accounts had been handed over to him because when a partnership is doing business the accounts are kept in the place of business and there is no question of any partner handing over any accounts to the other partner. The witness candidly admits that he is giving evidence only on the basis of information given by Mr. Chandra Kant. Therefore, what all the witness speaks to is hearsay. A suggestion was put to him about the terms of the contract of loan put forth by the witness in the chief examination, he would say:-
"It is not correct to say that my statement made in the Court about the term of the loan being six months and interest being calculable at 15 days rest is a false statement made for want of knowledge."
In the absence of any documentary evidence, the evidence based on information by Mr. Chandra Kant can not form any basis for a term of the contract.
116. The witness would admit the receipt of the letter from the plaintiff. The witness deposed:-
"Letter dated 9.12.1983 sent by Hanuwant Singh of plaintiff company through registered AD post was received by the firm defendant No.1. There was no question of replying to the notice as the transaction was already over in November, 1982 because of the default of the plaintiff.
(The witness is shown a letter marked 'H'. He states, "such was the letter received by defendant No. 1". The witness is shown letters dated 7.9.82, 25.2.83, and 3.3.1983 respectively marked 'E', 'I' and 'J' purportedly written by Hanuwant Singh. The witness states that, "letters marked 'E', & 'J', I have not seen prior to the filing of the suit. As to letter marked 'I', I will not be able to give any answer".) On AD receipts Ex.PW6/15 and Ex.PW6/16 the address is of the firm-defendant No.1. It is a correct address. The Rubber stamp purportedly of the firm defendant is there, but I cannot identify the stamp, nor the initial over it."
He would admit :-
"Written statement dated 27.11.1991 is signed and verified by me. While making verification I did not see any accounts books or documents related by accounts as they wee not available. I might have seen the documents like partnership deed and power of attorney. Letter dated 6.8.1982 (Ex.PW6/9) is signed by Chandra Kant. The hand written matter in the two lines in the bottom of the letter is in the handwriting of Chandra Kant."
He would admit that he was living in a rented premises. He was earning Rs. 5,000/- apart from perks for which there is no documentary evidence. It is stated that Chandra Kant died sometime ago.
117. A reading of the evidence given by this witness would clearly show that he is not speaking the truth and he does not know anything about the shares or the transfer deeds. The first defendant has not at all proved its case as set forth in the written statements.
118. To trace the journey of the shares, the evidence of Mr. Madusudan Brij Lal Vakharia, examined by the State Bank of India, second defendant as D-2w1, has to be looked into. He is a director of the Heritage. He would speak to the resolution of the Company passed in 1979 about the opening of the account by the State Bank of India and that is marked as Ex.PW2/8. The witness would state that the Heritage was regularly availing of the over-draft facilities from the second defendant and no default was at any time committed by the Heritage in respect of the overdraft account. About the sale and purchase of shares, the witness would depose :-
"Q. Were Heritage Pvt. Ltd. dealing with sale/purchase of shares/securities regularly in or around 1980 to 1983?
A. Yes.
Q. Who was the broker during that period of Heritage?
A. Shri Mathuradas Mohta, Manu Bhai Manak Lal.
Q. Heritage Estate had any account with Mathura Dass Mohta.
A. Yes."
119. About the purchase of 86469 shares of HMM, the witness states that it was in October 1982. The two documents pertaining to this are Ex.D-2W1/1 and D-2W1/2. According to this witness, Ex.D-2W1/1 is the contract note and Ex.D-2W2/2 is the bill. Both are dated 3.11.1982. The witness would state:-
"Q. When shares are purchased by you were you aware that these are pledged shares belonging to Nabha Investment Pvt. Ltd.?
A. No. Q. Were you concerned with these shares that they are belonging to Nabha Investment?
A. No."
The witness would admit that these 86469 shares were given to the State Bank of India as security. The witness also would admit that dividend was credited in the account of the Heritage. The documents dated 8.2.1983 Ex.PW2/19 and PW2/20 were signed by Byram Jeejeebhoy. The witness also admits that in Ex.PW2/20 dated 8.2.1983 Rati Lal N. Vohra had also signed. When the shares were taken from the State Bank of India on 8.2.1983, ac-cording to the witness the acknowledgement was signed by Byram Jeejeebhoy in Ex.PW2/21 to PW2/25. The witness asserts and states:-
"Q. Did you avail any over draft facility against the security of the above shares?
A. No."
He was asked about the sale of shares after the Heritage had taken delivery of the shares from the State Bank of India. His evidence is :-
"Q. After you took back the delivery of the shares when did you sell the shares?
A. On 6.12.82.
Q. When was the delivery of the shares handed over to you by the Bank?
A. In February, 1983.
Q. Do you have the exact date?
A. It was 3.2.1983.
Q. Can you produce the contract note for sale of these shares?
A. Yes. The contract note is marked as Ex.D2W1/3.
Q. When delivery of 86469 shares of HMM Ltd. were handed over to Heritage Pvt. Ltd. by the Bank were they accompanied with blank transfer form duly signed by SBI?
A. Yes."
The first defendant did not cross-examine this witness. Third defend-ant also did not cross-examine. The learned counsel Mr. P.N. Tiwari for the 4th defendant cross-examined the witness. The witness would state:-
"Q. How did you purchase these shares from Mathura Dass Mohta and took the delivery? What were the documents which were given to you by Mathura Dass Mohta?
A. The contract,bill, shares certificates and the transfer forms on 3rd November, 1982."
The witness would admit that the transfer deeds were handed over by Mathura Dass Mohta to the Heritage along with share scripts duly executed by the transferor and according to him it was also duly witnessed. About Ex.PW2/3 the witness would state:-
"Q. Ex.PW2/3 is shown to the witness and it is put to him that this was the transfer deed handed over to you by Mathura Dass Mohta stock broker who took delivery of the same on 3.12.82.?
A. Yes.
Q. This is the transfer deed which was in the name of State Bank of India?
A. Yes."
Ex. P.W.2/3 is dated 10.11.1982. The witness would state:-
"When this transfer deed with the share certificate given to you by Mathura Dass Mohta. Does this transfer deed mention anywhere that it was meant for pledge?
A. No. Q. When did you give this certificate to the SBI for over draft facility. Did you request SBI to transfer this share in your name?
A. Yes."
A perusal of Ex.PW2/3 would show that what the witness states runs contrary to the document. This witness is not prepared to tell the Court the truth of the matter. He is not willing to tell us what really happened, is clear from the following evidence :-
"Q. When the share was transferred in the name of SBI on your demand why did you not avail of over draft facility? What was the reason?
A. We did not require funds.
Q. When you sold these shares 86469 equity shares and handed over the delivery what wee the documents handed to the intending purchaser through the broker?
A. Share certificates and transfer form."
120. The witness asserts when the blank transfer forms duly executed by the transferor and duly witnessed by witnesses and accompanied by share certif-icates and handed over in the market it is a complete sale and purchase of the transaction and it is a normal practice followed in the market. This is not an evidence of a particular thing that occurred. This is the opinion given by the witness which he is not expected to do. He has not been called upon to give evidence on the procedure that is followed and he is not an expert on that matter. Therefore, the witness was asked something totally extraneous to the point at issue. The witness would try to be very clever and would state :-
"Q. When you sold the shares of 86469 of Mathura Dass Mohta when were the documents handed over to the intending purchaser through the broker?
A. Share certificates and transfer forms signed by SBI."
121. The attempt of the 4th defendant was that once the shares were trans-ferred by the State Bank of India to the State Bank of India representing the 4th defendant and once the shares were handed over, the transaction must be presumed to be genuine and not affected by the pledge and the 4th defendant would get perfect title over the shares. The 4th defendant is purposely oblivious to realities of the case.
122. In the cross-examination by the plaintiff, witness would admit that he was first employed as a Secretary in the Heritage in 1975. He would admit that the Heritage is an Investment Company. About Byram Jeejeebhoy, the witness would state :-
"Q. Where is Jeejeebhoy today?
A. In London.
Q. When was he in India last?
A. In March, 1995.
Q. Is he a non resident Indian?
A. Yes.
Q. When did he become non resident Indian?
A. I cannot say.
Q. Is he Director of this Co.?
A. Yes.
Q. Does he hold shares in the company?
A. No."
He would try to project the picture in the following manner:-
"Q. Who are the share holders of the Company?
A. M/s Byram Jeejeebhoy Pvt. Ltd.
Q. Say their holding?
A. 100%.
Q. Which are the Directors of M/s Byram Jeejeebhoy Pvt. Ltd.?
A. Mr. Byram Jeejeebhoy, myself and Ms Jeroo F. ,Godrej.
Q. Is Ms Godrej related to Byram Jeejeebhoy?
A. Yes as sister.
Q. In that Company what is the holding of Jeejeebhoy?
A. (The counsel for the defendant no. 2 objects to such questions being put to the witness as they are not related to the issue in suit.) Q. What is the share holding of Jeejeebhoy in that Pvt. Ltd. Co. (objected to for the above reason).
A. Hardly 1 or 2%."
123. The witness is not able to say whether Mr. Jeejeebhoy was in India throughout the year in 1982 and the witness was not in a position to say at which part of the year in 1982 Mr. Jeejeebhoy was out of India. The witness admits that resolutions are not required to be passed when there is pur-chase and sale of shares.
124. Therefore, the resolution dated 25.10.1982, alleged to have been passed by the Heritage, was not necessary and it was introduced to give an air of verisimilitude to the transaction between the Heritage and the State Bank of India. The witness would admit :-
"Q.I put it to you that no notices were sent of the meetings of the Board of Directors of Heritage and you will not be able to produce any?
A. That is true.
The witness would also admit without any hesitation that there was no board resolution by the Heritage relating to the purchase of HMM shares. About the crucial aspect of payment of huge amounts towards the price of shares the witness tried to introduce a new fact :-
"Q. Is there a cheque number, date of cheque for making payment for the alleged purchase of H.M. shares by Heritage?
A. Shares were purchased out of Budha investment account Mathuradas Mohta.
Q. Please explain what you mean by Budha transaction or Budha account.
A. We have investment by way of funding broker for fortnightly settlement of share for the purpose of that Budha charges which are in the nature of interest."
The witness also would admit that in respect of shares purchased by Heritage in 1982, Heritage applied for registration of transfer. The wit-ness would admit :-
"Q. In respect of which shares in 1982?
A. 3200 shares Gujrat Narmada of the value of Rs.39,200- 200 Tata Engineering-2295 Tata Iron and Steel of Rs.25,35,000/-, ACC- 45,45,000/- Gujrat Narbada, Rs. 31,896/- Gujrat Narbada Rs.26,977/-, Gujrat Narbada 12,995/-, Gujrat Narbada Rs.12,250/-, Gujrat Narbada Rs.22,840/- and HMM for Rs.30,26,415/-.
Q. In all these cases you applied for registration of transfer?
A. Yes.
Q. In fact all those transfers were registered.
A. Yes.
Q. After transfer of the shares out of which those you have just now enumerated were sold and when?
A. Tata Iron and Steel was purchased in 25.6.82 for Rs.25,35,000/- and sold on 16.7.82, ACC purchased on 28.10.82 and sold for Rs.43,58,400/- on 11.11.82 and HMM 30,26,450/- sold for Rs.28,53,477/- and Rs.1,72,938/-."
He would immediately admit :-
"Q. And all those are Budha transaction.
A. Yes.
Q. Which of these were Budha transaction?
A. None."
It was suggested to the witness that the Heritage was trying to avoid payment of capital gains. The witness would assert that the overdraft facility availed of by Heritage from State Bank of India was about Rs. 2 lakhs. It has to be noted here that in the correspondence the Heritage had stated that there was no overdraft facility availed of. No statement of account has been produced by Heritage to show the fact. When a very rele-vant question was put to the witness about the value of shares and of what did the Company sell in October 1982 by the Heritage, the answer is "I cannot say." As a director of Heritage, he has not been able to give any direct answer to any of the questions. For instance :-
"Q. I put it to you that apart from this solitary instance of shares standing in the name of Nabha Invt. Pvt. Ltd., you did not place any shares as security with Bank of Baroda branch for any alleged over draft?
A. I cannot say."
About the sale of shares by the Heritage, the witness would depose :-
"Q. You said in your testimony that HMM shares were sold by Heritage on 6.12.82,is that correct?
A. If I have said so, it is so.
Q. But do you remember that you said that these were sold on 6.12.82?
A. I have said that it was sold in 6.12.82 but I will have to refer the record.
Q. See the record and tell.
A. It is 6.12.82 as per bill and contract of Mathuradas Mohta."
When he was further asked about the specific dates and the person who had transferred the shares, he would state:-
"Q. According to you what is the correct date?
A. I do not know. This is the date according to my record and I am deposing according to the record namely the contract note.
Q. At this time, where were the shares?
A. They had gone for transfer."
About the transferee, the witness would state:-
"Q. Transferred to whom?
A. Transferred in the name of SBI.
Q. From which name to which name?
A. From the record I say it was Nabha Investment."
According to the witness, the shares were to be transferred in Decem-ber 1982 to the State Bank of India. This is deliberate mis-statement of facts. The witness is obviously trying to avoid to tell us the real posi-tion. He would state :-
"Q. Why they were to be transferred to SBI?
A. Because we wanted to avail over draft.
Q. Why did you give the shares standing in the name of 3rd party to the SBI and not give the shares standing in your name out of the shares of about 50 lakhs that were available to you in order to raise the alleged overdraft loan which you indeed had no intention of taking and did not take?
A. (The witness in order to answer this question, wants to refer the balance sheet of 31.3.83 which has already been tendered and marked as Ex.PW2/1/7, but the ld. counsel for the plaintiff desires the witness to give the answer without looking at anything).
A. Because more than 60% of the shares were of Pvt. Limited Companies and not available for security with the Bank and the other shares were also of very small lots."
About the shares being given as security to the State Bank of India, the witness who claims to be a director of a Company which is engaged in investment would depose :-
"Q. Did the SBI ask you at any time to furnish security?
A. No. Q. Did SBI sanction the loan?
A. We have sanctioned over draft account with the SBI.
Q. When was that sanction given?
A. In 1979-80.
Q. Are you then saying that for a sanction given in 1979-80 and without the Bank asking you to give the security inspite of that sanction you volunteered to deposit these shares as security with the Bank?
A. Yes, because we wanted to have Bank sufficient security to take up over draft which we wanted to avail of.
Q. How much over draft facility did you ask the Bank to give you?
A. We had upto 50 Lakhs of over draft facility."
What the witness speaks to is against the normal course of any Banking transaction. He would further depose:-
"Q. Then why did you give them security when they had not asked for any security?
A. Because necessary security was not there with them to overdraw the account.
Q. That was the concern of the Bank and not your concern was'nt that so?
A. It is not so.
Q. How was it that you needed an alleged over draft in November, 82 but did not need in February, 83 precisely on the date when the transfer script were returned to the Bank by the Company?
A. My company Heritage was doing Chemical Intending business and there was big proposal for investing in the said intending business. Said business did not materialise and hence we did not avail of the facility.
Q. I put it to you that this would very rapidly create figment on your production and resources but is not reflected in any minute book or paper that you can produce?
A. Not true.
Q. I put it to you that you were most anxious that the shares should be laundered by transfer to the SBI and that you made persistent enquiries with the Backbay branch and kept on reminding the Backbay branch and requested the Backbay branch to send reminders to HMM Co. as to when the transfer was going to take place?
A. Not true."
About the correspondence from the State Bank of India to the third defendant, the witness would state:-
"Q. Are you aware that Backbay branch sent several reminders to HMM Co., asking for expeditious transfer?
A. No. Q. Are you aware that Backbay Branch represented to HMM ,Co. that they were asking for transfer for and on behalf of Nabha Investment Pvt. Ltd. who had an account with them?
A. No. Q. Are you aware that security branch of SBi kept on writing to HMM Co. and pestering Co. for expeditious registration of the transfer of the shares to the name of SBI?
A. No. I am not aware."
About the nature of the transfer to the State Bank of India, the witness would state:-
"Q. Are you aware that this transfer was to be in the name of SBI only as holder of pledge, that, is so only as holder of securities?
A. Not true.
Q. Was this transfer to SBI as a transfer in sale as full owner?
A. It was transferred to SBI on our behalf."
He would feign ignorance to a very crucial question:-
"Q. Are you aware that SBI has taken possession from the outset that these shares were transferred to SBI only as security and that stamp was put on the transfer form was only of Rs.7.50 which is prescribed for a transfer as security and that SBI clearly stated on the form itself that these shares were to transferred only as security?
A. I am not aware."
About the content of relevant entry in Ex.PW2/3 (dated 10.11.1982) which is transfer deed, the witness would state :-
"Q. Please look at Ex.PW2/3 and look at the consideration column which states that "held as cover for overdraft" and the back page which bears the words," please note that within meaning shares are held as cover for overdraft" and the stamps affixed thereon and say if this was the transfer form which was given by Heritage to the SBI, Backbay Branch?
A. Yes. It is a transfer form which we had given to SBI but we did not put the stamp on that."
When he was asked what he had to say about Ex.PW2/3, the witness says:-
"Q. What you have to say if anything at all on the entries in the transfer form that this was taken on as security?
A. We only gave blank transfer form to the Bank."
He would admit that there was no board resolution by the Heritage for asking for return of the security from State Bank of India. He would admit that when the Heritage wrote Ex.D-2W1/8 (dated 3.11.1982). There is no acknowledgement from the State Bank of India about the receipt of the letter. He would admit that there is no other resolution by the Heritage except the resolution dated 21.11.1982 projected now. About the overdraft facility availed of by the Heritage, the director of the Heritage,who is expected to have knowledge of the transaction by Heritage would say :-
"Q. On what basis do you say that Heritage had already an overdraft limit of Rs.50 lakhs rom Backbay Branch?
A. I say this from my recollection."
He would without any hesitation say that overdraft facility to the tune of Rs. 50 lakhs was availed of, but whether it was on furnishing security or not he was not in a position to give any definite answer. He would admit:-
"Q. I put it to you that SBI having taken the transfer in security could not sell the shares and did not sell the shares to you or to any one else?
A. The shares belong to us and they were returned to us duly transferred."
Immediately, the witness would say :-
"Q. Are you saying that SBI transferred the shares to you?
A. SBI got the shares transferred in their name and returned back to us with blank transfer forms.
The witness would admit that in the letter dated 3.11.1982 to the second defendant, the Heritage had stated that shares stood in the name of Nabha Investments Pvt. Ltd., the plaintiff. The witness was cross-examined further on the question of the Heritage giving any security to the Bank, the witness would say:-
"Q. Is this the only experience of Heritage of having given the shares as security to a Bank?
A. No. Q. When did Heritage give shares as security, in what year and to what Bank?
A. I cannot say. It could be at any time after 1978.
Q. Are you saying yes for the back of it or do you know subsequently that Heritage has given security to a particular Bank, at a particular time?
A. Yes we have given.
Q. But you cannot give any instance.
A. I do not recollect any instance."
About the practice of giving security, the witness would give very interesting answers :-
"Q. I put it to you that when security of shares is furnished to a Bank it is always furnished at the request of the Bank and not voluntarily?
A. In my experience, it is not so.
Q. How extensive is your experience?
A. I have been in business since 1958.
Q. How many times you have taken security to the Bank?
A. My staff has taken quite often.
Q. It is correct that your staff has taken security from the Bank unasked for?
A. Yes.
Q. I put it to you that you are not telling the truth.
A. No true.
Q. Are you persisting in saying even if the Bank does not ask for security and does not insist on a transfer also being made, party generally go to the Bank and ask the Bank to take security of shares and also get the shares?
A. We asked the Bank to take security and also asked the Bank to get it transferred."
The witness states that the letter Ex.PW2/1 (dated 3.11.1982) was personally delivered to the Bank and there is no record to show who deliv-ered the letter to the Bank. It is also suggested to him that the letter Ex.DW21/8 (sic D2W1/8) was not sent to the Bank and it was given to the Manager of the second defendant Bank outside the Bank premises and that was denied by the witness. The witness would admit that the shares were pur-chased by the Heritage. When further cross-examined he would say :-
"Q. According to you when were they allegedly purchased?
A. I think around Nov. 82.
Q. Who was the owner of the shares when they were allegedly purchased by you?
A. We got the shares from Mathuradas Mohta.
Q. I am asking you one question and you are giving different answer and I am asking you once again who was the owner of the shares and whose names did the shares stand when you allegedly purchased the said HMM and shares in Nov. 1982?
A. We did not know. The share certificates show the name of Nabha Investment Pvt. Ltd.
Q. You said that you did not know. Do you now know who was the owner?
A. No. Q. How much money did you allegedly pay and to whom for the alleged purchase which you have just referred to?
A. I cannot say exactly but it is about Rs.35 lakhs.
Q. On what date was this paid?
A. I cannot say. I will have to refer the record."
About the person to whom the amount was paid, the witness would say :-
"Q. To whom was this paid?
A. To a broker Mathuradas Mohta.
Q. Was it paid by cheque or draft or in cash?
A. It was paid by adjustment in the account.
Q. Are you saying that you did not actually pay out any amount but merely made an alleged book entry?
A. Yes. It was paid by way of adjustment in the account.
Q. Where is the receipt for this amount in what file or bunch of files is there a receipt from the alleged recipient?
A. There is no receipt."
The witness would admit that State Bank of India did not pay any money to the Heritage in respect of the shares. It was suggested to the witness that Ex.PW2/20 dated 8.2.1983 had been created for the purpose of this case. About the signatures of Byram N. Jeejeebhoy in the documents, the witness would state:-
"Q. Please see the signatures of Byram N. Jeejeebhoy on Ex.PW2/19 and see if it matches with the signatures on Ex.PW2/21, 22,23,24 & 25?
A. The signature of Byram N. Jeejeebhoy on Ex.PW2/19 is his long signatures and on Ex.PW2/21 to 25 are his short signatures.
Q. Have you any record to show that the alleged short signature was on the record of specimen signatures with SBI?
A. No."
The witness would admit that there is no acknowledgement by the Bank with reference to Ex.PW2/19 and PW2/20. It was suggested to the witness that these letters were manufactured for the purpose of this case. It was also suggested to the witness that no shares were given by the second defendant State Bank of India to the Heritage on 8.2.1982. It was also suggested to the witness that the broker sold the shares on 6.12.1982 or 8.2.83 or any other date. It was further suggested to the witness :-
"Q. I put it to you that you know very well that Heritage Estates Pvt. Ltd. got alleged contract notes fabricated by various brokers and forwarded them to the legal deptt. of SBI for being forwarded in turn to the legal deptt. of UTI?
A. Not true.
Q. I put it to you that Byram N. Jeejeebhoy personally corrupted and heavily bribed the officials of SBI in order to get hold of HMM shares in an extraordinary scam? (objected to).
A. Not true.
Q. I put it to you that but for collusion between Heritage Estates Pvt. Ltd., and SBI officials and also the officials of UTI there would have been no question of any alleged negotiation of UTI with any alleged broker on or before 8.2.1983 or there abouts? (Objected to by deft. no.2).
A. Not true."
125. I shall now go to the evidence of P.W.6. He is Mr. Hanumant Singh, one of the directors of the plaintiff Co. He would admit:-
"Mr. Chander Kant agreed to give our company a loan against pledge of equity shares of M/s. HMM Ltd., at the interest @ 24% per annum."
He has deposed that the understanding between the plaintiff and Mr. Chandra Kant was that the latter would keep the shares with him as securi-ty. He would depose :
"I gave to Chander Kant 31 share scripts along with 15 to 17 transfer deeds (forms)."
He would depose:-
"no other amount by way of loan was received except the amount of Rs.14 lakhs."
126. Mr. Tiwari, the learned counsel for the 4th defendant, while arguing the matter referred to the following portion of the evidence of P.W.6:-
"In response to the letter of defendant No.1, written by Chander Prakash, we sent back 15 blank transfer deeds. This was necessary as the terms of loan was such that the company would keep alive the fresh transfer deeds as and when they expire and as we were committed, we sent them back to defendant No.1. The blank transfer forms were sent by Registered AD letter on 7.9.1982."
Mr. Tiwari, the learned counsel for the 4th defendant, also referred to the evidence of P.W.6 where he said:-
"The plaintiff company received in July 1982, dividend of the shares which were given to defendant No. 1 because it was understood between the plaintiff and defendant No. 1 that the shares would only be used in the event of default on the part of the plaintiff after the expiry of one year."
This was objected to. But any way, it is not necessary to go into the objection. What was argued by Mr. Tiwari, the learned counsel for the 4th defendant, was that the witness had not produced any material to show that any dividend was received by the plaintiff in July 1982 to project the case of the plaintiff that it had ownership in the shares in July 1982. Mr. Tiwari, the learned counsel for the 4th defendant, also referred to the following part of his evidence :-
"In November, 1982, I was informed by Chander Kant on the telephone that if the plaintiff had any objection for pledging these shares with the State Bank of India as the defendant No. 1 wanted to raise a loan from the Bank. I told Chander Kant that the plaintiff company has no objection so long as the shares were given to the State Bank of India in the pledge only. Chander Kant firmed that the shares will only be pledged with the State Bank of India and would not be used by his firm or by any body else."
The argument by Mr. Tiwari, the learned counsel for the 4th defendant, was that the plaintiff was well aware of the pledge of the shares by the Heritage to the second defendant and, therefore, the plaintiff cannot claim the shares back. Mr. Tiwari also contended that once the plaintiff had given the blank transfer deeds it was not open to the plaintiff to make any claim for the return of the shares and it was open to the Heritage to exercise full rights in the shares.
127. The learned counsel for the first defendant Mr. S.U. Kamdar cross-examined the witness. A suggestion was made to the witness that the first defendant did not have the necessary resources at all to advance any money and that was within the knowledge of the plaintiff. The learned counsel for the first defendant at the time of the arguments did not put forth any argument on this aspect of the suggestion. The question whether the first defendant had resources to advance money to the plaintiff is not relevant at all when the fact that the first defendant had lent Rs.14 lakhs to the plaintiff is a matter of admission on the part of the first defendant. It was also suggested to the witness:-
"It is correct that in this telegram it was stated that the shares of HMM was being transferred in the name of State Bank of India. We had consented the shares to be transferred in pledge with the State Bank of India."
Mr. Tiwari, the learned counsel for the 4th defendant referred to this portion of the evidence. While arguing the matter, Mr. Tiwari referred to the following portion of the evidence :-
"In December 1982 the plaintiff company came to know that the shares had in fact been transferred in favour of State Bank of India. Again said, transferred in pledge."
The learned counsel for the first defendant suggested to the witness:-
"Q. When the plaintiff permitted the defendant No. 1 to raise the fund by re-pledging the shares with State Bank of India, was it for raising the finance thereon?
Ans. The defendant No. 1 had said that they were running short of money and they would request us if the plaintiff company would allow them to replete the shares with SBI to enable them to borrow money for the amount that they had advanced us.
Defendant No. 1 had informed me that since the shares were pledged with the State Bank of India he would send me the necessary documentation to complete. So far the defendant No. 1 had got nothing from the State Bank of India by pledging those shares with them. Certain Banks documents were required to be signed by the plaintiff company which were never sent. I do not know the nature of the documents. Those are the standard Bank documents. In Mark 'G' and 'H' there is no reference to the telephone call stated by me in my examination-in-chief. Prior to 9.2.1983 there was no discussion between me and Chandra Kant for the selling of shares. I recorded nowhere about my having contacted Mr.Chandra Kant on telephone on 9.2.1983. The telephone bill is there."
128. It was also suggested by the learned counsel for the first defendant that between November 1982 to 9.2.1983 there was no question of selling shares as they were duly transferred in the name of State Bank of India in November 1982.
129. Having suggested that the first defendant had no where with all to advance money, the learned counsel for the first defendant suggested to the witness that the execution of the 15 transfer forms was merely to create a security but coupled with a right to raise finance on the strength of the shares.
130. Mr. Atul Sharma, the learned counsel cross-examined the witness on behalf of the second defendant. It was suggested to the witness :-
"Q. You have stated that in the blank transfer deeds you had put no qualification that the shares covered under the transfer deeds were only given as pledge to defendant No. 1.In the absence of such qualification would it be correct to state that the State Bank of India had no knowledge that these shares were given in pledge according to you to defendant No.1. What do you say?
A. State Bank of India could not know it. I am not aware that the shares in question were pledged with State Bank of India by Heritage Estates Pvt. Ltd. and not by defendant No.1. The plaintiff company did not inform HMM Limited that in case the shares in question were tendered for transfer those should not be transferred as the plaintiff company was the owner of the shares."
Neither the learned counsel for the first defendant nor the learned counsel for the second defendant referred to the Heritage and tried to elicit from the witness about the knowledge of the plaintiff on the under-standing between the first defendant and the Heritage.
131. Mr. P.N. Tiwari, the learned counsel cross-examined on behalf of the 4th defendant. In the cross-examination by Mr. Tiwari, the witness would depose :-
"There was nothing indicated on the shares or the blank transfer deeds so as to show that those were being pledged by the defendant No. 1 and were not available for sale or transfer."
The cross-examination was further pursued and the witness had stated:-
"I have seen the photo copy of the transfer deed dated 10.11.1982. It bears my signatures and is correct. It is Ex. D-1. I signed this document as a transferor. This transfer deed is witnessed by Mr.R.K. Gupta, whose signatures I identify. When I had sent these documents to defendant No. 1 these were blank transfer deeds and nothing was incorporated therein. I did not indicate on this transfer deed that it was by way of pledge."
The witness would depose :-
"Q. Mr. Hanumant Singh, when did you come to know that the defendant No. 2 is disposing of or trying to get the shares transferred in the name of their nominee or to a third person, before filing the suit?
A. I never had any information or any idea before the filing of the suit about any sale or transfer to anybody."
132. Mr. Tiwari, the learned counsel for the 4th defendant, attempted to impute knowledge to the plaintiff by putting a question about paragraph 23 of the plaint. It is to be noticed here that paragraph 23 was introduced by way of amendment. Therefore, when parties had known about the fact after the institution of the suit the attempt on the part of the learned counsel for the 4th defendant trying to put such a question does not render any assistance to the Court in arriving at the truth of the matter. There is absolutely nothing on record to show that the Heritage informed the plain-tiff about its acquiring title from the first defendant. The first defend-ant has not written to the plaintiff that the shares had been handed over to the Heritage. A suggestion was put to the witness on behalf of the 4th defendant:-
"It is incorrect to suggest that the shares were purchased by M/s Heritage Estates Pvt.Ltd. for good consideration. I also deny that it was to my personal knowledge. I have no knowledge that the shares were sold by M/s Heritage Estates Pvt. Ltd.. through Mathuradas Mohta."
It was also suggested to the witness as to why he did not implead the Heritage. It was suggested to the witness that plaintiff had not deposited any amount for redemption of the shares. It was elicited from the witness that the plaintiff did not issue any public notice informing the plaintiff that the shares had only been pledged with the first defendant.
133. From the evidence of D-2W1 (Heritage) and P.W.6 and the evidence of DW1, the borrower of Rs.14 lakhs by the plaintiff from the first defendant is not disputed by any of the parties. The exact terms of the contract between the first defendant and the Heritage had deliberately been withheld from Court. It is mysterious as to how did Mathuradas Mohta come to possess the shares. The Heritage never asserted absolute ownership in the shares. The document Ex.PW2/3 makes it abundantly clear that the owner of the shares was the plaintiff, Nabha Investments Pvt. Ltd. and the shares were given as security to the State Bank of India. There is no document on record to show filed by the second defendant or the first defendant that the Heritage had any authority to pledge the shares of third parties. It is clear from the evidence that the Heritage had received, covering the entire shares, only one transfer deed. To clear any doubt about what transpired between the first defendant and the Heritage, the first defendant had given only one blank transfer deed to the Heritage and the first defendant had retained the rest. The Heritage was satisfied with the only one blank transfer deed as it had received the shares. That blank transfer deed had been utilised by the Heritage by pledging the shares to the second defend-ant as evidenced by Ex.PW2/3. Therefore, whatever right the Heritage had in the shares had clearly come out in this document. Therefore, anybody deal-ing with the shares could only get the rights as reflected in the document Ex. PW3/2.
134. The fact that the Heritage pledged the shares with the second defend-ant State Bank of India cannot be challenged by any of the parties. There was absolutely no amount borrowed by Heritage from the State Bank of India and there is no evidence on record to show that any overdraft facility was availed of by the Heritage from the State Bank of India, the second defend-ant on the basis of the shares. By 8.2.1983 the State Bank of India had handed over the shares to the Heritage.
135. Therefore, the records produced by the second defendant would show that on 8.2.1983 by handing over back the shares to the Heritage back the second defendant State Bank of India ceased to have anything to do with the shares. That was the stand taken by the second defendant in the written statement filed in the first instance.
136. From the facts that could be gleaned from the records, the position as I see that emerges as on 8.2.1983, is, that the second defendant State Bank of India was only a pledgee of the shares and the transaction of pledge had come to an end by the State Bank of India handing over the shares to the Heritage. What was claimed by the second defendant was, along with the shares, blank transfer deeds were given by the second defendant to the Heritage.
137. If that is so, the question arises how did the second defendant come to sell the shares to the 4th defendant Unit Trust of India. The case put forth by the 4th defendant and the second defendant is that the shares were available in the market and they were in the custody of B.C. Devi Dass D-4W1. The theory put forth by the second defendant and the 4th defendant could be examined by referring to the evidence of D4W1 and that is the exercise I am proposing to do.
138. B.C. Devi Dass, D-4W1 has been examined to show how the 4th defendant acquired these shares. A brief analysis of the deposition of the witness has to be made before any comment is made on the veracity of the witness and the correctness of the events spoken to by him. The witness admits :-
"Q. Where are the clearing House delivery orders issued to you by the Stock Exchange Clearing House from 8.2.1983 to 25.2.1983 in form No. 36 under Regulation No. 11.?
A. I am not conversant with that procedure of the Stock Exchange and in any way I do not have the records."
He would assert :-
"Q. Why and at what circumstances did Mathuradas Mohta produce to you in this letter dated 12th July, 1983 Exh.D-4W-1/8, that the delivery was good delivery.?
A. The transaction with the Unit Trust was in terms of the Rules and Regulations of the Stock Exchange and I had acted as a broker between another Member of the Stock Exchange and UTI. If there was any claim against me by the UTI I in turn against the said Mathuradas Mohta. However, the stand taken by Mathuradas Mohta was that when the delivery was made it was a good delivery and therefore he was not liable. That is the very stand we in turn took with UTI."
The contradiction is very clear. He would admit:-
"Q. When you make a purchase for Unit Trust of India of shares from the market, what are the enquiries you are supposed to make?
A. If I am making the purchase from a market broker there are no enquiries required to be made since all contracts are subject to the rules and regulations of Bombay Stock Exchange."
He admits that he purchased 86469 equity shares of HMM Ltd. for the 4th defendant as its agent and broker. He admits that the contents of the contract note Ex.D-4/2 (15.2.1983) and D-4/3 (10.2.1983). These documents have been exhibited as Ex.D4W1/1 and D4W1/2. He admits that delivery in-structions were given by the 4th defendant on 24.2.1983 with reference to 27571 of shares. The document is exhibited as D4W1/3 and with reference to 58898 shares the delivery instructions were given on 24.2.1983 and the document is exhibited as D4W1/4.
139. The witness admits that the selling broker was Mathura Dass Mohta and that concern was a Member of the Bombay Stock Exchange at the relevant time. About the delivery of the shares and the payment made, the witness would depose:-
"Q. Did mathuradas Mohta hand over the delivery of the equity shares i.e. 86,469 equity shares of HMM Ltd. accompanied with transfer deeds duly executed by the transferor?
A. Yes, he delivered me the said shares along with transfer deeds against his sale."
Q. Did you, on receipt of the shares along with transfer deeds, make the payment to him?
A. Yes I made the payment for these shares to M/s Mathuradas Mohta.
Q. Did this payment made by you appear in your books of accounts?
A. Yes, they do.
Q. Was this payment made by you made by cheque or a Bank draft?
A. The payment was made by a cheque."
140. The witness states that the payment was made by cheque and the Bank statement to show this is exhibited as D4W1/5.
141. He would admit:-
"Q. When you effected delivery to State Bank of India on behalf of UTI did you receive the payment?
A. Yes, I received the payment.
Q. Is this payment also reflected in the statement of accounts?
A. Yes, it is reflected in the statement of accounts. I produce the same in original. (It is marked as Exhibit D.4W1/6.)"
He would assert :-
"Q. When you had been making the purchase on behalf of UTI are these the usual procedures and practices followed by you?
A. Yes."
142. The affidavit dated 10.9.1991 filed by the witness in this Court is exhibited as D4W1/7. He admits that when he took delivery of the shares and made payment to Mathuradas Mohta, he did not have any kind of covering letter or any kind of note from him. When he was asked whether he confirmed this contract with Mathuradas Mohta and informed the UTI while answering a question he referred to the affidavit dated 7.9.1991 filed by Mathuradas Mohta in this Court which is exhibited as Ex.D4W1/12. Therefore, it is clear that in 1983 the witness did not inform the UTI about his contract with Mathuradas Mohta. He would depose :-
"Q. What was the nature of transaction which you had entered on behalf of UTI and executed a contract in respect of 86,469 equity shares of HMM Ltd. on behalf of UTI? Would you like to see the contracts and tell us?
A. The transaction for HMM was done on cash delivery basis which means the contract is entered into on a particular day and the delivery and payment takes place in normal course.
Q. Would you like to see paragraph 5 of the affidavit which you have affirmed and filed before the Court?
A. Yes.
Q. According to the statements you have made in paragraph 5, is it true and correct that when the share certificates accompanied by the transfer deed duly executed by the transferors are delivered to the purchasing broker or purchaser all the right, title and interest in these shares vest in the purchaser with full and absolute right to enjoy and dispose of?
(The counsel for the plaintiff objects to this question being put to the witness as he says it involves a question, of law which the witness is not supposed to explain.) A. What I have stated in my affidavit (Exhibit D.4W.1/7) is my understanding of the facts."
According to the witness, the transaction was done in accordance with common practice. He would further state:-
"Q. It is a fact that all the transactions in the Stock Exchange are normally effected on the basis of blank transfer deed accompanied by the original share certificates under the Stock Exchange rules and regulations since the inception of the stock market.
A. I am aware that this is the procedure for at least 32 years."
This was all the chief examination of the witness.
143. In the cross-examination by the learned counsel for the plaintiff Mr.J.M. Mukhi, the witness would admit since 1992 he had been suspended from the Stock Exchange. There were also enquiries against him by the CBI and he is on bail.
144. When he was asked as to how he came to know about the availability of the shares, he would depose:-
"Q. How did you come to know on 8th February, 1983 that HMM shares were available from the State Bank of India?
A. I was approached by a Market Broker Mathuradas Mohta, who wanted to sell a quantity of HMM shares. I offered the same to UTI who accepted the same at the rate mentioned in my contract.
Q. When did this alleged contact with Mathuradas Mohta happened?
A. Around 10th February, 1983.
Q. Do you recall what day of the week it was?
A. I do not recollect the same.
Q. What did Mathuradas Mohta tell you about the status of these shares?
A. He offered me a lot which in those days was considered large. He mentioned that the scripts were not in market lot and therefore wanted to be sold on any lot basis."
He would admit that there is no documentary evidence in his possession with reference to his transaction with Mathuradas Mohta and according to the witness "it is very normal to conclude transactions based on an oral or telephonic offers." It was suggested to him that the contract notes are not serially numbered and he was not in a position to deny the same. Under Regulation 11 of the Stock Exchange, Bombay, a member is obliged to send daily business statement in Form No. 21 which is called Merchant Form as per Regulation 4.2. The witness would depose :-
"Q. Where are the daily business statements in form No. 21 under the Stock Exchange Regulations, which was supposed to be filed by you with the Bombay Stock Exchange from 8th February, 1983 to 25th February, 1983?
A. The documents of that period are not available with me today."
He would state that he did not record the daily business in form No. 21 with the Clearing House as the HMM shares were not on the clear list. When he was asked about the relevant books, he would depose:-
"Q. Where are your contract transactions books for the period 8th February, 1983 to 25th February, 1983?
A. I do not have the copies of the contract notes of the period as stated above."
About the comparison memos and Regulation 12, he would depose:-
"Q. Where are the comparison memos under the Regulation S.12 addressed to you between 8th February, 1983 to 25th February, 1983?
A. I do not have the record."
According to the witness, the record referred to the above is of only secondary nature and it was not kept for a long period of time. Regarding the maintenance of records, he would depose :-
"Q. Whether the margin forms No. 23 and No. 24 submitted by you between 8th February, 1983 and 25th February, 1983 and their copies maintained by you?
A. I am not fully familiar with the different forms required to be filed by my office and presently none of my old staff is available with me. I have only kept primary records of this period as required for the Income-tax purposes and do not have the secondary records."
He would also plead ignorance about the relevant Regulations :-
"Q. As a Stock Broker or former Stock Broker are you not familiar with Regulation 7 and Regulation 8 and bye-laws 80 and 82?
A. I am not off hand familiar with the Rules and bye-laws mentioned by you unless I read and know what it pertains to.
Q. Where are Delivery Orders and Receive Orders in Form No. 6 and Form No. 7 between the period of 8th February, 1988 and 25th February, 1983?
A. I am not aware of the day to day procedure but can state that apart from primary books no other records are available of that period."
He would candidly admit :-
"Q. Are you aware that if indeed there was transaction allegedly by Mathuradas Mohta with you, you require to file the securities particulars in form No. 11.?
A. I am not conversant with the forms which were required to be filed by the Brokers with the Stock Exchange during that period."
He was confronted with a question whether he had admitted in a letter to the 4th defendant UTI that the transaction was done through the Clearing House, he would depose :-
"Q. Are you aware that you are on record as having stated to Unit Trust of India, that all this was done through the Clearing House under Regulation 8 and bye-law 82?
A. I do not know about such a statement unless I see my records."
When the letter D4W1/13 dated 20.1.1986 was shown to him,he would say that what is stated in the letter 'appears to be a mistake'. That part of the evidence has to be noticed at this stage:-
"Q. You have been saying all along in this testimony that you took hand delivery and not delivery through Clearing House. But you stated to UTI in writing that you took delivery through clearing. I am showing you Exhibit D4W1/13 which is your letter of 20.1.1986. Are you living here or were you living to UTI?
A. The shares of HMM were on the cash list of the Stock Exchange and therefore, could not have been delivered through the Clearing House. I have seen my letter dt. 20.1.1986 shown by you. The statement that the shares were received through the Clearing House appears to be a mistake in the letter.
Q. I put it to you that it is not such an innocent mistake as you now seek to make out and that you made this statement very solemnly to UTI in response to their claim against you and that there is no truth in the statement either that you took the share scripts and transfer forms in clearing or that you took them by hand delivery and that you attempted one lie at that time and now you are attempting another lie at this time.
A. My letter to the Unit Trust was a correspondence in which a genuine mistake seems to have been made. If the shares are not on the cleared list, the delivery cannot take place through the Clearing House. The fact was that I received the delivery from the market by hand delivery and delivered the same to the Bankers of Unit Trust of India vide their instructions to receive the same against payment.
Q. When did you come to realise that the shares were not on a clearing list?
A. I had known that the shares were not on the cleared list. Shares purchased in market lots for cleared shares are normally arranged for a delivery directly by the Clearing House to the Bankers or to the Financial Institutions. I, therefore, say that in my correspondence to the Unit Trust the fact of having received from the Clearing House was a mistake."
Therefore, on the very basic issue the witness had attempted to with-hold the truth.
145. The witness would admit :
'there should be no correspondence on the subject as I see it before the date of the contract.' When he was asked about the correspondence that passed between D4W.1 and the 4th defendant,he is not able to tell the Court. When he was asked whether Mathuradas Mohta is still a Stock Broker, he would admit that he did not know him personally except as a member of the Stock Exchange. When asked about the relevant ledger of 1982-83 showing the total dealing be-tween his firm and the firm of Mathuradas Mohta, he said that he was not in a position to produce and such record has not been produced. He would admit:-
"Q. That ledger would also show the transactions which you have had in 1982 and 1983 with Harkisondas Lakhmidass, Manubhai Maniklal and other brokers. Is that so?
A. Yes I think so."
He would admit that he did not have any transaction with Byramji Jeejeebhoy (Heritage). He would say that he received the total commission of Rs.45,234/-. The witness was asked about the rate at which he purchased from Mathuradas Mohta and the rate at which he sold the shares to the 4th defendant. A xerox copy of the contract note which was marked as D4W1/A where two dates are mentioned 8.2.1982 and 8.2.1983 was shown to him by the learned counsel for the plaintiff, it was marked for the purpose of identi-fication; The learned counsel for the 4th defendant insisted on the docu-ment being exhibited and the same was exhibited as D4W1/P3. The document is a contract note issued by Mathuradas Mohta to the Heritage Estates Pvt. Ltd. It is not the claim of the witness that he bought the shares from the Heritage Estates Pvt. Ltd. Therefore, the attempt of the 4th defendant to introduce this document shows the anxiety on the part of the 4th defendant to bring on record the document which is not relevant and the document discloses something different from what is stated by the 4th defendant and also the witness. About the procedure to be adopted as a member of the Stock Exchange the witness would depose that he is not aware of any of them :-
"Q. who were your Clearing Clerks in 1982 and 1983 in terms of Regulation 10 and Bye-law 111?
A. I cannot recollect who wee the staff attending to the formalities at that stage.
Q. What stamp duty clearing lists in form No. 3 was sent by you to Clearing House between 8th February, 1983 to 25th February, 1983 and what is relevant record with you?
A. As I believe the stamp duty only in terms of cleared securities are to be paid through the Stock Exchange and HMM was not a cleared security. In any case, I do not have the records of that period with regard to the stamp duty.
Q. Where are form No. 12 and No. 15 under Regulation No. 11 from 8th February, 1983 to 25th February, 1983?
A. I have no idea personally about the forms Nos. referred by you. The records are not available of that period.
Q. Where are forms No. 21 also under Regulation No. 11 from 8.2.1983 to 25.2.1983?
A. I am not aware of these forms and also do not have records of that period."
He would depose that the 4th defendant continued to have business with him from 1983 to 1992 but he has not been able to put any document and nor has the 4th defendant produced any such document. He would admit:-
"Q. What dealings did you have with Byramjee Jeejeebhoy in 1982 and 1983?
A. To the best of my knowledge, I did not have any dealings with Byramjee Jeejeebhoy in 1982 and 1983.
Q. What dealings did you have with Heritage Estates Private Limited in 1982 and 1983?
A. To the best of my knowledge, I had no dealings with Heritage Estates Pvt. Ltd. in 1983. I believe I had no transactions with him in 1983 but I do not have the clients ledger for 1982."
At this stage, it may be recalled how the 4th defendant wanted to exhibit D4W1/P/3 the contract note from Mathuradas Mohta to the Heritage Estates Pvt. Ltd. The witness would admit that he did not see the HMM shares scripts and the transfer forms :-
"Q. When did you see the HMM shares scripts and the transfer forms for the first time?
A. At the time of transaction, I was informed that the shares were not in marketable lots but held in the name of a leading Bank. I had therefore stipulated in my contract to the Unit Trust of India that the shares would be delivered in on any lot basis. The delivery was received by my office which was in the name of the State Bank of India and delivered to the Bankers in the normal course.
Q. You have not answered my question as to when did you see the share scripts and the transfer forms for the very first time.
A. I cannot recollect whether I had physically seen the share certificates at all but I cannot be sure whether at the time of delivery at least I had glanced at them."
About the time at which the witness received the shares from Mathura-das Mohta, the witness would depose:-
"Q. Have you got any document from your office to show when and at what time and by whom the shares scripts and transfer forms were allegedly received in your office from Mathuradas Mohta?
A. It is not possible to find out the exact time at which the shares were delivered by Mathuradas Mohta. I do not have papers or documents to prove that point at this stage.
Q. Did you have any papers and did you see any papers in June or July 1983 in this connection?
A. I cannot recollect having looked into any papers in July 1983. However, I may add that it is a normal practise to affix the brokers stamp on the back of the transfer deeds at the time of delivery. Perhaps you may check the transfer deeds and may find my rubber stamp on the back of the transfer deeds."
The suggestion was made :-
"Q. I put it to you that there was never any record of the receipt of the share scripts and the transfer forms because the same never took place otherwise, you would have maintained and preserved these records in view of the controversy that emerged immediately thereafter?
A. I repeat what I have said earlier that the matter was handled by a Legal man in my office and the files too were maintained by him. However, in view of his premature death I have not been able to find all the records."
It was also suggested to him that the witness had no document of any kind showing delivery to him through the Clearing House or by delivery by any person. About the specific question relating to contract with Mathura-das Mohta, the witness would state :-
"Q. I put it to you that there was no contract between you and Mathuradas Mohta and you have not produced any evidence of any such contract nor have you produced any document of contract which shows due date of delivery in terms of regulation 7.2 of the Stock Exchange Regulations which applies in case of hand delivery nor have you produced the delivery order or Receive Order showing delivery date in terms of Regulation 8 which applies in the case of Delivery through Clearing House?
A. I had a transaction with Mathuradas Mohta. It has not been a practice to pass written contract between brokers. I do not have immediate knowledge of the Regulation that you have mentioned. The shares were not received through the Clearing House since they were on the Cash List of the Stock Exchange. Therefore, the delivery was completed by hand delivery by Mathuradas Mohta to me."
He would state when he was confronted with D4W1/13 letter dated 20.1.1986 :-
"Q. I am showing you your letter of 1986 Exhibit D-4W-1/13 where you have yourself admitted to the Unit Trust of India that you were inn the picture all the time but that the rectifications on the transfer forms which you had seen had been done without consultation with you and you had not been called in the picture at that time?
A. I do not understand about my being in the picture all the time by reading the letter. What I have stated in the letter is that the delivery took place in good faith and that there was a delay in sending the shares for transfer and there were certain rectification for which we were not aware or consulted."
He would admit :-
"Q. As Stock Broker who had to give good delivery were you not aware that the shares which are taken as security can be transferred back only as return of security and not a transfer for considerations and on which transfer back as return of security only a fixed stamp duty of Rs.7.50 ps. is prescribed per transfer form?
A. As a Stock Broker I am fully aware that the Bank who holds share as a pledgee as a matter of course would deliver the shares with blank transfer deeds directly into the market or to the brokers on instructions from the pledgee. There is a concession of Rs.7.50 ps. available where the pledge can transfer it to the pledge or vice-a-versa on a declaration where the stamp duty can be limited to Rs.7.50 ps."
In the cross-examination by the learned counsel for the first defend-ant, the witness would state:-
"Q. In so far as this 84,469 shares of HMM limited is concerned,you are not aware how the said shares were dealt with prior to 8th February, 1983?
A. Yes it is true. I had no knowledge or concern about the earlier deals. I may repeat I was offered the shares by Mathuradas Mohta which I sold to UTI.
A suggestion was made to witness about the shares being free from any defects, a question was put to him and the answer is interesting:-
"Please see Exhibit D4/W-1/11 and D-4/W-1/8 being letter dt. 9.7.1983 and 12th July, 1983. My question is that after this correspondence was exchanged you were apparently satisfied that there is no defect in the titles acquired by you for UTI?
A. I had not been worried on the transaction for the reason that the shares were actually held in the name of the SBI and that I had reposed to Mathuradas Mohta, should a claim arise from UTI in normal course under the Rules and Regulations of the Stock Exchange."
He would admit :-
"Q. You have no idea in what circumstances this 84,469 shares of HMM limited were transferred in the name of SBI?
A. I have stated earlier that I had no knowledge of earlier transactions prior to 10th February, 1983."
146. In the cross-examination by the learned counsel for the second defend-ant, the witness would state:-
"Q. When you bought 86,469 shares of HMM Limited on behalf of UTI was there anything in the said transaction which would be slightest indication that the shares were pledged shares belonging to Nabha Investments Pvt. Ltd. as alleged by them and that the transaction would not be a valid transaction?
A. I had no knowledge of the shares being held by SBI as a pledgee as I was not even required to find out the name of the actual holder from the market broker. It is true if I had slightest doubt, about anything being wrong, in the transaction I would have preferred to keep myself out of the transaction."
147. In the re-examination by the learned counsel for the 4th defendant, it was put to the witness:-
"Q. Do you know that in this case Nabha Investments are in hand in glove with HMM Ltd. and that is why they have not returned the share along with the transfer deed alongwith objection memo to the UTI or their Agents SBI?
(The counsel for the plaintiff objects to the question being put to the witness on the ground that these are leading ones and outside the scope of re-examination) A. I cannot comment on the nexus if any between Nabha Investments and HMM Ltd. but I found it unusual that the share Certificates and transfer deeds alongwith memo of objection was not sent to me as a bad delivery."
148. Now the evidence of D-4W2 Mr. Manmohan Kapoor is to be considered. Though the evidence of this witness runs to 107 pages, the gist of the witness could be culled out without any difficulty. At the time of the evidence, the witness was the Director of Unit Trust of India, Institute of Capital Markets, Vashi, New Bombay. He candidly admitted that he was not there at the time of the transaction and he was giving evidence only from the records. He does not know what exactly had happened and the entire evidence is based on hearsay and except the fact that the 4th defendant purchased the shares through State Bank of India he has not been able to say anything worth while mentioning. Therefore, his evidence does not render assistance to the Court in finding out the truth of the matter. When the documents are available to exactly fix up the position on facts, it is wholly unnecessary to comment on the evidence of this witness.
149. This takes me to the consideration of the evidence of P.W.2, P.W.8, P.W.9, P.W.10 and P.W.11, who had come from the State Bank of India, the second defendant.
150. P.W.2 is Mr. Somappa Poojari Paniyadi. He was Branch Manager at the time of giving evidence on 24.12.1991. He had taken over on 26.6.1991. He would also state that inspite of the fact that State Bank of India was a party to the suit the records were sent to the godown. This shows that the second defendant had not been diligent in keeping the records when it has been made a party to the suit. When questions were put about the transac-tion between the Heritage and the State Bank of India, the witness would depose :-
"Q. What are the documents which your branch got signed from Jeejeebhoy after receiving his letter of the 3.11.82 to which you have yourself referred?
(Mr. Atul Sharma, counsel for Deft. No.2 objects this question as being totally out of context, as the witness has no where deposed to any facts regarding any account of Jeejeebhoy).
A. From the records, I find no other documents signed by him. From the records, I find no other documents signed by Heritage Estate except the documents of 3.11.1982."
151. Ex.PW2/1 is a letter dated 3.11.1982 by Heritage to the second defend-ant State Bank of India. The witness also would admit the letter dated 3.11.1982 exhibited as PW2/2 from the Heritage to the State Bank of India setting out a list of 86469 equity shares of Hindustan Milk Products Ltd. standing in the name of Nabha Investments Pvt. Ltd. and undated blank transfer forms. When the first defendant, second defendant and the 4th defendant assume that several blank transfer deeds were handed over by the Heritage to the second defendant, this witness would depose that only one transfer deed was handed over by the Heritage to the Bank along with the shares for the purpose of the transaction :-
"Q. Can you say from Memory, where are the undated blank transfer deeds said to have been given to SBI on 3.11.1982?
A. From the records, I observe that the shares were transferred in the name of the Bank and I presume that the transfer deeds would have gone with the shares to the company for registration.
Q. Can you say from memory, how many transfer deeds, there were?
A. I cannot recollect.
Q. Will there be any indication in the records of SBI about the number of blank transfer deeds sent by Jeejeebhoy?
A. I have to verify the records, then only I will be able to tell the number of transfer forms submitted by M/s Heritage Estates Pvt. Ltd."
The witness was pinned down to the position and he would depose :-
"Q. Is this the transfer deed sent to the Company?
A. From the records, it looks like that this is the transfer deed. It is marked as Exhibit P.W.2/3."
152. Therefore, it was only this document Ex.PW2/3 dated 10.11.1982 that was given by the Heritage to the second defendant. Therefore, when the entire bulk of the shares had been brought out of the transfer deed, there is no question of referring to transfer deeds.
153. When he was asked as to why there is no endorsement relating to the receipt of the letter Ex.PW2/1 (dated 3.11.1982), the witness gave the answer 'I do not know'. There is a note in the letter by the Branch Manager that when the shares are in the name of Nabha Investments the shares cannot be transferred in the name of the Bank unless the shares were transferred in the name of the Heritage. When the question was put to him, the witness would state 'I do not know'. That part of the evidence is:-
"Q. Can you tell, what happened on 3.11.1982, when P.D. Kulkarni put his nothings on the letter that the shares are in the name of Nabha Investments Pvt. Ltd., these should be first transferred in the name of Heritage Estates Pvt. Ltd., and they should transfer in the name of the Bank?
(Mr. Atul Sharma counsel of Deft. No. 2 objects on the grounds that the witness has already stated that he was not posted in the branch on 3.11.1982 or thereabout, the witness cannot be compelled to answer this question. Mr. P.N. Tiwari, Advocate for defendant No. 4 that the writing on the document which has been exhibited cannot be pout to the witness in examination in chief, and more particularly when the witness is not the author of the writing on the document).
A. I do not know."
When it was further pursued, the witness would say:-
"Q. Is there anything on the record of the Branch to show, what happened after the noting of P.D. Kulkarni on 3.11.1982 and how the matter was processed further?
A. I find from the records the proposal was sent to our Chief Regional Manager for his approval.
Q. Where is that record, which shows this?
A. This letter is in the Branch File.
Q. Would you bring that file on Friday?
A. I will.
Q. What was the name of the Chief Regional Manager and where was his office?
A. I have to verify.
Q. Can you say from your memory, if he gave approval as the special case and when?
A. I have not come across his approval for the loan.
Q. Will you get this done by Friday?
A. I would like to have the period as persons change from time to time in this position.
Q. Is Mr. V.R. Dalal still with SBI?
A. I understand he has retired.
Q. What is his retirement address?
A. Its is not available with us at present.
Q. Where is Mr. P.D. Kulkarni?
A. Again I understand that he has retired though I could not confirm this."
The witness has not been able to say what was the decision taken by the Bank on the note made by Mr. P.D. Kulkarni on 3.11.1982. About the custody of the shares with the Bank, the witness would state:-
"Q. Can you state how long did the share certificates and transfer forms mentioned in PW2/2 remain with the Branch and in whose custody?
A. I do not know.
Q. Will the record show who took custody of the share certificates and transfer forms mentioned in PW2/2?
A. I have not come across any letter regarding this in the records.
Q. Can you explain, why there is no receipt for any endorsement of any kind on Exhibit PW2/2 by any officials of the Branch?
A. I cannot say."
The resolution dated 25.10.1982 alleged to have been passed by the Heritage (Ex.PW2/4) was filed by the second defendant and about how it had reached the Bank question was asked, the witness would state:-
"Q. Will there be any record to show, whether there are communications Exh. PW2/1 for Exh. PW2/2, came to the branch by post or by messenger or were brought personally by the signatories?
A. As it relates to 1982, it is difficult for us to trace the papers relating to receipt of documents at the branch at this time.
Q. If it has been earlier, there would have been some record in the form of a noting or as an entry in the diary about the visit or a with a large number of share certificates of great value?
A. No record is kept by us on the visit of customers to our premises."
About the overdraft facility availed of by the Heritage the witness was asked and he would say:-
"Q. Have you brought the Bank Records of Byram Jeejeebhoy and his various Companies and particularly, Heritage Estates Pvt. Ltd.?
A. I have brought the records available on the account of Heritage Estates Pvt. Ltd.
Q. What were the loans and overdrafts given to Heritage Estates Pvt. Ltd., by a Backbay Reclamation Branch?
A. They enjoy an overdraft facility in the Branch against a fixed deposits for Rs.5 lacs.
Q. Since when have they been enjoying this facility of overdraft of Rs.5 lacs?
A. Overdraft is for 3.75 lacs against a fixed deposit of 5 lacs. I could not locate the exact date of sanction. It appears that it was sanctioned some where in 1980 and the receipts are periodically renewed and still continued.
Q. What records you have brought in this connection?
A. I have got the latest fixed deposit receipts which may be given to me as it is original document and I have got a photocopy with me. It is along with a letter dt. 13.4.1989.
(Original documents seen and the xerox copy thereof taken o record and marked as Exhibit PW2/6 and PW2/7. Original documents returned).
Q. Where did you look for the sanctioned letter which you think would have been issued sometime in 1980?
A. It should have been in the files of the party where other papers have been filed.
Q. Does that file has a number?
A. There is a Number, Number 28.
Q. Which Division or Section or Offices of your Branch has the custody of this File-28?
A. This was in the custody of chief Manager, (Commercial and Institution) Banking.
Q. Who is the present encumbent?
A. Mr. V.M. Amin is the present encumbent.
Q. Does this file contain the application of Heritage Estates Pvt. Ltd. for this overdraft facility?
A. That particular letter is not on file."
The witness would refer to a file containing resolution dated 15.1.1979 exhibited as PW2/A. He would relate about various documents without knowing the significance and relevancy of those documents and he had spoken about those documents from a file produced by him :-
"Q. Does file-28 contain any correspondence prior to 1980 or prior to 1982?
A. The File has a copy of the Resolution dated 15th January 1979 regarding opening of that account with the Branch.
(Original document seen and returned. Xerox copy taken on record and marked as Exh.PW2/8).
Q. Like this, which is the subsequent Resolution forwarded to you with or without an application?
A. Subsequent Resolution is dated 25th October 1982, which has been already submitted.
Q. Is there any further Resolution of the one which you have referred to as a Resolution of 25.10.1982 in your record?
A. I have not come across with any other Resolution.
Q. Exhibit PW2/6, refers to Overdraft Account No.71459 whereas you had said that you would bring all the records relating to overdraft accounts No. 60426. Have you brought that record? A. Account No. 71459 is the New Number for that Account 60426. I have brought the records of that Account 60426 as directed. The letter dated 3rd November 1982 already submitted and placed on record. Second letter dated 3rd November 1982 has also been submitted and placed on record earlier. Letter No. C&I BR/928 dated 10th Nov. 1982 addressed by the Branch to Manager, Security Department, Bombay Main Branch is submitted. (Original Documents seen and returned. Xerox copy of the document taken on record and marked as Exhibit PW2/9.
(Mr. Kamdar Advocate for Deft. No.1 objects to this document being taken on record on the ground that it is the copy of the original and not the original itself. Secondly, neither the signatory nor the author has identified the same).
Letter No. C&I/BR/929 dated 10.11.1982 addressed to the Securities Department, SBI, Bombay Main Branch, requesting to get the shares transferred in the name of the Bank to enable the grant of overdraft facility to Heritage Estates Pvt. Ltd. (Original seen and returned. Xerox copy of the document taken on record and marked as Exh.PW2/10).
(Mrs. Kamdar Advocate for Deft. No.1 objects for the same reason given earlier).
Letter No. C&I/H/82/144/932 dated 10.11.1982 addressed to SBI New Delhi, seeking permission to give overdraft under Banking Regulation Act, 1949, Section 19(2). (Original seen and returned. Xerox copy of the document taken on record and marked as Exh.PW2/11). Letter No. SDA/3433 dated 10th November 1982, from Security Division,SBI, Main Branch, to Backbay Reclamation Branch, advising that Shares of HMM are quoted in Bombay Stock Exchange and they are easily marketable. (Original seen and returned. Xerox copy of the document taken on record and marked as Exhibit PW2/12). Letter No. C&I/BR/82/394/1077 dated 17th December 1982 to SBI, New Delhi, reminding about permission under sections 19(2) of Banking Regulations Act. (Original seen and returned. Xerox copy of the document taken on record and marked as Exhibit PW2/13). Letter dated 4th January 1983 from Heritage Estates Pvt. Ltd., inquiring about the shares given by them. (Original seen and returned. Xerox copy of the documents taken on record and marked as Exhibit PW2/14). Letter No. SD8/DIV/AVN/33 dated 6th January 1983 forwarding the dividend warrant for Rs.1,34,892/-. (Original document seen and returned. Xerox copy of the same taken on record and marked as Exhibit PW2/15). Letter No. C&I/83/9/68 dated 10th January 1983, addressed to Heritage Estates Pvt. Ltd., advising the credit of the dividend amount. (Original seen and returned. Xerox copy of the document taken on record and is marked as Exhibit PW2/16). Letter No. Sec.29/BCRA/735 dated 31 January 1983 from SBI? New Delhi, advising acceptance of shares will not contrary the provisions of Section 19(2) of Banking Regulations Act. (Original seen and returned back. Xerox copy of the document taken on record and marked as Exhibit PW2/17). Letter No. SD3/MVG/TR/322 dated 7.2.1983 from Security Division, SBI, Bombay Main Branch forwarding the shares duly transferred to the name of SBI. (Original seen and returned. Xerox copy of the same taken on record and marked as Exhibit PW2/18). Letter dated 8.2.1983 from Heritage Estates Pvt. Ltd. already submitted. (marked as Exhibit PW2/19). Letter dated 8.2.1983 from Heritage Estates requesting delivery of shares. (Original document taken on record and marked as Exhibit PW2/20). Five Receipts obtained from M/s. Heritage Estates Pvt. Ltd. dated 8.2.1983 are already on record and are marked as Exhibits PW2/21, PW2/22, PW2/23, PW2/24 and PW2/25). Letter No., SD3/MVG/TR/339 dated February 8, 1983 from Securities Division, SBI, Bombay Main Branch returning 31 transfer forms pertaining to the shares duly signed. (Original seen and returned. Xerox copy of the same taken on record and marked as Exh. PW2/26). Letter No. CRM/B/SEC/B/2113 dated May 7th, 1983, from Chief Regional Manager, asking for details of advances against shares account Heritage Estates Pvt. Ltd. (Original taken on record and marked as Exhibit PW2/27). Letter No. C&I/H/83/147/619 dated May 13th, 1983 to Chief Regional manager, advising that the company are no more interested in availing the advance. (Original document taken on record and marked as Exhibit PW2/28). Contract dated 8th February 1982 from Mathuradas Mohta addressed to Heritage Estates Pvt. Ltd. (Xerox copy of the document taken from file marked as 'C').
(Mr. Tiwari, counsel for Deft. 4 says that this document has been produced at the instance of plaintiff by defendant no.2 from their record. So this document has to be Exhibited but should not be marked for identification purpose.) (Mr. Mukhi says for the plaintiffs, that it is not a document originating from or addressed to SBI and dos not carry any mark or authentication of SBI, but has been shown only as a photo copy lying in the file of SBI along with the other documents of SBI and as such it can only be marked for identification and cannot be exhibited as proved by anyone)."
The witness had also produced a contract note from Manu Bhai Manak Lal to Heritage. The witness would state:-
"Contract from Manubhai Maneklal to Heritage Estates Pvt. Ltd. dated 20.4.1982 which apparently has been given by our customer M/s. Heritage Estates Pvt. Ltd. (Document marked for identification as document `D') (Mr. Tiwari objects for the same reason as stated earlier)."
He would admit :-
"Q. Are those all the papers in file 28?
A. They are the only papers.
The witness was asked about the nature of the file maintained by the State Bank of India:-
"Q. Where are Volumes 2,3,4 and 5 of File-28?
A. I am not sure,how many Volumes are there that these relate to correspondence with our counsel and the affidavits filed with our replies etc. Q. This is, therefore, merely a reconstructed folder of some selected documents which has been prepared for the purpose of presenting or preparing defendant No. 2's case and is not a file properly so-called from the record of the Backbay Branch kept from 1979 with the opening of the so-called overdraft account of Heritage Estates Pvt. Ltd.?
(Mr. Kamdar, counsel for Deft. No.1 objects to this question on the ground that it is the leading question and, therefore, cannot be put in the examination in chief).
A. I deny the charge.
Q. Where is the register of files in which File-28, Volume-I is shown as having been opened with the description of the subject matter?
A. The matter relates to 1979 and as the Branch has been divided into two Branches, somewhere in 1985, I will not be knowing where the register is at present."
About crediting the amount received as dividend from the third defend-ant on the shares, the witness would state :-
"Q. Have you brought the accounts?
A. I have brought the statements of account of Account No. 60426 from 1.4.1982 to 31.3.1983 as directed. (Original document 13 sheets taken on record and marked as Exh. PW2/30).
Q. Is the overdraft account the same as the current account of Heritage Estates Pvt. Ltd., or is it different from the current account?
A. It is the same, we allow overdraft on current account itself.
Q. Look at Ex.PW2/30, and identify the credit on 7.1.1983 of the amount of Rs.1,34,892 which was a dividend on the HMM shares?
A. There is no credit of the dividend amount to this account as the instruction was to credit to account 60424 and I produce statement of account of 60424 where the dividend amount of Rs.1,34,892 was credited on 8.1.1983. (Document in original taken on record and marked as Exh. PW2/31).
Q. when was this account opened and by whom?
A. I have not able to get this details and at present that account is not in our books."
The Bank taking the shares as security and sending them for transfer to the Company, the witness would state:-
"Q. Is it a fact that the Backbay Branch took the shares as security and sent them for transfer more than two months before it got a clearance from the Securities Department of the New Delhi Main Branch?
(Mr. Atul Sharma, counsel for defendant No. 2 objects to this question on the ground that the question again is in the nature of cross-examination and the witness has already placed on record all documents relating to sending of shares for transfer and obtainment of clearance from the New Delhi Main Branch, the documents can be read in evidence and the witness cannot give any further statement in this regard).
(Mr. Mukhi, Advocate for the plaintiffs states that the defendant No. 2's counsel appears to have adopted a method of raising frivolous and flip part objections repeatedly in order to alert and indicate to the witness, how he should evade making a truthful answer).
A. I observe from the papers that the Branch sent the shares for transfer as well sought clearance from New Delhi simultaneously.
Q. What else have you observed from the papers which can refresh your memory as the Branch Manager?
A. New Delhi Office, had cleared the taking up of the shares as security on 31st January 1983.
Q. Was New Delhi informed that the shares which have been shares, actually stood not in the name of the alleged borrower but in the name of Nabha Investments Pvt. Ltd.?
A. I would like to look at the papers before giving answer. The ownership of the shares has not been mentioned in the Branch Letter, New Delhi Office as far as the Branch is concerned the shares have come along with blank transfer forms."
Again about the note made by Mr. Kulkarni on 3.11.1982 on Ex.PW2/1, the witness would state:-
"So, without having been there at that time, and without reference to any notings and furthermore in the face of the noting of Mr. Kulkarni on record, on Exhibit PW2/1,you are now able to give the reason, why the Branch Manager did not give any indication of the ownership of the shares which on their very face belonged to with the Nabha Investments Pvt. Ltd. and in fact suppressed the advice given by a responsible officer of the Bank?
A. I have given my answer on the basis of papers read by me to the best of my ability."
About the receipt of PW2/14, the witness would state:-
"Q. Please look at Exhibit PW2/14, who has written in green ink at the left hand top of the letter signed by Byram N. Jeejeebhoy. This is a document furnished by you, the original of which is with you.
A. I cannot make out.
Q. Was this letter received in the post or was it brought by Jeejeebhoy himself and handed over to the Branch Manager, who wrote Jeejeebhoy's telephone number in the margin in order to inform him immediately of the quick action to be taken at the latter's request?
A. I cannot say."
About the records with the Bank showing the retention of the shares, the witness would state :-
"Q. Where would be that record of such custody of the shares having been taken and retained?
A. These are entered in Inward Dak Register and as it relates to year 1983, and as the Branch was subsequently split, this register may be difficult to procedure at this stage."
The witness would admit:-
"Q. Would you be able to say if on receipt of the shares on or around 7.2.1983, these were delivered by SBI to Heritage or to Jeejeebhoy?
A. I find from the papers, that the shares were delivered on 8.2.1983."
Again the witness would admit:-
"Q. Does this mean,that on 7.2.1983, the shares were duly transferred to SBI, were sent by the Securities Branch to the Branch Manager, on 7.2.1983 and on 8.2.1983, Jeejeebhoy said that he did not want the overdraft but only wanted the shares and on the same day 8th February, the Branch manager gave the shares duly laundered to Jeejeebhoy and procured a further letter from the Securities Division on the same date 8th February, 1983?
(Mr. Atul Sharma, Advocate for Deft. No.2 objects this question on the ground that this form of question cannot be permitted as the counsel for the plaintiff is trying to put words in the witnesses' mouth and the question is a matter of argument, which can be made on the basis of existing documents and in the face of the documents, the witness cannot give his own opinion or version).
(Mrs. Kamdar, counsel for Deft. No.1 objects to this question on the ground that the plaintiff's counsel cannot put the case of the plaintiffs to the witness without plaintiff himself verifying the facts of his case, secondly, the question is based on certain presumptions which are not yet proved).
A. From the papers which I have gone through, I deny that there is an illegality or laundering in the transaction. It appears that the shares were delivered in the usual course of the business."
The witness was asked about the totality of communication sent to the Securities Branch between 1.2.1983 to 9.2.1983 about the shares, the answer by the witness is :-
"I find only two letters (1), SD3/MVG/TR/322 dated 7.2.1983 and (2) SD3/MVG/TR/339 dated 8.2.1983 in the records."
Again about the comments made by Mr. Kulkarni on Ex.PW2/1 (dated 3.11.1982), the witness would state:-
"Q. Are you in a position to say that your predecessor's Branch Manager, V.R. Dalal, ever sent the comments or gist of comments of Kulkarni to any higher authority in SBI and sought approval for taking shares which stood in the name of the third party?
A. I cannot say."
About the 31 sheets of share transfer forms, the witness was asked the question, he would say :-
"Q. Are these 31 sheets, the share transfer forms which were received by the Branch from the Securities' Division on or about the 8.2.1983?
A. I cannot say, as I was not during the relevant time.
Q. Did your Branch ever maintain photo copies of these 31 transfer forms?
(Mr. Atul Sharma, counsel for defendant No.2, objects to this question on the ground that no questions regarding receipt or retention of copies of the alleged 31 transfer forms can be put to the witness, when he has not even deposed with regard to either execution or receipt of these forms in the Branch and has in terms said that he cannot say whether they were received in the Branch, the documents not having been proved, cannot be put to the witness).
A. I have not come across the photocopy in the record.
Q. Are you able to say by looking at the stamps of the State Bank of India including the round stamps and the signatures of various officials of SBI, whether these 31 sheets as well as Exhibit PW2/3 passed through the Branch in connection with the 86469 HMM Ltd. shares?
(Mr. Atul Sharma objects to the question for the same reason as stated earlier).
A. The officials who have signed for State Bank of India, appears to be from Security Division of Bombay Main Branch. I cannot identify the signatures without referring to the list of signature.
Q. Please read the question again and try and give an answer?
A. I cannot make out whether these have passed through the Branch from the stamps appearing thereon. (Documents marked for identification purpose as 'E-1 to 31'."
The learned counsel Mr. S.U. Kamdar for the first defendant cross-examined the witness. The witness would admit that he had no personal knowledge in respect of the transaction. The witness would admit :-
"Q. Are you aware that these 86469 shares of HMM Ltd. were transferred in the name of SBI as a security for advances made to Heritage Estates Pvt. Ltd.?
A. I observe from the papers that the shares were transferred in the name of the Bank for grant of overdraft to the company under reference."
The witness would further admit :-
"Q. Is there any other transfer form save and except Exh. PW2/3 in respect of the transfer of these shares as deposed by you in reply to my earlier question?
(Mr. Mukhi, Advocate for the plaintiffs objects to this question on the ground that it is vague and totally unclear).
A. I have not come across any other transfer form in the papers."
He would admit :-
"Q. Please see Exh. PW2/20. Is that letter from Heritage Estates Pvt. Ltd.?
A. Yes.
Q. Would it be correct to state by this letter dated 8.2.1983, Heritage Estates Pvt. Ltd., requested SBI to execute transfer form for retransfer of the shares from SBI to Heritage Estates Pvt. Ltd.?
A. Yes. That is correct.
Mr. Atul Sharma, the learned counsel cross-examined the witness on behalf of the second defendant. In the cross-examination by the second defendant, the witness would admit that Heritage Estates Pvt. Ltd. was a valuable customer for the Branch. The witness would admit :-
"Q. Was any additional overdraft in respect of which the shares were tendered as security availed by Heritage Estates?
A. I observe from the records that overdraft against shares was not availed of by Heritage Estates Pvt. Ltd.
154. The learned counsel Mr. P.N. Tiwari for the 4th defendant declined to cross-examine the witness.
155. Mr. Mukhi, the learned counsel for the plaintiff, re-examined the witness. About the handing over the shares to the Heritage on 8.2.1983, the witness would state:-
"Q. Please see Exhibits PW2/21, PW2/22 and PW2/23 and say that the signatures thereon are of Byram N. Jeejeebhoy and if there is any initial of any officer of the Bank on these three receipts.
A. I may be allowed to refer to the statement already submitted by me. The signature appearing on these three receipts are not in the same style as of Mr. Jeejeebhoy appearing in the specimen recorded with us.
Q. So, it could not be against these receipts that actual, physical delivery could have been given to Byram N.Jeejeebhoy or to Heritage Estates Pt. Ltd.?
A. It appears to me from the record that the shares were handed over to M/s. Heritage on the basis of these receipts.
Q. How does it appear to you on the basis of the record?
A. As stated by me earlier, the shares and securities are handed over to the parties against receipts on forms COS/49 in the Bank so it appears to me from the records that the shares are handed over against these receipts.
Q. But you have yourself said that according to the Bank record of signatures, the signatures do not tally with that of Byram N. Jeejeebhoy as given in the account of Heritage Estates Pvt. Ltd. How can you then say on the basis of the record merely by looking at a wrongly signed form that the wrongly signed form shows that the shares were in fact handed over?
(Mr. Kamdar, counsel for defendant No. 1, objects to the question on the ground that this question presupposes that the form which has been executed is wrong and such presumption is deliberately included in the question to mislead the witness, therefore, should not be permitted to be asked).
A. As I was not there during the relevant period, I cannot say, why the said forms were handed over on the basis of receipts signed not in the form of specimen appearing in the Bank records.
Q. Nor can you say whether the shares were handed over to any particular person, whether Byram N. Jeejeebhoy or Mrs. Dosibai Jeejeebhoy or any other person and if so, on what date?
(Mr. Atul Sharma counsel for defendant No. 2 objects to this question on the ground that the counsel for the plaintiff is continuing to put questions which do not arise out of cross- examination, which is not permissible u/s 138 of the Evidence Act).
A. As I was not there during the relevant time, I cannot say to whom the shares were physically handed over. However, I observe from the record a letter from M/s. Heritage Estates Pvt. Ltd. is there requesting the Bank to hand over the shares to a particular person.
Q. What is that record?
A. That letter has been already submitted to the Court. I may be allowed to identify the letter. I am referring to Exh.PW2/20. Yes. This is the letter, I am referring to.
Q. But this letter which you are referring to, does not say anything about actual, physical delivery of the shares to Ratilal N. Vora, much less does it contain any receipt given by Ratilal N. Vora to the satisfaction of the Bank. Is that not so?
(Mr. Atul Sharma, counsel for defendant No.2, objects to this question on the ground that the contents of a document already exhibited cannot be put to the witness, the document will speak for itself).
(Mr. Mukhi, counsel for plaintiffs says that the witness himself invoked this document and sought to rely on it in support of his statement and wanted to see it).
A. It is correct the letter does not speak of receipt. But mention of an authority to deliver the shares. It only refers to the delivery of shares.
Q. Where is the receipt of Ratilal N. Vora?
A. I have not come across with it."
The witness was asked about the statutory declaration, the witness would state:-
"Q. Are you aware that a statutory declaration has to be made when shares are to be taken as security for loan or overdraft?
A. I want to know from whom this declaration is to be taken referred to in the question.
Q. By any Bank taking the shares as security for loan or overdraft?
A. I have not come across any declaration to be taken from borrower while taking the shares as security.
Q. As Branch Manager, are you aware of the provisions of the Banking Companies' Act and the Securities Contracts Act and the instructions of the RBI in relation to the making of the declaration that the shares re being taken as loan or overdraft to a particular entity?
A. I am aware of the provision of Banking Regulation Act, where Bank take the total expose to a company note to exceed certain percentage as laid down by the Banking Regulation Act and in this particular case and in the particular case, a reference has been made to our New Delhi Office, who maintain the total expose to company in that area."
He was further asked :-
"Q. Is there any provision with which you are only familiar in relation to the declaration of shares being held as security for loan or overdraft to any particular entity?
(Mr. S.U. Kamdar, counsel for deft. no. 1 objects to this question on the ground that firstly, that no question of the nature seeking to testify the knowledge of the witness in respect of provisions of various statutes should be put, secondly, that the series of questions pertaining to the transaction of securities of these shares which are put in re-examination, are totally unconnected with the cross-examination of the witness).
A. Yes. This is only declaration and various acts referred earlier."
On Ex. PW2/3 (dated 10.11.1982), which is the transfer deed, the witness would state :-
"Q. Please see Exh. PW2/3 and see the purported statement made at the back of the transfer form and state if there is anything on record on this transfer transfer form which shows either the existence of an overdraft facility having been granted and to whom?
(Mr. Atul Sharma, Advocate for deft. No. 2 objects to this question on the ground that the counsel for the plaintiff is persisting with questions not in any manner related to the cross-examination and he cannot be permitted to do so without the leave of the Court and in view of the unnecessary undue advantage being derived by the counsel of the lack of powers of the local commissioner, in this regard, and serious prejudice is being caused to the interest of defendant no. 2. I would submit the proceedings of the commission be stopped and further reexamination be carried before the court).
(Mr. Kamdar counsel for deft. No.1 objects to this question, reiterates what Mr. Sharma counsel for deft. No. 2 has stated and this to add the counsel for the plaintiff, conducted the cross- examining of this witness at great length in examination-in-chief and by series of questions which are now put in re-examination, the said cross-examination of the witness is further continued at length effecting a serious prejudice to the interest of the defendant no.1 and bringing on record the material which is irrelevant and unwarranted).
(Mr. Atul Sharma, counsel for deft. No.2 says that the proceedings of the commission are being continued despite of being his objection).
(In the light of these objections, I am suggesting that the learned counsel for the plaintiffs confines himself to the questions arising out of cross-examination).
(Mr. Mukhi states that all the questions were that he has asked in re-examination, do in fact arise from answers given in cross- examination and that had the Court considered the objections of the various witnesses, it would have had no difficulty in overruling them and allowing all the questions that he has asked so far).
A. While it does not mention the name of the party, it is stated here that the shares are held as cover for overdraft."
The witness would admit :-
"Q. Does the name Heritage Estates Pvt. Ltd. appears anywhere on the transfer form?
A. It does not appear."
The witness would admit :-
"I observe from the record,no overdraft was sanctioned against the shares. This I am stating on the basis of a letter written by the Branch to the CRM Office."
157. Plaintiff examined Mr. Suresh Vasudeo Agnihotri as P.W.8. He had been working as Dy. Manager, Security Division, State Bank of India since 6.9.1984. About the relationship between the Security Division, and the other Branches of the State Bank of India, he would state :-
"Q. What is the relationship between the Securities Division and the Branches of State Bank of India?
A. The Branches approach us for ascertaining whether any particular Company shares are quoted inn the market. The Branches also utilise our services for sale purchase of shares on behalf of their constituents and also transfer of shares."
About the fact of the overdraft facilities granted to the Heritage, the witness would depose :-
"Q. Therefore, when a person applies to a Branch for loan or overdraft against securities and offers shares as security, who would decide whether the loan or overdraft should be given or not or whether the shares offered should be taken as security or not and set the conditions under which this can be done?
A. It is the Branch Manager to whom the party has approached or his superior - Regional Manager or Deputy General Manager, whatever the case may be.
Q. If in doubt the Branch Manager would ask for advice not from the Securities Division but of a Regional Manager or Deputy General Manager who is in the Head Office?
A. Yes.
Q. Now, who was the officer in the Securities Division who took the decision some time in November 1982 to take share certificates relating to 86,469 shares of H.M.M. Limited standing in the name of Nabha Investment Private Limited as security for loan allegedly to be given to some third party? Who was the officer incharge?
(Mr. Atul Sharma, Advocate for Defendant No. 2 objects to this question on the ground that the witness has not been summoned to depose on this issue as per the summons. This question is therefore irrelevant.) A. I have no idea because I joined the Division in 1984."
The witness would state when a Branch Manager sends share certificates to the Security Division for being registered in the name of State Bank of India, Security, they are kept inside the Strong Room in the Security Division. The witness would state :-
"Q. Where is the record of the Securities Division which shows the receipt of these share certificates with blank transfer forms from the Backbay Reclamation Branch along with the communications between the Backbay Reclamation Branch and the Securities Division and the notings of the Officers of the Securities Division?
A. The question is meant for Deputy Manager, Transfsers.
Q. Please answer?
A. The record of shares received and the correspondence exchanged between the Backbay Reclamation Branch and the Securities Division is not traceable in the Securities Division."
The witness would further state :-
"Q. The share certificates came along with blank transfer forms?
A. Yes. But I have no record to substantiate my answer.
Q. Then on what basis do you say that the blank transfer forms came along with the share certificates?
A. I believe that the blank transfer forms were received, but I have no record to substantiate my answer."
About the relevant records being made available to the Court, the witness would state :-
"Q. There will be no record available as you say or traceable which would show as to how whether by post or by messenger or personally the share certificates were brought from the manager of the Branch to the Securities Division or by whom and at what time they were taken?
(Mr. Atul Sharma, Advocate for defendant No. 2, objects to this question on the ground that the question is not relevant as the witness has already stated that no records are available. This question is a repetition of the earlier question.) A. I have answered the last question and the same answer is that the records were not traceable and the records could be there as suggested by the learned counsel for the plaintiff.
Q.92. As you say, the records could be available but are not traceable. Does it mean that the State Bank of India has not made sufficient efforts to find out and produce the records before the learned Commissioner?
A. Sufficient efforts were made, but the records are in heaps."
The witness would state about the shares being held by the State Bank of India :-
"Q. All shares held by the State Bank of India in ownership or as security for loan or overdraft are held in the name of the Securities Division?
A. None of them are held in the name of the Securities Division. They are held in the name of the State Bank of India."
The witness was asked about the transfer forms by which shares were transferred to Unit Trust of India (Ex.PW8/1 to PW8/31), the witness would state :-
"Q. Now I am showing you the document `E' items 1 to 31. Please look at each of these items and say if you can identify the signature of the transferor and the signature of the witness against the signature of the transferor?
A. I am able to identify the signature of the transferor. I am not in a position to identify the signature of the witness.
Q. Who is the transferor?
A. Mr. L.P. Ajinkya, Deputy Manager, has signed on behalf of the State Bank of India.
Q. Is he the same person who has signed as transferee in Ex.PW2/3?
A. Yes."
The witness is not able to say whether the transfer deeds were blank or filled in. The witness would state:-
"Q. Now, please look at Exh.PW8/1 to PW8/31 (all these exhibits) and state if these were signatures on blank transfer forms or in filled up transfer forms?
(Mr. Atul Sharma, Advocate for Defendant No. 2, objects to this question on the ground that the witness has already stated that he was not there at the time when these transfer forms were executed. The question is, therefore, irrelevant.) (Mr. Tiwari, Advocate for Defendant No. 4, states that the question put by Mr. Mukhi pertaining to Exh. PW8/1 to PW8/31 is not only misleading but a frivolous one for the reason that the document is complete and it is not possible for the witness to decipher at this stage when the document was executed, was it blank or was it filled up. More so, when the witness was not present at the time of the execution of these documents. The learned Commissioner should disallow misleading questions put by the learned counsel for the plaintiff.) (Mr. Mukhi for the plaintiff states that the question is relevant and the witness has full knowledge of the facts and would clearly be able to give an answer).
A. I cannot tell. Only the Officers who have signed the transfer deeds may be able to tell.
Q. Please look at the Exhibit again and say who wrote against the consideration column the figures in rupees instead of writing "Nil return of security"?
(Mr. Atul Sharma, Advocate for Defendant No. 2, reiterates the earlier objection.) A. I cannot tell. Only the Officers who have signed there can recollect.
Q. By looking at these Exhibits, can you say that the consideration column was filled in before Mr. Ajinkya signed as transferor or was filled in after he signed as transferor?
(Mr. Atul Sharma, Advocate for Defendant No. 2, reiterates his earlier objection.) A. Merely by looking at the consideration column, I cannot make out whether the alterations were made before Mrs. Ajinkya signed them or afterwards."
The witness has not been able to say how the correction came to be made. The witness was asked about the corrections in the date,he would state :-
"Q. Can you see the two stamp dates "25th February 1983" and "7th March 1983" and say who could have put the first date and under whose instructions?
A. I see that there are two dates "25th February, 1983" and "7th March 1983". But I cannot make out under whose instructions these dates were put.
Q. Nor can you say under whose instructions the date "25.2.83" was struck out?
A. The alteration in the date is under the signature of the transferee, namely, C.V. Panshikar."
About the purchase of shares, the witness would state:-
"Q. Are you aware of the dealings between the Unit Trust of India and the State Bank of India from November 1982 till March or April 1983 in relation to these shares?
A. Only from the records available I am aware.
Q. Have you brought those records?
A. Yes.
Q. What are the records?
A. This is a purchase register in which both the contracts are entered. The total of these two contracts is 86,469 shares of H.M.M. Q. Is this a register of shares going from 2.7.1982 to 11.3.1983?
A. It is a register of purchases.
Q. Whether is it made by U.T.I. or S.B.I.?
A. U.T.I. Q. Is this register a register of the U.T.I. or is it a register of the State Bank of India in which accounts are maintained?
A. It is a register of the State Bank of India in which accounts are maintained?
Q. And the column states "Purchases on whose account". Does this mean that these are purchases made by the State Bank of India on account of the U.T.I.?
A. It is not purchases on behalf of U.T.I. But it is purchases by the U.T.I. Q. Are you saying that this register contains all the purchases made by the U.T.I. without the agency of the State Bank of India?
A. Yes, for this period.
Q. In this period the register does not show what shares were purchased by the State Bank of India as Agent of the U.T.I. or does it now show that?
A. No. It shows only the shares purchased by the U.T.I. directly without the S.B.I. being an Agent of the U.T.I. The S.B.I. does not purchase on behalf of the U.T.I. The U.T.I. gives an original contract to the broker. Copy is endorsed to the State Bank of India with instructions to take delivery of the shares and pay the costs by debit to their account."
The witness would further state:-
"Q. But it is the State Bank of India that takes the shares as transferee?
A. Yes."
He would admit that the relevant contracts could not be traced:-
"Q. On what instructions from the U.T.I. Have you brought communications in relation to the entries in this register?
A. Copies of contracts could not be traced despite best efforts."
It was suggested to the witness that he had brought the Purchases Register voluntarily without there being any request on behalf of the plaintiff. When he had brought voluntarily the Purchases Register why did he not bring the Sales Register,the witness would state:-
"Q. As you have brought the Purchases Register voluntarily, have you brought the Sales Register voluntarily for the same period?
(Mr. Tiwari, Advocate for Defendant No. 4, objects to this question on the ground that it is not the case of the plaintiff either in the plaint or in the summons that the witness called for should produce the Sales Register. This is also not the case in the plaint. These are just a sheer waste of time what the plaintiff's counsel is trying to do and, therefore, he requests the Commissioner to stop this.) (Mr. Mukhi, Advocate for the plaintiff, states that the learned counsel for Defendant No. 4 U.T.I. is obviously interested in the non production of the Sales Register as it is quite clear that whereas the plaintiff did not apply for the production of the Purchases Register,it was at the request of the Defendant No. 4 that the witness has brought the Purchase Register and produced it without having been asked to do so.) A. No."
The witness would admit that the Register does not show the amount involved. The witness would admit that he was not aware of the note by Mr. Mulkarni in Ex.PW2/1 (dated 3.11.1982):-
"Q. Who would be knowing if the Backbay Branch Manager sent to the Securities Division the notings of one Mr. Kulkarni that from a borrower or prospective borrower shares cannot be taken as security if they were not standing in the name of the borrower."
A. I am not aware."
The witness would say about the instructions given to the Branches :-
"Q. Are you aware of the instructions that SBI branches or divisions are not to take shares as security unless they stand in the name of the borrower?
A. It is difficult for me now to recollect the exact instructions."
158. Mr. S.U. Kamdar, the learned counsel cross-examined the witness on behalf of the first defendant. Nothing has been elicited which is worth noting.
159. Defendants 2 and 3 did not cross examine the witness.
160. Mr. P.N. Tiwari, the learned counsel for the 4th defendant, cross-examined the witness. The cross-examination by the 4th defendant also does not bring out any relevant facts. The learned counsel attempted to mark certain documents which had already been referred to by me.
161. Mr. Afzal Ahmed Khan, an Officer of the State Bank of India was exam-ined as P.W.9. His evidence is of no assistance. He had no personal knowl-edge about the transaction. He was asked about the Bank's Books of instruc-tions, he would depose:-
"Q. You recall that you had said that you would locate the guide lines and instructions as in force in 1982-83 in regard to the taking of shares as securities for the purpose of granting a loan or overdraft to an applicant and in particular in relation to shares standing in the name of third party?
A. I have brought the relevant extract from the Bank's books of Instructions. I produce the same. (It is marked as Exhibit PW9/1).
Q. Where is the Book of Instructions from which you have produced the extract?
A. Copy is available at various branches.
Q. Would you be able to explain what is COS 431 and COS 54 in item 31 of the extract?
A. These are standard forms of the Bank. I cannot explain them at this forum but by reference to the specimen available, it may be possible to explain their contents.
Q. Kindly read item 31 and say if on a perusal of the record you can say that the Bank complied with the instructions that the borrower must forward the shares in a particular way and that the Bank should take shares only if they are registered in the name of the borrower?
A. The contents of para 31 speaks for themselves. I have no comments to offer about what may have been done in this particular case as I have no direct knowledge of the same."
162. The learned counsel for the first defendant cross-examined the wit-ness.
163. The learned counsel for the second defendant cross-examined the wit-ness.
164. The learned counsel for the 4th defendant also cross-examined the witness.
165. Mr. N.R. Mahadevan,Officiating Assistant General Manager, State Bank of India, Bombay Main Branch was examined as P.W.10. He was Incharge of the Security Division in 1992. About the decision relating to taking of the shares in question as security he would say in the evidence :-
"Q. From the record can you say who was the officer in the Securities Divn. who took the decision to take share certificates of 86,469 of HMM Ltd. standing in the name of Nabha Investments Pvt. Ltd. as security for loan or over-draft said to be given to Heritage Estates Pvt. Ltd. sometime in November 1982?
A. Nobody has taken possession of the shares in the Securities Divn. It has come for transfer in the name of State Bank of India from Backbay Reclamation Branch and was sent to the company for registration of transfer."
He was asked about the letter dated 8.2.1983 from the Branch Manager, Backbay Branch to the Security Division, he would say :-
"Q. Where is the letter No. BN/BR/294 dated 8.2.83 from the Branch Manager, Backbay Branch to the Securities Division in relation to these shares?
A. I am not aware of the letter dated 8.2.83 since the same is not in my record.
Q. Have you got in your record letter No. SD-3/MVG/TR-0339 dated 8.2.83?
A. No."
166. The witness was cross-examined by the learned counsel for the first defendant. In the cross-examination by the learned counsel for the second defendant, the witness would state:-
"Q. From the records you have brought, have you come across any record relating to the transaction in respect of shares belonging to HMM Ltd. by SBI on behalf of UTI?
A. I have brought the records, purchase register wherein the purchase has been recorded on 24.2.83 and also the Banker's cheque issued by Securities Division to the broker Shri Bhupendra Champaklal Devidas and also the copy of forwarding letter to HMM Ltd. i.e. letter No. 1878 dated 24.3.83 by which 86,469 shares were sent to the company for transferring in the name of UTI. (The aforesaid cheque is marked as Exhibit PW10/D2/1 and the letter dated 24.3.83 is marked as Exhibit PW10/D2/2 and the photo copy of the relevant entry dated 24.3.83 is marked as Exhibit PW10/D2/3).
(I have certified from the original that it is a faithful copy of the same) Q. Have the transaction of HMM Ltd. been reflected in the cost memo book maintained by SBI?
(Counsel for plaintiff objects to this question being put to the witness as this document has not been filed and defendant No. 2 without producing any witness of his own or filing documents is seeking to introduce this photo copy. It is improper and unjustified).
A. Yes. I produced a photo copy from the original records.
(For purposes of identification, this is marked as Exhibit PW10/D2/A. Q. In your examination in chief you have stated that you have also brought power of attorney issued by UTI in favour of SBI. Can you produce it?
A. I have brought a notarised photo copy of power of attorney and produce the same.
(I have compared it with the original which is already on record and it is a true and faithful copy of the original. The same is marked as Exhibit PW10/D2/4)."
167. Mr. Tiwari, the learned counsel for the 4th defendant, cross-examined the witness. The witness would state that he could not bring the original of the Cost Memo Book with him.
168. Mr. Chander Prakash, working as Secretariat Officer in the third defendant Company was examined as P.W.11. In the chief-examination,he was asked about the practise followed by the Bank when transfers are effected and certain transactions between the plaintiff Company and other Banks were also put to the witness. The evidence of this witness would not throw any light on the question to be decided in this suit.
169. I had already dealt with broadly three features in the case. The stand taken by the second defendant in the first written statement filed by it and the written statement subsequently filed. There are basic differences as I had adverted to above. The State Bank of India acted as a transferor and also as a transferee on behalf of the 4th defendant. The State Bank of India should have been in a position on the relevant date to convey title in the shares to the 4th defendant. As a leading public authority dealing in finance the State Bank of India is expected to act in accordance with the law of the land. The State Bank of India should have placed before the Court the documents showing its title to the shares on 7.3.1983. The State Bank of India should have placed before Court as to how did the State Bank of India acquire title to the shares. It is admitted by the State Bank of India that on demand made by the Heritage, the shares were handed over to the Heritage with blank transfer deeds. A very significant aspect of the matter had been ignored by the State Bank of India when projecting such a picture to the Court. One can assume that the shares were handed over by the State Bank of India to the Heritage.
But I am not able to appreciate the claim of the State Bank of India that the blank transfer deeds were given by the State Bank of India to the Heritage. This claim would pre-suppose that the State Bank of India handed over the shares and the Bank transfer deeds qua owner of the shares. The document Ex.PW2/1 under which and by which the State Bank of India came into possession of the shares did not make the State Bank of India the owner of the shares. Nay, such a claim was not made by the State Bank of India. If that is so, it has not been explained by the State Bank of India why blank transfer deeds were handed over by the State Bank of India to the Heritage. Further, it has not been explained by the State Bank of India when it acquired the right as a pledgee by virtue of only one document Ex.PW2/1, what was the need for the State Bank of India to give blank transfer deeds. It has also not been explained by the State Bank of India by producing the necessary documents as to when the blank transfer deeds were prepared by the State Bank of India for being transmitted to the Heritage. The documents under which the transfer of shares was made by the State Bank of India to the 4th defendant, Unit Trust of India, are Ex.PW8/1 to PW8/31. All the documents are dated 7.3.1983. It has not been explained by the State Bank of India even in the second written statement on what date the shares were were deposited with the State Bank of India and by whom after the State Bank of India delivered the shares to Heritage on 8.2.1983. Therefore, between 8.2.1983 and 7.3.1983 the movement of the shares had been traced to Mr. B.C. Devidas. The claim of Mr. B.C. Devidas as D4W1 is not very straight forward. I had already referred to his evi-dence. It is also not explained by the State Bank of Indian nor did the 4th defendant say anything about this. If Mr. B.C. Devidas held the shares as broker why should the State Bank of India be characterised as transferor as if it was the owner of the shares on that day. There are inherent infirmi-ties in Ex.PW8/1 to PW8/31. It was a transaction of transfer by the State Bank of India without being the owner of the shares to the 4th defendant, Unit Trust of India, and tried to clothe the 4th defendant with the owner-ship of the said shares. Neither the State Bank of India nor the 4th de-fendant could give any reasonable explanation to the existence of the names of Mathuradas Mohta and Bhupendra Champaklal Devidas on the back of these documents. The assertion by the State Bank of India is that it had acquired ownership. I am unable to appreciate the case of the State Bank of India which is not supported by any documents on record.
170. The State Bank of India had acted as agent of the 4th defendant in purchasing the shares on behalf of the 4th defendant. In this Case, the Court is not concerned with the burial relationship and principal and agent between the 4th defendant and the second defendant though the fact is one of the components relevant for the purpose of considering the transaction in the normal course of business. The 4th defendant does not have any grievance against the State Bank of India in this behalf.
171. The factual position that emerges out of the evidence is that the plaintiff borrowed money from the first defendant by giving the shares with blank transfer forms. The Heritage had pledged the shares with the State Bank of India using a blank transfer deed. The authority of anybody acting on the basis of the blank transfer deed had come to an end on the shares being put in the custody of the State Bank of India on 10.11.1982 as cover for the facilities. The State Bank of India had not recorded in Ex.PW2/1 that the shares were handed over by the Heritage. The document refers to the plaintiff as the owner. The State Bank of India applied to the third defendant for transfer representing that the plaintiff Nabha Investments Pvt. Ltd. has been the owner of the shares and the shares had come to the State Bank of India only as cover for security. The State Bank of India on 7.3.1983 purported to transfer the shares to the 4th defendant UTI under Ex.PW8/1 to PW8/31. The value paid by the 4th defendant, it is not disputed by any of the defendants, had not reached the plaintiff, who is the owner of the shares. The plaintiff accepts the borrower of money from the first defendant. The first defendant apparently with the aid of Mathuradas Mohta had been able to get money from the Heritage and played a very significant role in trying to screen off the shares. The second defendant State Bank of India and the 4th defendant Unit Trust of India had, without following the basic principles relating to selling and buying of shares and acting contrary to the Rules and Regulations of the Bombay Stock Exchange, dealt with the shares and before the 4th defendant could get the shares registered in its name with the third defendant, the plaintiff had interdicted the same by obtaining order of injunction from this Court on 6.5.1983.
172. The learned senior counsel for the second defendant Mr. Rajiv Sawhney and the learned counsel for the 4th defendant Mr. P.N. Tiwari contended that once the plaintiff had admitted that it had given blank transfer deeds to the first defendant, the plaintiff had lost its rights over the shares and anybody coming into possession of the shares and the blank transfer deeds was at liberty to deal with the shares in any manner he liked. The general proposition projected by the learned counsel is within the parame-ters of law but it has to been seen how the person holding the blank trans-fer deeds had exercised his right consistent with the contract between the owner and the holder of the shares. If the Heritage while dealing with the second defendant State Bank of India had represented that it had become the owner and it was entrusting the shares with the State Bank of India being the transferee of the shares with absolute title to the shares there would have been an end of the matter to the claim of the plaintiff. What has happened right from the day the shares moved on from the plaintiff to the first defendant and to the Heritage and upto 8.2.1983 would betray the claim of defendants 2 & 4. On 8.2.1983 when the State Bank of India claimed that the shares were handed over to the Heritage with blank transfer deeds, the State Bank of India was obviously attempting to withhold very material facts. The State bank of India on 8.2.1983 was only holding the shares as cover for the security for overdraft. It is now established that Heritage did not avail of the overdraft and wanted the return of the shares. That the return of the shares could only be what had been bargained for by the State Bank of India and reflected in Ex.PW2/1 cannot be doubted. This position was never challenged before me by any of the learned counsel for the parties. The learned senior counsel for the second defendant Mr. Sawh-ney did not bring to my notice any document to show the title of the State Bank of India to the shares as on 7.3.1983.
173. The learned counsel for the 4th defendant Mr. Tiwari was rest content with advancing any argument that the 4th defendant purchased the shares through market and the 4th defendant was a bona fide purchaser for value without any notice. The facts completely demolish the case of the 4th defendant.
174. Yet another argument advanced by Mr.Sawhney, the learned senior coun-sel for the second defendant, and Mr. Tiwari, the learned counsel for the 4th defendant, was that the plaintiff cannot seek to recover the shares and the only remedy is to sue for damages. I am quite unable to appreciate this submission. The learned counsel did not maintain the distinction between the rights of parties flowing under a contract and a tortious act committed by a party in possession of the shares. The learned counsel assume that there was no difference between these two and the plaintiff still, if established its case, would be entitled to only damages. Once it is proved that the plaintiff is still the owner of the shares the law gives the plaintiff all the reliefs that the plaintiff would be entitled to in law on the strength of its ownership.
175. I shall now proceed to deal with the issues.
176. Issue No. I whether the suit as framed is not maintainable.
177. The learned counsel for the 4th defendant had submitted a type set of paper containing the written submissions and oral evidence adduced and that was submitted on 15.7.1996. It is submitted that the plaintiff has prayed for a declaration and for injunction restraining the defendants from fur-ther selling the shares and the plaintiff has also prayed for mandatory injunction for the return of the shares or the recovery of the shares in specie. The submission was that the suit is bad for non joinder of neces-sary party, proper court fee has not been paid. The plaintiff had abandoned all its rights for the return of the shares. It was submitted that the second defendant had lodged the shares with the third defendant for trans-fer and after transfer the shares were returned to Heritage. The shares again came into possession of the second defendant for and on behalf of the 4th defendant while acting as its agent and custodian. A very seemingly ingenious argument but it is disingenuous.
178. It has further submitted that for redemption the amount of loan should have been deposited. The learned counsel for the 4th defendant Mr. Tiwari submitted that the deposit of the loan amount is sine qua non for the claim of redemption or for recovery of shares. The learned counsel relied upon the following rulings :-
1. S.L. Ramaswamy Chetty Vs. M.S.A.P.L. Palaniappa, AIR 1930 Madras 364.
2. Official Assignee Vs. Madholal Sindhu AIR 1947 Bombay 217 This had been reversed by the Federal Court in AIR 1950 (FC) 21. He also relied upon Motilal Sahu Vs. Ugrah Narain, . In the written submissions, the learned counsel had referred to AIR 1968 A.P. 273. A little care should have been taken to see whether the reference given in the written submission is properly typed out or not. The judgment, learned counsel wanted to rely upon was, Narasayamma Vs. Andhra Bank, . Reliance was placed on the judgment of the Privy Council ILR (19) Calcutta 322 and the judgment of the Punjab High Court in Dhani Ram Vs. Frontier Bank, .
179. In (supra) a Division Bench of the Madras High Court had to consider the validity of a private sale of the pledged jewels by which the pledge was deprived of them by the pledgee. The case of the pledge was accepted by the learned Single Judge. Challenging the decision of the learned Single Judge the pledgee preferred an appeal to the Division Bench of the High Court. It was urged by the pledgee before the Division Bench:-
1. that the learned Judge's finding about the factum of sale was incorrect;
2. that the finding on the value of the jewel was incorrect;
3. that the pledge had acquiesced in the sale and cannot repudiate it
4. that the suit was not maintainable as the pledge did not tender the money due nor was he ready and willing to pay the loan amouny;
5. that the suit was barred by limitation.
The Division Bench confirmed the findings of the learned Single Judge. Regarding the point of tender of the money, the Division Bench observed :
"The next objection urged on behalf of the appellants, is that the suit is not maintainable as the respondent did not tender the money due nor was he willing and ready to pay it. For this his learned advocate cited the Privy Council decision in Neckram Dobay Vs. Bank of Bengal ( [1892] 19 Cal. 322), and the English decisions cited in argument in that case Halliday Vs. Holgate ( [1869] 3 Ex. 299 ), Donal Vs. Sucking ([1867] 1 Q.B. 585) and Johnson Vs. Stear ( [1864] 15 C.B. (N.S.) 330). It is sufficient to deal with the decision of the Privy Council which was given after consideration of the other cases. The decision was that where a pledgee having power to sell for default takes over as if upon a sale to himself the property pledged without the authority of the pledgor but crediting its value in account with him, this act though an unauthorized conversion does not put an end to the contract of pledge so as to entitle the pledgor to have the property back without payment. Applying that to the present case what follows is that the pledgee having in effect taken over as if upon a sale the pledged jewels to himself without giving credit for their full value to the pledgor has been guilty of an unauthorized conversion and the pledgor is therefore entitled to have his property back or its full value but only on payment of the debt. This is exactly what the learned Judge has ordered. He having found the jewels to be worth Rs.11,000 and having given the appellants the opportunity to produce them if they could has ordered them in case of default to pay the respondent the difference between that value and the balance of the decree amount and no objection has been taken to the figures. The decision cited therefore, far from showing that decree appealed from is erroneous, supports it. But it was suggested that the non-maintainability of the suit was due to the respondent's not having tendered or his not having been ready and willing to pay the amount due before the suit, which it seems is an essential condition of bringing a suit for redemption. This is a misapprehension. If a pledgor brings a suit for redemption without first tendering the money to the pledgee and it turns out that the suit was unnecessary because the pledgee was always ready and willing to deliver up the property pledged without suit if the debt had been paid, the plaintiff will no doubt be made to pay the costs of the defendant but his suit cannot be dismissed. But if it turns out that in the circumstances which preceded the suit, it would have been perfectly useless to tender the money to the pledgee as for instance where the pledgee declares in advance his inability to return the pledged property, in such a case if the pledgee was at fault in putting it beyond his power to return the goods the pledgor cannot be defeated on account of his not going through a useless ceremony of tender. S.51, Contract Act makes the matter clear when it declares that neither party to reciprocal promises need perform his promise unless the other party is ready and willing to perform his promise. Illus. (a) to this section is the ordinary case of buying and sellings goods when neither the buyer need pay the price nor the seller deliver the goods unless the other party is ready and willing to perform his part. In this case the appellants having so long ago as 7th February 1923, the date of their first execution petition declared that they had sold the jewels and thus put it beyond their power to be ready and willing to return them the respondent was not required to tender the debt to them. This contention also must be rejected.
The Division Bench repelled the contention on the question of limita-tion. This case far from helping the 4th defendant helps the plaintiff.
180. In Madholal Sindhu of Bombay Vs. Official Assignee of Bombay and others, AIR 1950 Federal Court 21 the decision of the Division Bench of the Bombay High Court AIR 1947 Bombay 217 was challenged. The appeal by the Federal Court was heard by four learned Judges. The Hon'ble Chief Justice Kania took one view and the other three learned Judges Mahajan, J. Fazl Ali, J and B.K. Mukherjea, J took a different view and on the basis of the opinion of the majority the appeal was allowed. The facts are noticed by His Lordship Mr. Justice Mahajan (as His Lordship then was). The learned Judge had been pleased to notice that the Bank as a pledgee of the shares was entitled to sell them when the pledge failed to meet the notice of demand admittedly issued to him. It was noticed by the Supreme Court :-
"It was contended that if the Bank held these shares as pledgee, no notice of the sal was given to Nissim under S.176 and therefore sale was void ab initio. This contention, overlooks the fact that the pledgee before disposal of the shares had consulted the pledgor who was agreeable to the transfer of these shares by the Bank. His consent having been obtained for the disposal of the shares, the question of notice under S.176 does not arise. Moreover, he was subsequently informed about it and throughout he ratified the transaction and acquiesced in it. As already pointed out, not only did he acquiesce in the transaction but the Official Assignee after full investigation also acquiesced in it.
For the reasons given, I am of the opinion that none of the contentions raised by Mr. Munshi have any force. The reasons given by the learned Judges of the Division Bench who reversed the decision of the trial Court cannot be justified in law. The result therefore is that the appeal is allowed with costs, the decision of the Division Bench set aside and that of the single Judge dismissing the counter claim restored."
181. In view of the fact that the judgment of the Bombay High Court had been reversed that cannot be considered as a precedent for any purpose. Therefore, I refrain from discussing the decision reported in AIR 1947 Bombay 217.
182. In (supra) the question dealt with by the Division Bench of the High Court is entirely different and the case has absolutely no relevance at all to the facts of this case.
183. In Sri Raja Kakarlapudi Venkata Sudarsan Sundara Narasayamma Garu (died) and others Vs. Andhra Bank Ltd., Vijayawada and others, the facts are as follows :-
One R.K.N.G. Raju had pledged shares with the Andhra Bank. He died leaving a Will appointing his widow Narasayamma as the executrix. She filed the suit for a declaration that the sale of the shares to the Andhra Cement Company owned by the husband was contrary to law and did not affect her right to redeem the pledge effected by her husband in favour of the Bank and for injunction restraining the third defendant Company Andhra Cement Co. Ltd. from recognising and registering the shares. The Division Bench had noticed the facts in the following terms:-
"For appreciating the contentions raised and debated before us, it would be necessary to state in brief outline the main facts of the case. The husband of the plaintiff was one R.K.N.G. Raju. He held 9100 B-class shares in the Andhra Cement Company bearing share Nos. 143762 to 152861, stated to have been purchased by him at Rs. 12/- per share. He had an over-draft account with the Ist defendant, Andhra Bank Ltd., both in his personal capacity and as partner of Raja Industrial and Chemical Agencies. On those two accounts the Ist defendant-Bank made several advances to him, on various dates in 1947 totalling upto a sum of Rs.45,000. In order to secure the due payment of the amounts, R.K.N.G. Raju executed an instrument of security on 22.9.1947.
Along with the said instrument, 9100 B-class shares were delivered to the Ist defendant Bank together with blank share transfer forms duly signed by R.K.N.G. Raju. During his life time certain payments were made to the Bank. R.K.N.G. Raju died at Madras on 20.4.1998. On 25.11.1948, the counsel for the plaintiff wrote to the Ist defendant-bank a communication (Ex. B-2) stating that R.K.N.G. Raju died at Madras on 20.4.1948, leaving a will appointing his wife as the executrix, and that he was instructed to take steps to secure adequate legal representation to the estate of the deceased. In that connection the counsel requested the Ist defendant-Bank to furnish the particulars of the account of the late R.K.N.G. Raju with the Ist defendant-bank, and also the amount due to the Bank in respect of over-draft transactions covered by the pledge of 9100 B-class shares in the Andhra Cement Company.
In reply to that communication from the counsel, the Ist defendant-Bank wrote a letter (Ex.B-3) dated 8.12.1948 that all necessary particulars were furnished to the Ist plaintiff and advised the counsel to obtain the information from her. By a letter of even date (Ex. B-4) the Bank wrote to the plaintiff, the widow of R.K.N.G. Raju, that with respect to the over-draft accounts by her husband and Cement Company a sum of Rs.37,216-8-0 was due. The Bank requested that arrangements might be made for the payment of the debts and taking the delivery of the said shares.
On 17.2.1948, the Bank wrote a letter (Ex. B-5) to the plaintiff giving particulars of the advances made to her husband and the amounts due and requesting her as the legal heir of the late R.K.N.G. Raju to take immediate steps to repay the outstanding amounts due to the Bank. This letter was addressed to the plaintiff C/o the Andhra Cement Company Ltd. This letter obviously did not reach the plaintiff as it was returned unserved. Thereupon the Bank wrote another letter (Ex. B-6) dated 5.1.1949 to her address at Rajahmundry, giving the particulars of the loans and the balance due and requiring her to take immediate steps for repayment. It is not in dispute that this letter was received by the plaintiff.
On 7.1.1949, the counsel fo the plaintiff from Madras wrote to the Bank asking for the particulars asked for by him on the assumption that the widow of the deceased would have already authorised the Bank to disclose the information. Accordingly the Ist defendant-Bank wrote to the counsel a letter (Ex. B-8) dated 9.2.1949. There was no reply by the plaintiff to the Ist defendant-Bank's letter dated 5.1.1949.
The Ist defendant-Bank thereupon would seem to have made enquiries with Somayajulu and Co., Stock and Share Brokers, Madras as to the market price of the B-class shares of the Andhra Cement Company. By a letter dated 10.2.1949, the firm advised the Ist defendant-Bank that it would be possible to sell the Andhra Cement Company Ltd.'s B-class shares round-about Rs. 6-4-0 per share.
On 25.3.1949, the Ist defendant-Bank sold the 9100 B-class shares of the Andhra Cement Company Ltd., at Rs. 6-5-0 per share to the 2nd defendant the Jaipur Sugar Company Ltd., and had also forwarded to them 5 transfer deeds signed by R.K.N.G. Raju for their signatures. On the same day the Ist defendant-Bank wrote a letter (Ex. B-12) to the plaintiff informing her that since no arrangements had been made by her for the adjustment of the loans, the Bank decided to realise the amounts due by the sale of the securities pledged and accordingly sold them at Rs. 6-5-0 per share. On 30.3.1949 a telegram (Ex. B-13) was sent by the plaintiff to the Ist defendant-Bank to the effect that the sale of 9100 B- class shares was illegal and that the Bank was liable in damages.
On 5.4.1949, the counsel for the plaintiff sent a registered notice (Ex. B-14) to the It defendant-Bank with a copy to the Andhra Cement Company Ltd., (3rd defendant) stating that he confirmed the telegram sent by the plaintiff on 30.4.1949, and that the sale of the shares was without notice to his client and, therefore, invalid and not binding on her."
The trial court dismissed the suit holding that the Andhra Bank was entitled to sell the shares, the pledge having waived notice.
184. The Division Bench considered four points:-
"1. Whether there was a mortgage of shares as contended by the Andhra Bank or whether it was a pledge;
2. Whether the pledge had waived notice at the time of pledge and, therefore, Andhra Bank was not obliged to issue any notice;
3. Whether the suit was barred under section 213(1)(i) of the Indian Succession Act, 1925;
4. Whether the plaintiff, the widow of Raju, had not established her rights as heir of the deceased husband and hence she did not have any legal character or right to the property."
On behalf of the pledgee, the Andhra Bank, the contention was that the transaction was one of mortgage and, therefore, it was entitled to sell the shares. The Division Bench on a construction of the document evidencing the contract held that the transaction must be treated as one of pledge. The Division Bench dealt with this point in extenso and it was strenuously contended before me by the learned senior counsel for the second defendant and the learned counsel for the 4th defendant and, therefore, it is neces-sary to extract the observations of the High Court of Andhra Pradesh:-
"On a plain reading of the section it seems to us that before exercising the power of sale the pawnee should give to the pledge reasonable notice of the sale. The contention of the Advocate for the respondent, however, is that in Ex. B-1 the pawnor had waived the right to receive such a notice and this found favour with the trial court. The learned counsel for the appellants has assailed the correctness of that finding on various grounds.
It is first contended that in this case the waiver is not founded on an assent or affirmance of the sale by the pledgor subsequent to the con-tract of pledge, but is referable only to the recitals of Ex. B-1, and that those recitals are not clear and unambiguous that notice has been waived. In support of that contention reliance was placed upon the decision of Wallis J., in Venkatesa Perumal Chetty Vs. S. Parthasarthy Iyengar, 18 Ind Cas 986 (Mad), where it was held that a party to a contract who relies upon a clause as affording him protection from liability cannot succeed unless the clause he relies on is clearly and unambiguously expressed. We do not think the expression in Ex. B-1 to the effect that the sale could be held by the pledgee without reference to the pledgor is ambiguous or uncertain. It seems to us that the expression 'without reference to us' is wide enough to include notice.
But the more important argument of Mr. Ramchandra Raju is that even assuming that the expression constitutes waiver of notice, such a waiver is not permissible as it would be inconsistent with the mandatory terms of Sec. 176. It is argued that wherever the legislature thought that a partic-ular term could be the subject of a contract it had said so by incorporat-ing words such as: 'subject to the contract' or 'in the absence of a con-tract to the contrary'. In Sec. 176 there are no such qualifications. Therefore, any contract to the terms of Sec. 176 would be a contract contrary inconsistent with the provisions of the Act within the meaning of Sec. 1 of the Contract Act.
There is considerable judicial authority in support of the above contention. In Co-operative Hindustan Bank Ltd. Vs. Surendra Nath Dey, , a Bench of the Calcutta High Court has held that Sec. 176 of the Contract Act unlike some other sections, such as, 163, 171, 172 does not contain a saving clause in respect of special contracts contrary to its express terms, and that inasmuch as Sec. 177 gives to the pawnor a right to redeem even after the stipulated time for payment but before the sale, in order that that provision should not be made nugatory, the proper interpretation to put on Sec. 176 is to hold notwithstanding any contract to the contrary notice has to be given. In AIR 1947 Bombay 217 at p. 228, a Bench of the Bombay High Court consisting of Stone C.J. and Chagla J. took substantially the same view. The learned Chief Justice observed as follows :
"In my judgment, a notice must be given in all cases of pledge, even when the instrument of pledge, itself contains an unconditional power of sale. This opinion is held by the three distinguished editors (Sir Federick Pollock, Sir Dinshah Mulla and Sir Maurice Gwyer) of Mulla's Indian Contract Act, Edn. 7 (see p. 519). It follows that even if it is possible to regard the contract of 23rd, 24th October, 1941, as a sale by the Bank as pledgee of Mr. Nissim that sale is invalid as being in breach of Sec. 176, unless it could be shown that before this insolvency Mr. Nissim effectively waived the giving of notice so as to bind the Official Assignee."
This case was carried in appeal to the Federal Court. Their Lordships held by a majority that in view of the assent for sale of shares by the pledgor and the acquiescence thereof by the Official Assignee the sale was good and the further questions argued before them as to whether the pledgor could enter into a contract contrary to the provisions of Section 176 or whether a want of notice is a mere irregularity not affecting the title of the bona fide purchaser for value did not arise for consideration.
In Bharat Bank Ltd. Vs. Sheoji Prasad, , a Bench of the Patna High Court has held that Sec. 176 is mandatory and the required notice has to be given for the right to exercise redemption, and under Sec. 176 it would be rendered illusory if such notice is not given.
In Hulas Kunwar Vs. Allahabad Bank Ltd., , a Bench of the Calcutta High Court has held following the decision in , that the obligation of the pawnee to give a reasonable notice of sale under Sec. 176 is mandatory and supersedes any contract to the contrary. In that case, as in the case of , the contract of pledge authorised the pawnor. It was held in both the decisions that such a clause could not relieve the pawnee from the mandatory obliga-tion to give notice.
When in an enactment, in some sections the expression 'subject to the contract' or 'in the absence of the contract to the contrary' are used and in others not, it is a well settled principle of construction that the provisions of the latter class of sections are not subject to contracts to the contrary.
In Mohammed Sher Khan Vs. Swami Dayal ILR 44 All 185: (AIR 1922 PC 17), while dealing with Sec. 60 of the Transfer of Property Act, their Lordships of the Judicial Committee observed as follows :
"The section is unqualified in its terms, and contains no saving provisions, as other sections do, in favour of contracts to the contrary. Their Lordships, therefore, see no sufficient reason for withholding from the words of the section their full force and effect. In this view the mortgagor's right to redeem must be affirmed, and as both suits are not before the Board there will be no difficulty in passing one decree in both so framed as to give due effect to this right."
To the same effect is the observation of Srinivasan Ayyangar J., in Seeti Kutti Vs. Kunhi Pathumma, ILR 40 Mad 1040 at p. 1062 (AIR 1919 Mad 972 at p.984):
"The Indian Legislature in Sec. 60 of the Transfer of Property Act, as has been pointed out, has omitted the words `in the absence of a contract to the contrary' with a view to prevent the mortgagor from contracting himself out of his right of redemption at the time of the mortgage."
Following the decision arising under Section 176 of the Indian Con-tract Act and the principle of construction enunciated in the two aforesaid decisions, it seems to us that the contention of Mr. Ramachandra Raju that at the time of entering into a contract of pledge the pawnor cannot agree to waive notice as it would be inconsistent with the provisions of Sec. 176, should prevail.
Mr. Somasundaram very strenuously contended before us that the right to receive notice is conceived in the interests of the pawnor and when a statute gives a party certain advantage or right it is always open to him to waive it. In support of the contention he cited a large number of au-thorities.
In Wilson Vs. McIntosh, 1894 AC 129, the facts were that the respond-ent, McIntosh lodged an application in the office of the Registrar General to bring under the Real Property Act (26 Victoria No. 9) certain lands in New South Wales. Under Sec. 23 of that Act every caveat shall be deemed to have lapsed unless the caveator took the proceedings in any court of compe-tent jurisdiction to establish his title to the estate and gave notice of that to the Registrar General and also obtained an injunction from the Supreme Court. In the case referred to above the respondent filed a case and obtained an order against the appellant to state her case both of which proceeded upon the footing that the caveat was still in existence.
It was held that the respondent having waived her right to claim that the caveat should be regarded as having lapsed and obtained a case stated by the applicant he cannot in equity plead the bar under Sec. 23. The decision rested on the assumption that an applicant may waive the objection of pleading lapse under Sec. 23 of the Real Property Act.
In Toronto Corporation v. Russell, 1908 AC 493, the facts were that in the city of Toronto a land was advertised for sale under Ontorio Assessment Act of 1897 for arrears of taxes and after an adjournment was bought by the appellant. But before the sale the appellants published their intention to purchase inn case the amount fixed was less than the arrears of tax, but omitted to give the respondent a notice in writing under Sec. 184 to that effect. It was held by the Privy Council that the notice under that Section could be waived and that as a matter of fact, it was waived.
In Selwyn Vs. Garfit, (1888) 38 Ch D 273, the question of waiver did not really fall to be considered as the only man, the mortgagor, who could have waived notice had already parted with his equity of redemption as has been made clear in the judgment of Bowen L. J.
In Griffiths Vs. Earl of Dudley, (1882) 9 QBD 357, the question was as to whether a workman could agree not to claim compensation for personal injuries under the Employer's Liability Act of 1880. It was held that the widow of the workman was bound by the conditions of employment assented to by her husband and the agreement not to claim damages for personal injuries was on the facts of that case not opposed to public policy.
A reference was also made to the decision of the Privy Council in Vellayan Chettiar Vs. Government of the Province of Madras,ILR 1948 Mad 214 : (AIR 1947 PC 197), where Lord Simonds speaking for the Privy Council held that there is no inconsistency between the proposition that the provisions of Sec. 80 are mandatory and must be enforced by the court, and that they may be waived by the authority for whose benefit they are provided. This decision is not directly in point, for, the question of contracting out of the mandatory terms of the section did not arise in that case.
In Raja Chetty Vs. Jagannathadas, 1949-2 Mad LJ 694: (), a Bench of the Madras High Court held that notwithstanding the provi-sions of the Madras Building Lese and Rent Control Act of 1946, a landlord could contract to waive his right to evict the tenant. It was pointed out by the learned Chief Justice that no public policy was involved in that case and a landlord could well abridge his right.
The rule as to waiver is stated in Maxwell on Interpretation of Stat-utes p. 388 (10th Edn.) in these words:
"Every one has a right to waive and to agree to waive the advantage of law or rule made solely for the benefit and protection of the individual in his private capacity, which maybe dispensed with without infringing any public right or public policy."
Mr. Ramchandra Raju has contended that the terms of Sec. 176 are conceived in general public interest and referable to public policy. It is argued by him that in the stress of need a pledgor might assent to terms so manifestly deleterious to his interest and it is to prevent such people being exploited and that some notice being given before the pledgee exer-cises the right of sale that advisedly in Section 176 no provision is made to contract contrary to its terms. In this contention strong reliance was placed on the observation of Farwell J. in Soho Square Syndicate Ltd. Vs. E. Pollard and Co. Ltd., 1940-1 Ch 638 at p. 645, to the following effect :
"If it be right to say that a mortgagee, by merely getting the consent of the mortgagor, can avoid the..... necessity of applying to the Court, a large part of the protection which this Act was intended to provide would virtually disappear. People in the position of such persons as I have mentioned might easily be persuaded to give a consent without really knowing what exactly was involved in such consent, and an opportunity of expressing their reasons for their inability to pay, whatever they may be, and of stating their difficulties, which is now afforded to them by the necessity of an application to the court would be entirely removed. Moreover, difficult questions might also arise whether the consent had in fact been obtained, or whether it was a consent which was binding, and similar questions."
The point that arose for decision in that case was whether a mortgagor could under the provisions of the Courts (Emergency Powers) Act, 1939 assent to the appointment of a Receiver without the leave of the Court. The learned Judge held that he could not so assent as the provision for the leave of the court being obtained for the appointment of a Receiver was conceived in the interests of the people who had gone to war and was referable to public policy.
In Bowmaker, Ltd. Vs. Tabor, 1941-2 KB 1, Goddard L. J., has taken the same view with reference to some of the other provisions of the Courts (Emergency Powers) Act and had approved the principle of the decision of Farwell J., in the case earlier referred to.
It is not necessary for us to consider in this case the question further, in view of the direct decisions of the Indian High Courts, with which we are in agreement interpreting Sec. 176 of the Contract Act, and holding that its terms are mandatory and that, even if there is a term in the contract of pledge to waive notice, still the pledgee is not relieved of his obligation to give notice before the sale.
We, therefore, do not accede to the contention very strenuously pressed on us by Mr. Somasundaram that in this case the objection as to want of notice is without substance by reason of the waiver of such a notice by the pledgor in Ex. B-1."
184. In Neckram Dobay Vs. The Bank of Bengal, ILR (19) Calcutta 322 the Privy Council had to deal with a different situation. The Privy Council noting the facts held that the sale with reference to a part of the securi-ty was within the rights of the Bank of Bengal. The Privy Council observed -
"The following are the facts proved. The Bank, through Mr. Gordon its Chief Accountant and Deputy Secretary in Calcutta, agreed to grant the plaintiff loans at the special loan rate on their usual conditions of business, one of which was "The Bank reserves to itself the option of selling securities that have been deposited against loans at any time after the issue of notice of demand," and another, "Interest on securities in deposit against loans or overdrawn accounts will be realized by the Bank on receipt of written instruction from the borrower." Immediately upon the making of the agreement the plaintiff began to take loans to large amounts from the Bank upon the security of the deposit of Government notes. Some of these loans were consolidated and renewed, the last renewal being under the date of the 21st December 1883.
At that time the market for these securities was falling, and on the 28th December 1883 Mr. Gordon wrote to the plaintiff, requesting that he would at once either pay off his demand loan or deposit the additional margin of Rs.24,300 failing which he said the securities deposited against the loans would be sold. Nothing was done on this letter. On the 2nd January 1884 Mr. Gordon again wrote to the plaintiff that unless he made satisfactory arrangements to adjust the margin and interest due on his loan account by noon the next day, the Bank would proceed at once to sell his Government securities. On the 12th January Mr. Gordon again wrote to the plaintiff that unless the margin on the loan account and interest of the 31st December 1883 was adjusted on the 14th January, the Bank would at one proceed to sell his securities as advised in the letter of the 2nd. Nothing having been done by the plaintiff, the Bank on the 15th January commenced to sell his securities, crediting the proceeds to the plaintiff's account, and informing him by letter that they had done so. The sales continued during the month of January. On the 30th January the plaintiff paid to the Bank the sum of Rs.6,74,467 and received from it Government notes of the nominal value of Rs. 7,17,500 which the Bank represented as being, and the plaintiff believed to be, the whole of his securities remaining unsold in the Bank's hands. On the 31st January Mr. Gordon sent the plaintiff an account, showing a balance in the plaintiff's favour of Rs.326-7- 4, which the plaintiff refused to accept, and the Bank paid it into Court.
Previous to the trial it appeared, by the answer of the Bank to interrogatories, that of the securities stated in the account to have been sold, Rs.4,55,000 had not been in fact sold, but were taken over by the Bank in their books at the market price of the day, Rs.4,00,000 to the Bank itself and Rs.55,000 to the Depositors' Department. It appeared at the trial that the Bank had resold nearly all, if not all, of these Government notes, and when the case came before the High Court on appeal, further evidence was taken before it as to the dealings of the Bank with the plaintiff's securities. It was then proved that the whole of the securities taken over by the Bank were disposed of by them between the 17th January and the 8th February 1884, either by sale or in exchange for other securities, and that the amounts realized were in every instance less than the prices for which credit had been given for them to the plaintiff.
The learned Judge who tried the suit made a decree dismissing the claims of the plaintiff so far as they were included in the plaint, but declaring that the sales by the Bank to itself were null and void against the plaintiff, and that the plaintiff was entitled to recover the value of the Government promissory notes so sold at the market rate on the date when the suit was instituted, or at the option of the plaintiff, on the date of the hearing, with interest at 4 per cent. on their par value from the respective dates of the sales, and that the Bank was entitled to credit for the advances to the plaintiff, with interest at the rates claimed by the Bank up to the dates when the Bank closed the several loans. In his judgment he said interest could not run as to the sum of money which the amount of the pretended sales purported to wipe off after the dates of them, and an account was ordered to be taken on that footing. The Bank appealed, and the High Court in its appellate jurisdiction allowed the appeal and dismissed the suit.
Their Lordships are of opinion that this decision should be affirmed. The sales by the Bank to itself, though unauthorized, did not put an end to the contract of pledge, so as to entitle the plaintiff to have back the Government notes, without payment of the loans for which they were security, and until the delivery of the account on the 31st January, the loans being unpaid after demand, the Bank was entitled to sell the notes and credit the plaintiff with the proceeds. The plaintiff did not sustain any damage by the sale to the Bank of the notes which were re-sold by it before the 31st January.
As to the notes which wee re-sold by the Bank after the 30th January, the position of the Bank was different. It was represented to the plaintiff by the Bank, and believed by him, that the Government notes which he received on the 30th January were the whole of his securities remaining unsold in the hands of the Bank. He paid the Rs.6,74,467 in order, as he believed, to redeem the whole of his securities. It would be inequitable to allow the Bank, after this transaction, to treat the securities, which it had sold to itself, and then had in its hands, as still subject to the pledge. In their Lordships' opinion, the Bank should be held to be no longer a pledgee of these notes, and to have converted them to its own use, and to be liable in damages for the value of them, including the interest thereon. But if the Bank is so liable, the plaintiff cannot have credit in the loan account for the proceeds of these notes. He cannot both affirm and disaffirm the sales to the Bank. It appears from the account of the dealings of the Bank with the plaintiff's securities, referred to in the judgment on appeal, that the rate of interest on the loan from the Ist to the 5th January 1884 was 7 per cent., from the 5th to the 20th 8 per cent, and from the 20th to the 30th 9 per cent. The rate of interest on the Government notes was 4 per cent., and it is obvious that the longer the account was kept open, the more the balance would be against the plaintiff. If the plaintiff has sustained any special damage by the conduct of the Bank, the evidence of it is not before this Board. Their Lordships will therefore humbly advise Her Majesty to affirm the decree of the High Court and to dismiss this appeal. The appellant will pay the costs of it."
185. In Dhani Ram Vs. Frontier Bank, the Frontier Bank Ltd. instead of selling the shares as pledgee after giving notice to the pledge transferred the shares to itself on the face value of the shares. After transferring itself the shares, the Bank applied to the Company for registration of the shares in its names. That was opposed by the pledge. The Bank filed the suit for injunction. The plea by the pledge was that the Bank had no right to sell the shares to itself. The Punjab High Court held, following the judgment of the Privy Council in Neckram Dobay Vs. Bank of Bengal ILR (19) Calcutta 322, held that the sale by the Bank itself of the shares cannot be held to be void.
186. The learned counsel for the 4th defendant had referred to in the written submission case reported in Anil Kumar vs Suman Bala, AIR 1980 Delhi 103 saying that the proper court fee had not been paid and, there-fore, the relief of declaration should be refused.
187. The question of court fee is not the concern of the defendant as laid down by the Supreme Court in . The Court can always issue appropriate directions relating to the payment of court fee to the con-cerned parties and, therefore, the point need not be discussed further.
188. The learned counsel for the 4th defendant had submitted that without exhausting statutory remedy by way of arbitration provided under the Rules and Bye-laws and Regulations of the Bombay Stock Exchange Association, the plaintiff cannot approach the Civil Court and, therefore, the suit is not maintainable. The learned counsel had referred to Section 34 of the Specif-ic Relief Act, 1963 and the decisions in AIR 1953 Saurashtra 21, 17 Indian Cases 187 (P.C.) and the judgment of the Supreme Court AIR 1970 S.C. 888.
189. The suit is based on the tortious act of the defendants and I fail to see how such a contention could be put forth by the 4th defendant. I have absolutely no hesitation in rejecting this contention on behalf of the 4th defendants.
190. It was next contended that the suit as framed is between the principal and the agent under Section 180 of the Contract Act, 1872. The plaintiff had claimed rendition of accounts against first defendant as agent and second defendant as sub agent. The plaintiff cannot frame the suit in such a manner and that would amount to plaintiff's suing itself.
191. On the facts and circumstances of this case, the contention advanced on behalf of the 4th defendant is preposterous and is rejected.
192. The learned counsel had submitted that the contract in respect of stocks and shares are not specifically enforceable in view of the fact that the stocks and shares are readily and easily bought and sold in the market and payment of itself for market price fully answers the intention of the parties, that is the damages.
193. This contention is also, in my view, is without any force. The shares are now valuable moveable assets and the right of the plaintiff to seek recovery of the shares would depend upon the terms of the contract and the conduct of the parties and there cannot be any general rule that the suit for recovery of the shares cannot be maintained.
194. The learned counsel for the 4th defendant in his written submissions had referred to the order passed by this Court in I.A.10044/94 which was under Order 7 Rule 11 CPC. That I.A. was dismissed by this Court. It is an order in an interlocutory application and whatever that is observed by this Court cannot be taken final as between the parties and that cannot be relied upon by the 4th defendant. For these reasons, I find that the suit as framed is maintainable and the issue is answered against the 4th defend-ant and in favour of the plaintiff. 195. Issue No. 2 - Whether this Court has jurisdiction to entertain and try the suit?
195. The suit was instituted on 6.5.1983. The parties had proceeded with the trial of the case for more than 15 years and now the plaintiff cannot be non suited on the ground that this Court has no territorial jurisdiction on the subject matter. The learned counsel for the 4th defendant had re-ferred to two judgments of the Supreme Court for the proposition:-
1. Vishwanathan Vs. Abdul Wajid,
2. Bhagwandas Vs. Girdharilal & Co.
196. The principles laid down by the Supreme Court in the above two deci-sions would not apply to the facts of this case. Under Section 20 CPC the plaintiff can institute a suit in a Court having jurisdiction where cause of action had arisen. On the facts and circumstances of this case, I am unable to accept the submission made on behalf of the 4th defendant. It is not necessary to deal with the facts in extenso in view of the fact that elaborate proceedings had taken place in this case, I hold that this Court, having regard to the averments in the plaint and the facts, has territorial jurisdiction. This issue is answered in favour of the plaintiff and against the defendants.
197. Issue No. 3 - Whether the suit is bad for non-joinder of necessary parties?
The submission made on behalf of the learned counsel for the second defendant was that the Heritage ought to have been imp leaded as a party to the suit as it was a necessary party and thus the non joinder of necessary party would render the suit incompetent. The learned counsel for the 4th defendant also submitted that the Heritage was a necessary party and, therefore, the suit is liable to be dismissed as the plaintiff had not chosen to make the Heritage as a party to the suit. The case of the second defendant is that the Heritage put the second defendant in possession of the shares and the shares were transferred in the name of the second de-fendant. According to the second defendant, the shares were transferred to the 4th defendant. In the light of the established facts, I am quite unable to see how the Heritage is a necessary party to the suit. In the Madras High Court in 1968 (1) Madras Law Journal 15 had laid down the following principles to be applied to find out whether a particular person is a necessary party to the suit or not :-
(1) if, for the adjudication of the 'real controversy' between the parties on record, the presence of a third party is necessary, then he can be imp leaded;
(2) it is imperative to note that by such impleading of the proposed party, all controversies arising in the suit and all issues arising thereunder may be finally determined and set at rest, thereby avoiding multiplicity of suits over a subjectmatter which could still have been decided in the pending suit itself;
(3) The proposed party has a defined subsisting, direct and substantive interest in the litigation which interest is either legal or equitable and which right is cognisable in law;
(4) Meticulous care should be taken to avoid the adding of a party if it is intended merely as a ruse to ventilate certain other grievances or one or the other of the parties on record which is neither necessary nor expedient to be considered by the Court in the pending litigation; and (5) It should always be remembered that considerable prejudice would be caused to the opposite party when irrelevant matters are allowed to be considered by Courts by adding a new party whose interest has no nexus to the subject-matter of the suit."
The learned counsel for the plaintiff relied upon the following deci-sions in support of its contention that Heritage is not a necessary party:-
1. Polegar Naidu Vs. Mohideen
2. Aman Vs. Raphael Tuck & Sons Ltd. 1956 All England Reports 273
3. Shitladin Vs. Board of Revenue
4. Razia Begum Vs. Sahibzadi Anwar Begum,
5. Ramesh Hiranand Kundanmal Vs. MCD .
6. New Redbank Tea Co. Pvt. Ltd. Vs. Kumkum Mittal
198. In the light of the principles, I am clearly of the view that the Heritage is not a necessary party to the suit and the suit is not bad for non joinder of the Heritage. The issue is answered in favour of the plain-tiff and against the defendants 1,2 and 4.
199. Issue No. 4 - Whether Shri Hanuwant Singh is competent to sign, verify and institute the suit on behalf of the plaintiff company? The first de-fendant did not say anything on this. The second defendant in its written statement stated that this is not contested by the second defendant. The learned counsel for the 4th defendant did not also advance any argument on this issue. Therefore, I find that Shri Hanuwant Singh was competent to sign, verify and institute the suit on behalf of the plaintiff. This issue is answered accordingly.
200. Issue No. 5 - Whether 86,469 shares of defendant No. 3 with blank transfer forms signed by the plaintiff were given by the plaintiff to defendant No. 1 as security for a loan?
201. This issue has to be considered along with issue No. 13 - whether any mandatory notice was given by the defendant No. 1 to the plaintiff to sell the shares in dispute? If not what is its effect?
202. The first defendant received the shares and blank transfer deeds from the plaintiff and had lent Rs. 14 lakhs to the plaintiff. The case of the first defendant is that the plaintiff was informed about the pledge of shares to the second defendant State Bank of India. The fact that the first defendant did not hand over the shares to the second defendant and it was the Heritage who dealt with the shares for handing them over to the second defendant is not disputed. Ex.PW2/3 is the transfer deed relied on by the second defendant for the transfer of shares. The document shows that the owner of the shares as the plaintiff. If the Heritage had purchased the shares on the strength of the blank transfer deeds and had become owner thereof, the Heritage would have utilised the shares and pledged them to the second defendant State Bank of India in its capacity as owner. The Heritage on 3.11.1982 did not express any such intention. On the contrary, it had made a clear representation to the second defendant State Bank of India that the shares may be kept by the second defendant for the cover of the shares which belonged to Nabha Investments Pvt. Ltd. (the plaintiff). Therefore, it follows that the first defendant had taken the shares only as security for the loan and the second defendant was the pledgee of the shares, and there was no question of mortgage of shares by the plaintiff to the first defendant. It was never the claim of the first defendant also. The High Court of Andhra Pradesh in (supra) had, with great respect, in clear terms brought out the distinction between the mortgage of shares and a pledge. The principle will apply to the instant case. The Supreme Court had also laid down the same principle in Balkrishan Gupta and others Vs. Swadeshi Polytex Ltd. and another, :-
"Companies Act (1 of 1956), S.169 - Right of shareholder to requisition extraordinary general meeting-Shares held by share-holder pledged to another - Effect. (Contract Act (9 of 1872), Ss 172 to 175A).
Merely because the shares held by a shareholder have been pledged in favour of another, State Govt. in this case, would not disen-title the shareholder from exercising his right under 169 of the Companies Act.
A pawn is not exactly a mortgage. The two ingredients of a pawn are : "(1) that it is essential to the contract of pawn that the property pledged should be actually or constructively delivered to the pawnee and (2) a pawnee has only a special property in the pledge but the general property therein remains in the pawner and wholly reverts to him on discharge of the debt. A pawn therefore is a security, where, by contract a deposit of goods is made as security for a debt. The right to property vests in the pledgee only so far as is necessary to secure the debt. The pawner however has a right to redeem the property pledged until the sale. In the case of a pledge, the legal title to the goods pledged does not vest in the pawnee. The pawnee has only a special property. A pawnee has no right of foreclosure sine he never had the absolute ownership at law and his equitable title cannot exceed what is specifically granted by law. In this sense a pledge differs from a mortgage. In this view the pawnee, in the instant case, the State Government, could not be treated as the holder of the shares pledged in its favour. The share holder continued to be the member of the Company in respect of the said shares pledged and could exercise his rights under section 169 of the Companies Act, and Foll."
203. Considering the evidence of DW1, I am of the view that the first defendant did not have the intention of being an owner and one cannot act on the supposition that the first defendant had purchased the shares or exercised any act of ownership at the relevant time. The case of the second defendant is not acceptable in law.
204. Accordingly, on issue No. 5 I find that the plaintiff handed over 86,469 shares of defendant No. 3 with blank transfer forms to the first defendant only as security for loan.
205. The learned counsel for the defendants 2 and 4 advanced arguments on the premise that the plaintiff put forth a case that the first defendant did not issue notice under Section 176 of the Contract Act, 1872 and, therefore, the sale by the first defendant was not legal. Defendants 2 and 4 had completely misunderstood the case of the plaintiff. The case of the plaintiff has throughout been that the first defendant had absolutely no right to deprive the plaintiff of its shares. The first defendant was only a pledgee of the shares. Therefore, the question of issuing notice under Section 176 of the Contract Act, 1872 was never mooted out by the plain-tiff. It is only at the time of the framing of issues, apparently the point had been argued and issue had been framed. The learned senior counsel Mr. Sawhney for the second defendant submitted that the plaintiff had waived all its rights to a notice under Section 176 of the Contract Act, 1872. The learned senior counsel submitted that the plaintiff in handing over to the first defendant the share certificates together with duly executed share transfer deeds had transferred legal title and had authorised and permitted the further transfer of the legal transfer by the first defendant. Accord-ing to the learned senior counsel the subsequent transferees who came into possession of the original share certificates accompanied by blank transfer deeds duly executed by the registered shareholders i.e. the second defend-ant acquired good legal title to the shares, and the learned senior counsel submitted that the rights of the subsequent transferees cannot be negated on account of any act of omission or commission on the part of the first defendant. The learned senior counsel had characterised the transaction as collateral contract. The learned senior counsel proceeded to contend that even if no notice was given by the first defendant to the plaintiff to sell the shares that will not invalidate the transaction that had taken place when the first defendant handed over the shares with blank transfer deeds. Mr. P.N. Tiwari, the learned counsel for the 4th defendant projected the same point putting it in a different form with an assertion that there was notice by the first defendant under Section 176 of the Contract Act, 1872. The learned counsel Mr. Tiwari for the 4th defendant submitted that the telegram issued by the first defendant on 13.11.1982 and 19.11.1982 would amount to notice under Section 176 of the Contract Act, 1872. The learned counsel further submitted that the shares were transferred in the name of the second defendant on 9.12.1982 for and on behalf of the Heritage and the plaintiff ceased to be the owner. The learned counsel submitted that the plaintiff acquiesced in the transfer of shares in favour of the second defendant State Bank of India. Mr. Tiwari, the learned counsel for the 4th defendant referred to the judgment of the Federal Court, 1950 F.C. 21 (supra) which had already been dealt with by me. The learned counsel Mr. Tiwari referred to the judgment of the Bombay High Court in 1983 Companies Cases 432 for the proposition that once a transfer deed had been executed by the transferor together with original share scripts after filling in the same and after affixing the stamps nothing more is required under the Companies At, 1956. The learned counsel while making this submission had ignored that he was begging the question. If the position that the Heritage was a transferor or the second defendant while purporting to transfer the shares to the 4th defendant had any title to the shares, there is no diffi-culty in applying the ratio laid down by the Bombay High Court but on facts the position is different. The first defendant had dealt with the shares being conscious of the facts that it was only a security for the loan and that is duly reflected in Ex.PW2/3. Therefore, the question of notice under Section 176 of the Contract Act, 1872 would not at all arise. The first defendant had parted with the shares and it did not have any intention of selling the shares for realising the money advanced. As I had noticed above, the case of the first defendant now is that it did not have any resources to lend money. This issue is answered accordingly.
206. Issue No. 6 - Whether the plaintiff permitted defendant No. 1 to give shares with blank transfer forms signed by the plaintiff to defendant No. 2 as security for loan?
207. The issue itself has not been couched in precise terms. It is not the case of the first defendant that he gave the shares to the second defend-ant, though he informed the plaintiff about the transaction with the second defendant. The Heritage had claimed to have purchased the shares from Mathuradas Mohta on 3.11.1982. The documents filed through Heritage by the second defendant are Ex.D-2W1/2 (dated 3.11.1982) and D-2W1/1 (dated 3.11.1982). The Heritage had claimed to have passed a resolution on 25.10.1982 for the transaction with the second defendant. Therefore, one can easily infer that the shares might have been obtained by the Heritage anterior to 25.10.1982. If that is so, how was the alleged sale on 3.11.1982 made is not explained by it either by D.W.1 or D-2W1. In Ex.D-2W1/8 (dated 3.11.1982) the Heritage wrote to the second defendant to hold the shares as security. In Ex.D-2W1/9 (dated 3.11.1982) the Heritage re-quested the second defendant to transfer the shares in the name of the Bank. In the letter written by the Heritage on 3.11.1982 Ex.PW2/1 = copy Ex.D-2W1/9, there is an endorsement by the Manager of the Bank and that is not dealt with by the concerned authority of the second defendant. On the same day, there was a letter dated 3.11.1982 Ex.PW2/2 = marked D-2W/8, which I had already mentioned. The Heritage did not claim to be the owner of the shares. Therefore, it is clear Ex.D-2W1/2 and D2W1/1, both dated 3.11.1982, did not reflect the correct position as on 3.11.1982. The evi-dence of D.W.1 and D2W1 does not at all help us in getting the correct position. As a matter of fact, DW1 and D-2W1, in my view, are not truthful witnesses. The plaintiff had sent Rs. 40,000/- on 30.11.1982 (Ex.PW6/12). The plaintiff had also sent Rs.40,000/- on 23.12.1982 to the first defend-ant towards interest. The shares had earned dividend as on 17.12.1982 Rs.1,34,892/-. Therefore, the first defendant could not have made any claim that the plaintiff had not paid any money towards interest. The first defendant made a demand through telegram for the payment of money towards interest on 13.11.1982 (Ex.PW6/10) when according to the Heritage it had purchased the shares on 3.11.1982. Again on 19.11.1982 the first defendant had issued another telegram (ex.PW6/11). On these dates the first defendant had no right to make a claim for interest when the first defendant did not have the shares with it. The first defendant, from the records it is clear, did not inform the plaintiff that the shares have been sold to the Heritage on 3.11.1982. Therefore, there is no question of the plaintiff permitting the first defendant to give the shares with blank transfer forms signed by the plaintiff to the second defendant as security for loan. The oral evi-dence of DW1 relied on by the second defendant in the written submissions is not at all acceptable. As I had noticed above, evidence of D.W.1 is contrary to the documents on record. The learned counsel for the plaintiff submitted that the plaintiff had nothing to do with the shares being handed over to the second defendant. I find issue No. 6 does not arise for consid-eration. Therefore, no finding is called for on this issue.
208. Issue No. 7 - Whether defendant No. 2 was aware that it was receiving shares with blank transfer forms signed by the plaintiff only as security by defendant No.1?
209. The facts had already been adverted to by me and they need not be again related. In the letter dated 3.11.1982 (Ex.PW2/1 = copy is D-2W1/9) there is an endorsement by the Manager of the Bank in the following terms :-
"B.M. Since the shares are standing in the name of M/s. Nabha Investments Pvt. Ltd. these should first be transferred in the name of Heritage Estate Pvt. Ltd. and they should transfer in the name of the Bank.
Please approve the acceptance of shares for transfer in the Bank's name without transferring in the name of Heritage Estate.
Sd/- 3.11.82
Approved and ordered CRM's Officer 8/2"
Therefore, the second defendant cannot be heard to contend that it wasnot aware of the fact that the shares belonged to the plaintiff. InEx.PW2/3 (dated 10.11.1982) in the share transfer deed it is specificallymentioned that the shares belonged to the plaintiff. When it is so, I amquite unable to appreciate the submission made on behalf of the seconddefendant that the plaintiff had not acted in accordance with Section 187-C(2) of the Companies Act, 1956. Section 187 reads as under :-
"187. (1) A body corporate (whether a company within the meaning of this Act or not) may-
(a) if it is a member of a company within the meaning of this Act, by resolution of its Board of directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the company, or at any meeting of any class of members of the company;
(b) if it is a creditor (including a holder of debentures) of a company within the meaning of this Act, by resolution of its directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of any creditors of the company held in pursuance of this Act or of any rules made thereunder, or in pursuance of the provisions contained in any debenture or trust deed, as the case may be.
(2) A person authorised by resolution as aforesaid shall be entitled to exercise the same rights and powers (including the right to vote by proxy) on behalf of the body corporate which he represents as that body could exercise if it were an individual member, creditor or holder of debentures of the company.
187A. (1) The President of India or the Governor of a State, if he is a member of a company, may appoint such person as he thinks fit to act as his representative at any meetings of the company or at any meeting of any class of members of the company.
(2) A person appointed to act as aforesaid shall, for the pur poses of this Act, be deemed to be a member of such a company and shall be entitled to exercise the same rights and powers (including the right to vote by proxy) as the President or, as the case may be, the Governor could exercise as a member of the company.
187B. (1) Save as otherwise provided in section 153B but not withstanding anything contained in any other provisions of this Act or any other law or any contract, memorandum or articles, where any shares in a company are held in trust by a person (hereinafter referred to as trustee), the rights and powers (including the right to vote by proxy) exercisable at any meeting of the company or at any meeting of any class of members of the company by the trustee as a member of the company shall-
(a) cease to be exercisable by the trustee as such member, and
(b) become exercisable by the public trustee.
(2) The public trustee may, instead of himself attending the meeting, and exercising the rights and powers, as aforesaid, appoint as his proxy an officer of Government or the trustee himself to attend such meeting and to exercise such rights and powers in accordance with the directions of the public trustee:
Provided that where the trustee is appointed by the public trustee as his proxy, the trustee shall be entitled, notwithstanding anything contained in any other provisions of this Act, to exercise such rights and powers in the same manner as he would have been but for the provisions of this section.
(3) The public trustee may abstain from exercising the rights and powers conferred on him by this section if in his opinion the objects of the trust or the interests of the beneficiaries of the trust are not likely to be adversely affected by such abstention.
(4) If for any reason the trustee considers that the public trustee should not abstain from exercising the rights and powers conferred on him by this section and the exercise of such rights and powers is necessary in order to safeguard the objects of the trust or the interests of the beneficiaries of the trust, he may by writing communicate his views in this behalf to the public trustee but the public trustee may in his discretion either accept such views or reject the same.
(5) No suit, prosecution or other legal proceeding shall lie against the public trustee at the instance of the trustee or any person on his behalf or any other person on the ground that the public trustee has abstained from exercising the rights and powers conferred on him by this section.
(6) In order to enable the pubic trustee to exercise the rights and powers aforesaid, the public trustee shall also be entitled to receive and inspect all books and papers under this Act, which a member is entitled to receive and inspect.
187C. (1) Notwithstanding anything contained in section 150, section 153B or section 187B, a person, whose name is entered, at the commencement of the Companies (Amendment) Act, 1974, or at any time thereafter, in the register of members of a company as the holder of a share in that company but who does not hold the beneficial interest in such share, shall, within such time and in such form as may be prescribed, make a declaration to the company specifying the name and other particulars of the person who holds the beneficial interest in such share.
(2) Notwithstanding anything contained elsewhere in this Act, a person who holds a beneficial interest in a share or a class of shares of a company shall within thirty days from the commencement of the Companies (Amendment) Act, 1974, or within thirty days after his becoming such beneficial owner whichever is later, make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.
(3) Whenever there is a change in the beneficial interest in such shares the beneficial owner shall, within thirty days from the date of such change, make a declaration to the company in such form and containing such particulars as may be prescribed.
(4) Notwithstanding anything contained in section 153 where any declaration referred to in sub-section (1), sub-section (2) or sub-section (3) is made to a company, the company shall make a note of such declaration, in its register of members and shall file, within thirty days from the date of receipt of the declaration by it, a return in the prescribed form with the Registrar with regard to such declaration.
(5) (a) If any person, being required by the provisions of sub-section (1), sub section (2) or sub-section (3) to make a declaration, fails, without any reasonable excuse, to do so, he shall be punishable with fine which may extend to one thousand rupees for every day during which the failure continues.
(b) If a company fails to comply with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for every day during which the default continues.
(6) Any charge, promissory note or any other collateral agreement, created, executed or entered into in relation to any share, by the ostensible owner thereof, or any hypothecation by the ostensible owner of any share, in respect of which a declaration is required to be made under the foregoing provisions of this section,but not so declared, shall not be enforceable by the beneficial owner or any person claiming through him.
(7) Nothing in this section shall be deemed to prejudice the obligation of a company to pay dividend in accordance with the provisions of section 206, and the obligation shall, on such payment, stand discharged."
Under sub section 2 any person having beneficial interest in a sharemust make declaration to the company. I fail to see how this is relevant inthe light of the case set up by the plaintiff that it had nothing to dowith the transaction between the Heritage and the second defendant. Thelearned counsel for the plaintiff referred to the judgment of the HighCourt of Karnataka reported in K.M. Mujahid Vs. P.M. Mujahid, 1987 61Company Cases 106. In that case the plaintiff filed a suit for declarationthat certain shares bought in the name of himself and the defendant werebought solely out of the money of the plaintiff and the defendant had noright therein. On retiring from the Government service, the plaintiffdemanded from the defendant to transfer his interest in the shares. Thedefendant refused. Therefore, the suit was filed for a declaration.
210. The defendant while admitting the fact that the plaintiff had contributed money contended that the shares were to be purchased in joint namesand there was a gift by the plaintiff to the defendant and thus he wasentitled to equal share with the plaintiff. One of issues framed was whether the suit of the plaintiff was barred under the provisions of Section187-C and 187-D of the Indian Companies Act, 1957. The lower courts haddecreed the suit. On appeal against the same, by the defendants, thelearned Judge of the Karnataka High Court affirmed the view taken by thecourts below. While so doing, referring to Section 187-C, the learned Judgeobserved :-
"Therefore, it is clear, the above sub-sections do not relate to ownership of shares, more so, when the ownership is in dispute. The three sub-sections, extracted above, presuppose the ownership vesting in a person other than the one who is entitled to beneficial interest in the shares and the respective duties cast upon the ostensible owner of the share and the beneficiary or the person having benefit of the shares."
The learned Judge further observed:-
"Thus viewed, in a civil suit between brothers as to who the true owner is, section 1897C of the Act has no role to play."
The submission of the learned senior counsel for the second defendantrelying upon Section 187-C has absolutely no force. I find that the seconddefendant was fully aware of the fact, whomsoever had deposited the shareswith the second defendant did not have title to the shares and the plaintiff was the owner. The Heritage projected a sale of the shares in itsfavour by referring to D-2W1/2 and D-2W1/1 and the second defendant musthave made enquiries before acting on behalf of the Heritage, specially whenthe Bank Manager had made endorsement on the letter Ex.PW2/1, which isextracted above. The second defendant must have asked the Heritage aboutthe source by which Mathuradas Mohta got the shares. The second defendanthad not explained as to why in Ex.PW2/3 (dated 10.11.1982) the name of theplaintiff is mentioned while the Heritage had deposited the shares. Fromthis, the inference is irresistible that the second defendant being awareof all facts accepted the shares at the instance of the Heritage. If theHeritage had really become the owner by purchasing the shares throughMathuradas Mohta then its conduct in asking the second defendant to recordthe plaintiff as the owner of the shares is inexplicable and its conductdiscloses its mind that it did not intend to have ownership. The documentsrelied upon by the second defendant Ex.D-2W1/2, D-2W1/1, D-2W1/8, D-2W1/9have not been proved.
211. The learned counsel for the plaintiff submitted that the entire thingis a made up one and there were no transactions as alleged by the seconddefendant and the 4th defendant. As on date, according to the learnedcounsel for the plaintiff, on 3.11.1982 the Heritage must have informed theplaintiff that it received the shares from the first defendant and theshares were to be held only as a security for the loan taken by the plaintiff. The principle is that if a thing or state of things is shown to existan inference of its continuity within a reasonably approximate time bothforwards and backwards may sometime be drawn under Section 114-(d) of theIndian Evidence Act, 1872. If on 3.11.1982 the Heritage did not claim titlea probe backwards to the date of transaction between the plaintiff and thefirst defendant would reasonably take one to the position that the firstdefendant held the shares only as security. I have no hesitation in accepting the submission made on behalf of the plaintiff. Accordingly, I findthat law presumes that the second defendant was aware that it was receivingthe shares with a blank transfer deed signed by the plaintiff as securityby the first defendant. This issue is answered in favour of the plaintiffand against the defendants.
212. Issue No. 8 - whether it was open to defendant No. 2 to take as security shares which were known to them to be the property of a person otherthan the borrower and were accompanied only by blank transfer forms signedby the plaintiff?
213. Issue No. 9 - Whether it was open to defendant No. 2 to fill the blanktransfer forms and get the alleged transfer registered in its name with thedefendant No. 3. Issue Nos. 8 and 9 are to be considered together.
214. In its written submission the second defendant had submitted thatissue No. 8 had been wrongly cast on the assumption that the second defendant knew that the title in the shares vested in a person other than theborrower, the Heritage Estates Pvt. Ltd. The facts had already been narrated in extenso. As I had mentioned while deciding issue No. 7 the endorsement made by the Bank Manager in the letter dated 3.11.1982 Ex. PW2/1 hadnot been considered by the Bank and that has not been explained also. Thequestion is whether it was open to the second defendant to take as security, shares which did not belong to the constituent is not very much relevant to the plaintiff. But the way in which the second defendant had actedin accepting the shares as security for a facility which was not reallyavailed of by the Heritage would be relevant. The second defendant had notproduced any material to show that the Banks could accept shares in thename of the third party as security. The material produced positively showsthe contra. The second defendant had acted in violation of the guidelines.Therefore, issue No. 8 is answered against the second defendant and I findthat it was not open to the second defendant to take the shares as securityat the instance of the Heritage.
215. Issue No. 9 does not clearly reflect the disputes between the parties.Ex.PW2/3 the transfer deed is clear on facts. The second defendant gotitself registered by the third defendant Company representing that theshares were only held as cover for the facilities. Therefore, whatever thelegal effect of the transfer between the Heritage and the second defendantthat would not affect the rights of the plaintiff to the shares and thesecond defendant cannot claim ownership to the shares in the light ofEx.PW2/3. The second defendant by its own conduct had come out that it didnot claim ownership because the dividend received from the third defendantwas credited by the second defendant in the name of the Heritage. Therefore, the request by the second defendant to the third defendant to register the shares in the name of the second defendant is a brutum foemen so far as the rights of the plaintiff to the shares are concerned. What wasargued on behalf of the second defendant was that the book of instructionsis only in the nature of guidelines and that the plaintiff has no locusstandi to question if there had been non compliance with the guidelines bythe Bank. It was further submitted that notwithstanding the internal guidelines the second defendant was legally entitled to register the transfer ofshares, especially in view of the accepted legal position, that is thedelivery of share certificates accompanied by duly executed blank sharetransfer deeds would pass good title. The second defendant, in any event,was not within its rights in getting the shares transferred in its name.Therefore, the No. 9 is answered against the second defendant and in favourof the plaintiff.
216. Issues No. 10, 11, 14, 15, 16, 17 and 20 have to be dealt with together. Issue No. 12 had been considered along with issue No. 3. Issue No. 13had been considered along with issue No. 5.
217. I show now go to issue No. 18 - Whether the plaintiff is estopped byits conduct/acquiescence in not asserting their rights in respect of theseshares in dispute, and are barred from claiming the reliefs as prayed forin the plaint?
218. The principle of acquiescence dealt with by the Madras High Court inS.L. Ramaswamy Chetty and another Vs. M.S.A.P.L. Palaniappa Chettiar, AIR1930 Madras 364 would provide complete answer to the contention of defendants 2 and 4. The learned senior counsel for the second defendant again andagain had been persisting on the fact that the plaintiff had given blankshare transfer deeds with the original share certificates to the firstdefendant and, therefore, the plaintiff had lost its rights. The learnedsenior counsel referred to the evidence of P.W.6, which I had already dealtwith. What had happened between Mathuradas Mohta, Heritage, second defendant and the 4th defendant had not been proved to be true and the seconddefendant had not acted in the way in which the law would expect it to Act therefore, the reliance on the facts by the learned senior counsel for thesecond defendant relating to the transactions between the parties withoutthe knowledge of the plaintiff cannot avail the second defendant.
219. The learned counsel for the 4th defendant followed the same reasoning.
220. I am not able to accept the submissions made on behalf of the seconddefendant and the 4th defendant. Section 115 of the Evidence Act, 1872speaks of the estoppel in the following terms :-
"Estoppel.- When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing."
The defendants 2 and 4 had not put forth any plea bringing the casewithin the four corners of this provision.
221. The learned counsel for the 4th defendant submitted that the act ofthe plaintiff would constitute negligence and breach of its duty.
222. The learned counsel for the 4th defendant referred to, in support ofhis contention, the decision of the Kings Bench FULLER Vs. GLYN, MILLS,CURRIE & CO. in 1914 (2) KB 168 at page 177. The learned Judge observed atpage 177 as under :-
"I must therefore consider the principle on which this estoppel rests. In my view it does not rest on the mere manual act of signature. That act is not an essential element in the estoppel rests. In my view it does not rest on the mere manual act of signature. That act is not an essential element in the estoppel. Its importance, where it exists, is as one step towards placing in the power and disposition of another an instrument which carries with it a representation of authority to that other person to deal with it, and which when produced to a third person will convey to that third person that such an authority exists. If that be the principle I see no difference between the case where the owner signs and hands to a broker and leaves in his hands a document so signed, and the case where the holder of a document signed by the registered owner puts it into the hands of his broker, or the case (which is this case) where the true owner, never having had possession of the document, but knowing it to be in such a condition that the broker can deal with it, allows it to remain in the broker's possession and thereby ena bles the broker to part with it to another who takes it on the faith of the apparent authority of the broker to deal with it. In my view the plaintiff, though he did not actually sign the transfer himself, gave rise to just the same mischief as if he had affixed his signature himself. The present case is therefore covered by the principle of the cases I have mentioned, and there must be judgment for the defendants."
The learned counsel Mr. Tiwari referred to Fazal D. Allana Vs. Mangaldas M. Pakrasa, AIR 1922 Bombay 303. The Bombay High Court observed :-
"On the evidence before me, it is quite clear that the first defendant and defendants in the other suits filed by the plaintiff acted with perfect good faith and purchased the shares for value. Except where a share-holder is estopped from denying the title of some particular transferee the general rule of English law is that a purchaser of shares acquires no better title than his vendor himself has (Colonial Bank Vs. Cady and Williams [(1890) 15 App. Cas. 267] ), and that shares in this respect are like other goods and chattels: see Cole Vs. North Western Bank ( [1875] L.R. 10 C.P. 354] ), and Lindley on Companies, Vol. I, p. 658 (6th Ed.)"
On the basis of this finding, the Bombay High Court further observed:-
"But there is no authority for extending that proposition and saying that where performance of the contract is obtained by fraud or cheating, the property in the goods delivered in performance of the contract does not pass to the buyer. In my opinion, where a seller is inducted to perform his part of a valid contract of sale and to deliver the goods to the buyer in performance of that contract by fraud or cheating on the part of the buyer, the property in the goods delivered to the buyer passes to the buyer, and if the buyer sells and delivers the goods to a bona fide purchaser for valuable consideration without notice, such a purchaser gets a good title to the goods and the seller cannot recover the goods from such a purchaser. The seller has his remedies against the buyer under the contract and can sue him for the price of goods. When goods sold have been delivered to the buyer and the price of the goods is not paid by the buyer, the seller can only sue the buyer for the price of goods except in the following cases:-
(a) A seller is entitled to rescind the contract and retake possession of the goods delivered to the buyer on failure of the buyer to pay price at the time fixed where it is stipulated by the contract that he should be so entitled: (section 121 of the Indian Contract Act.)
(b) Where the contract is voidable or terminable by the seller, the seller may disaffirm the contract and retake possession of the goods which have been delivered under the contract.
(c) The seller may also rescind the contract and retake posses-
sion of the goods where the contract is unlawful for causes not apparent on its face, and the defendant is more to blame than the plaintiff. In such a case if the parties are in pari delicto the seller cannot rescind the contract and retake possession of the goods from the buyer.
Even in cases (a), (b) and (c) the seller cannot retake possession of the goods which have been delivered to the buyer under the contract where the ownership of the goods is transferred by the buyer to a third person who, before the contract is rescinded, buys them in good faith, of the buyer who is in possession of the goods unless the circumstances which render the contract voidable amount to an offence committed by the buyer or those whom he represents: see section 108, Exception 3, Indian Contract Act.
I hold, therefore, that even if Esmail was induced to part with the share certificates on the fraudulent representations of Anveri which amounted to cheating, the plaintiff's title both legal and equitable in the shares passed to the brokers and the brokers passed their title in the two half-shares to defendant No. 1 who is entitled to retain the two half-shares."
In the instant case, the position is entirely different.
The learned counsel Mr. Tiwari also referred to Smt. Sumitra DebiJalan Vs. Satya Narayan Prahladka and others, . Theratio laid down in this case is not applicable to the facts of the instantcase.
223. The learned counsel Mr. Tiwari referred to Section 27 of the Sale ofGoods Act, 1930. The provision reads as under :-
"27. Sale by person not the owner.-
Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell:
Provided that, where a mercantile agent is, with the consent of the owner, in possession of the goods or for a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a 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 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."
224. A plain reading of the provision would show that it does not apply tothe facts of this case.
225. The learned counsel for the plaintiff Mr. J.M. Mukhi relied upon anumber of decisions to bring home his point that the question of estoppelwould not arise at all on the facts and circumstances of this case. Hereferred to:
1. Mitra Sen Vs. Janki Kaur, AIR 1924 PC 213
2. Dawsons Bank Ltd. Vs. Nippon M.K. Kaisha, .
226. The learned counsel for the plaintiff submitted that there must be aspecific plea of estoppel and it must be strictly proved. For this proposition, he called in aid the following decisions:-
1. Dawsons Bank Ltd. Vs. Nippon M.K. Kaisha
2. Pappammal Vs. Alamelu Ammal .
3. Govindbhai Lallubhai Patel Vs.Dayabhai Nathu Bhai Patel .
4. Ram Gopal Vs. Mohan Lal
5. Associated Publishers (Madras) Ltd. Vs. K. Bahyam, .
227. The learned counsel stressed on a very obvious thing that the onus ofproving estoppel rests on the party pleading it. It does not require anyelucidation. Evenso, the learned counsel referred to:-
1. Mitra Sen Vs. Janki Kuar AIR 1924 P.C. 213
2. Bennet Coleman & Co. Vs. Punya Priya
3. Maddanappa Vs. Chandramma
4. George Leslie Vs. State of Kerala The learned counsel Mr. J.M. Mukhi also referred to certain decisionsdealing with estoppel in relation to shares:-
1. John Tinson & Co. Ltd. Vs. Surjet Malhan,
2. Hindustan Dorr Oliver Vs. A.K.Menon (1994) 4 Company Law Journal 507
3. Abdul Vahed Vs. Hasanali Ghasia (DB)
4. Mohambaram Vs. Ram Narayan AIR 1935 Madras 850
5. Katta Ramaswami Gupta Vs. Kamalammal AIR 1922 Madras 44
6. Mercantile Bank Vs. Central Bank 1928 1 All E R 52 (PC)
7. France Vs.Clark 1884 26 Ch. 257
8. Fox Vs. Martin 1895 66 LJ Ch. 473
228. The principle is too elementary warranting any expatiation and I do not want to enter into any lengthy dissertation on the point. There isabsolutely no question of estoppel against the plaintiff. The issue isanswered in favour of the plaintiff and against defendants 2 and 4.
229. Before I go to the fascicule of issues which I have mentioned above,one more issue remains to be considered and that is issue No. 19 - whetherthe defendant No. 2 had acted only as an attorney on behalf of the defendant No. 4 to lodge the shares for transfer with defendant No. 3?
230. The second defendant after 7.3.1983 had applied for transfer of sharesfor the benefit of the 4th defendant because by that time, according todefendants 2 and 4, both the defendants had purchased the shares throughthe open market. By the time the third defendant could act at the instanceof the second defendant for and on behalf of the 4th defendant the suit hadbeen instituted and, therefore, as between the 2nd defendant and the 4thdefendant in whatever the capacity the second defendant acted on behalf ofthe 4th defendant is not relevant and this issue need not at all be considered.
231. I shall now proceed to consider issues No. 10, 11, 14, 15, 16, 17 and20.
Issue No. 10 - Whether defendant No. 2 at any time acquired any rightor title in the said shares?
Issue No. 11 - Whether it was open to defendant No. 2 to collectdividend on the said shares?
Issue No. 14 - Whether it was not open to defendant No. 2 to purchasethe shares from itself as agent of defendant No. 4?
Issue No. 15 - Whether shares in dispute were purchased by defendantNo. 4 is open market and acquired valuable rights in respect of theseshares under law?
Issue No. 16 - Whether defendant No. 4 is a bonafide holder for valuein good faith and without notice of any defect in the title of the respective shares held by the plaintiff or defendant No.1?
Issue No. 17 - Whether there is any privity of contract between plaintiff and defendants No. 2 & 4. If not, what is its effect?
Issue No. 20 - Whether the plaintiff is entitled to get the sharesback in its own name together with accumulated dividend and bonus shares?
232. The learned counsel for the plaintiff formulated his point which couldbe stated as under:-
(1) The pledge retains general property ;
What the learned counsel for the plaintiff means is that until the title of the pledge is divested by means known to law, the pledge would continue to be the owner of the goods or the property. The learned counsel referred to :-
1. Balkrishan Gupta Vs. Swadeshi Polytex Ltd.,
2. Bank of Bihar Vs.State of Bihar
3. Lallan Prasad Vs. Rahmat Ali
4. M.R. Dhawan Vs. Madan Mohan
5. Raja KVS Sundara Narasayamma Vs. Andhra Bank Ltd.,
6. Hindustan Dorr Oliver Vs. A.K. Menon (1994) 4 Company Law Journal 507
7. Belgaum Pioneer Urban Co-op. Credit Bank Ltd. Vs.Sripadangala-
varu Swamiji, AIR 1962 Mysore 48 (DB)
8. Roopchand Jankidas Vs. National Bank of India, AIR 1919 Cal-
cutta 540.
(2). The right of the pledgee to deal with the security would arise only if the pledge committed default in the payment of interest or the amount.
The learned counsel for the plaintiff referred to :-
1. Jaswantrai Manilal Akhaney Vs. State of Bombay, .
2. Allahabad Bank Vs. Firm Madan Mohan AIR 1917 Lahore 421
3. Alliance Bank of Simla Vs. Ghamadi Lal, AIR 1927 Lahore 408 (3) The pledgee is bound to give notice of sale to the pledge and that is mandatory.
The learned counsel referred to :-
1. Hindustan Dorr Oliver Vs. A.K.Menon (1994) 4 Company Law Journal 507
2. T.S. Kotagi Vs. Tahsildar Gadag
3. Prabhat Bank Vs. Babu Ram
4. Bharat Bank Ltd. Vs. Sheoji Prasad
233. This question becomes academic because the first defendant did not retain the shares with him at all and it did not have any right as a pledgee to the shares.
(4) The plea of the 4th defendant that the shares were purchased in open market is specious and this is with reference to issues No. 15 and 16.
The learned counsel for the plaintiff referred to :-
Rameshwar Vs. Tara Singh (5) Reference was made to Section 27 of the Sale of Goods Act, 1930, which I had already dealt with.
234. The learned counsel for the plaintiff submitted that the pledge canfollow the goods in the hands of a third party and third parties who are inpossession of the same is without any right to retain them. The learnedcounsel referred to :-
1. John Tinson & Co. Pvt. Ltd. Vs. Mrs. Surjeet Malhan JT (2) 1997 SC 257
2. Belgaum Pioneer Urban Co-op. Credit Bank Ltd. Vs. Sripadanga-
lavaru Swamiji, AIR 1962 Mysore 48 (DB) paragraph 12.
3. Hindustan Dorr Oliver Vs. A.K.Menon (1994) 4 Company Law Journal 507 paragraph 20
4. Abdul Vahed Vs. Hasanali Ghasia .
The learned counsel also referred to Sections 7 and 8 of the Specific Reliefs Act, 1963.
(6) The learned counsel submitted that the pledge would be entitled to get all accretions to the shares. He referred to :-
1. Dhian Singh Sobha Singh Vs. Union of India,
2. M.R. Dhawan Vs. Madan Mohan
3. Rani Leela Kumari Vs. J. Zamberlal , .
235. The learned counsel for the plaintiff submitted that no doubt theplaintiff borrowed money from the first defendant. The borrower was ongiving the shares as security. The blank transfer deeds were given. If theplaintiff had committed default in paying interest or committed default inpaying the principal amount when it became due and if the plaintiff did notpay when the demand was made by the first defendant, the first defendantwas within its rights to act in accordance with law. The plaintiff had paidinterest and the shares were worth on that date more than Rs. 30 lakhs andthey were also earning dividends. The first defendant was in possession ofvery valuable security with great potential. The second defendant at theinstance of the Heritage had manipulated things and had brought about asituation to look as if the shares had been sold to the 4th defendant. Thesecond defendant had acted as a transferor and the transferee which couldbe seen from Ex. PW8/1 to PW8/31. I had already mentioned about thesedocuments. There are inherent infirmities in the documents and on the dateof the purported transfer the second defendant had no title to the shares.The learned counsel for the plaintiff submitted that the case of the seconddefendant and the 4th defendant that the shares were purchased from Mathuradas Mohta and B.C. Devidas has not been established. The learned counselfurther submitted that even assuming they are true that does not advancethe case of the second defendant or the 4th defendant. According to thelearned counsel, the second defendant was not in a position to convey anytitle to the 4th defendant. 4th defendant claims to be a bona fide purchaser of value without any notice of defects. The learned counsel for theplaintiff submitted that in view of what had happened the 4th defendantcannot claim to be a bona fide purchaser for value. The learned counsel forthe plaintiff submitted that when according to the second defendant on8.2.1983 it had handed over the shares with blank transfer deeds to theHeritage why should the share certificates given again to the second defendant to be sold to the 4th defendant? The blank transfer deeds, allegedto have been handed over by the second defendant to the Heritage, have notbeen produced before Court. The learned counsel further submitted that if Heritage could hand over the shares to the second defendant on 10.11.1982by one transfer deed Ex.PW2/3 why so many documents Ex.PW8/1 to PW8/31 wereused. The learned counsel for the plaintiff also proceeded to submit thatthe second defendant was not within its rights in executing any blanktransfer deed because the second defendant was not the owner of the shares.The learned counsel for the plaintiff submitted with considerable forcethat the movement of the shares from the second defendant to the Heritageon 8.2.1983 and the shares moving on to B.C. Devidas and moving on in thename of the 4th defendant and on 10.2.1983 and on 25.2.1983 and the sharesbeing allegedly transferred to the 4th defendant on 7.3.1983 by the seconddefendant acting as transferor and the transferee would still remain amystery not having been solved by defendants 2 and 4. The learned counselfor the plaintiff brought to my attention the oral evidence of P.W.2,P.W.8, P.W.9 and P.W.10 and evidence of D-2w1, D-4W1 and D-4W2 and demonstrated that the case of the second defendant and 4th defendant to betotally baseless. I had made my comments while extracting the relevantportions of the evidence earlier. Yet another aspect to be noticed is, thereliance placed by defendants 2 and 4 on Section 108 of the Companies Act,1956. The second defendant, the State Bank of India, had purported totransfer the shares as transferor and acting as the agent of the transfereethe 4th defendant, Unit Trust of India. As evidenced by Ex.PW2/3 (dated10.11.1982) the second defendant had received the shares from the Heritageonly as a pledgee. The second defendant applied to the third defendant forthe registration of the shares in its name. That was done under Section 108of the Companies Act, 1956. On 9.12.1982 the third defendant registered theshares as per the request of the second defendant. It is admitted by thesecond defendant that on 8.2.1983 the shares were handed over to the Heritage along with the blank transfer deeds. The plaintiff had challenged theaction of the second defendant and submitted that the second defendant hadnever been the owner of the shares. Now the second defendant claims titleon the strength of the registration in its name in the Register to thethird defendant. I am of the view that on 10.11.1982 the second defendanthad no title to the shares, by virtue of the registration the second defendant cannot project any claim of titles to the shares. That is not theobject of Section 108 of the Companies Act, 1956. Section 108 of the Companies Act, 1956 is not intended to confer title on a person on the basis ofregistration alone.
In the light of the settled legal position, I find on issue No. 10that the second defendant did not acquire any title to the shares.
236. On issue No. 11, I find that the second defendant collected dividendonly on behalf of the Heritage and the second defendant never claimedownership.
237. On issue No. 14, in view of my finding that the second defendant hadno title to the shares, this issue is not relevant and need not be decided.
238. I find on issue No. 15 that the 4th defendant did not purchase theshares in open market, as claimed by it, and did not acquire any right inthe shares.
239. I find on issue No. 16 that the 4th defendant is not a bona fideholder for value in good faith and without any notice of any defect in thetitle.
240. I find on issue No. 17 that the question of any privity of contractbetween the plaintiff and defendants 2 and 4 would not arise for consideration at all. Defendants 2 and 4 had come to deal with the shares at theinstance of the Heritage and the issue does not arise for consideration.Defendants 2 and 4 had dealt with the shares of the plaintiff in a tortiousmanner. Therefore, there is no need to dwell at length the privity ofcontract and its legal effect. The issue is answered accordingly.
241. I find on issue No. 20 that the plaintiff is entitled to get theshares back in its own name together with accumulated dividend and bonus.
242. After a long journey through the facts and the case law, I have toconsider the relief to be granted to the parties. The plaintiff is theowner of the shares. The plaintiff had borrowed Rs. 14 lakhs from the firstdefendant agreeing to repay with interest @ 24% per annum. The relevantdate of commencement of payment of interest could be fixed at 1.5.1982. Thefirst defendant had taken the shares as security for the loan and had beenresponsible for allowing the shares to reach the 4th defendant actingbeyond his rights in the shares. And now the 4th defendant being in possession of the shares had stepped into the shoes of the first defendant. Thefirst defendant has not claimed any money from the plaintiff. The seconddefendant also does not make any claim against the plaintiff on the basisof any pledge or ownership. Thus, the 4th defendant is answerable to theclaims of the plaintiff. The 4th defendant is bound in law to return theshares with the bonus shares to the plaintiff. The plaintiff shall also beentitled to all the accretions to the shares. At the time of the arguments,none of the counsel for the parties could give exact details of the accretion to the shares. I made a request to the learned counsel for the 3rddefendant to furnish details. By letter dated 18.6.1998 the learned counselfor the 3rd defendant furnished the details which are as under:-
"Details of Bonus Shares allotted on 86469 shares Date of No. of Ratio allotment Shares
- 86469 -
10.04.85 32425 3:8
19.10.87 118894 1:1
14.07.95 237788 1:1
29.07.97 285345.60 3:5
TOTAL 760921.60
Details of Dividend paid on 86469 shares + Bonus Shares issued
from time to time
Date of Payment Amount (Rs) Remarks
20.6.83-16.5.90 1408385.20 Dividend has been
transferred to
Registrar
of Companies,
Jallandhar
27.11.87-29.8.91 2776264.80 Deposited with High
Court, New Delhi.
22.10.90-29.8.91 2076341.80 Paid to Unit Trust
of India.
18.2.92-24.1.91 17201581.20 Paid to Unit Trust
of India.
TOTAL 23462573.80
243. I posted the matter for directions before Court on 21.8.1998 requesting the learned counsel for the parties to check up the details furnished by the learned counsel for the third defendant. The learned counsel for the plaintiff and the learned counsel for the 4th defendant prayed for time and the matter was posted on 31.8.1998. Mr. Tiwari, the learned counsel for the 4th defendant represented that the 4th defendant had given particulars regarding the dividend received. The details are as under :-
INVESTMENT ACCOUNTS - EQUITY POOL SMITHLINE BEECHAM CONSUMER HEALTH LTD.
(FORMERLY KNOWN AS H.M.M. LTD.) - DISPUTED SHARES The details of holding of the above disputed shares as on date and dividend received are as under:
A. DETAILS OF HOLDING
Original shares in 1982-83 86469
Add:
1. Bonus shares (3:8) allotted in 1985 32425
-------
118894
2. Bonus shares (1:1) allotted in 1987 118894
-------
237788
3. Bonus shres (1:1) allotted in 1995 237788
-------
475576
4. Bonus shres (3:5) allotted in 1997 285345
-------
Number of shares held as on date 760921
-------
B. DETAILS DIVIDEND RECEIVED
The dividend received so far on these disputed shares is
Rs.2,35,69,415.20 (as per Annexure), which has been credited to a
separate A/C "Sundry Deposit A/C - H.M.M."
For information please.
SCHEDULE OF SUNDRY DEPOSIT A/C - H.M.M.
SMITHKLINE BEECHAM CONSUMERS HEALTHCARE LTD.
(formerly known as H.M.M. Ltd)
DIVIDEND DUE ON DISPUTED SHARES
YEAR DIVIDEND NO. OF AMOUNT AMOUNT
RATE SHS. DUE RECEIVED
1982-83 1.20 86469 103762.80
1983-84 1.50 86469 129783.50
1.00 86469 86469.00
1984-85 2.00 86469 172938.00
1.25*118894 148617.50
1985-86 2.30 118894 273456.20
2.00 118894 237788.00
1986-87 3.00 118894 356682.00
2.50 118894 297235.00
1987-88 1.75 237788 416129.00
2.25 237788 535023.00
1988-89 2.65 237788 630138.20
2.25 237788 535023.00
1989-90 3.25 237788 772811.00
2.85 237788 677695.80
1990-91 8.00 237788 1902304.00
1991-92 3.60 237788 856036.00 # 6367833.80
5.40 237788 1284055.20 1284055.20
1992-93 3.60 237788 856036.00 856036.00
5.40 237788 1284055.20 1284055.20
1993-94 3.75 237788 891705.00 891705.00
6.25 237788 1486175.00 1484675.00
1994-95 4.50 237788 1070046.00 1070046.00
6.50 237788 1545622.00 1545622.00
1995-96 2.35 475576 1117603.60 1117603.60
3.40 (475576) 1616958.40 (1616958.40)
285345 970173.00
1996-97 2.50 475576 1188940.00 1188940.00
3.50 475576 1664516.00 1664516.00
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22161369.25 20373547.00
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* BONUS SHARES ALLOTTED IN 1985 IN RATIO OF 3:8 i.e. 32425
@ BONUS SHARES ALLOTTED IN 1987 IN RATIO OF 1:1 i.e.118894
# AMOUNT RECEIVSED FROM THE COMPANY RS. 2076341.80 AND
FROM THE COURT RS.4291492.00
$ BONUS SHARES ALLOTTED IN 1995 IN THE RATIO OF 1:1
i.e. 237788
X BONUS SHARES ALLOTTED IN 1997 IN THE RATIO OF 3:5
i.e. 285345
1997-98 2.00 760921 1521842.00 1521842.00
2.20 760921 1674026.20 1674026.20
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25357237.45 23569415.20
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On 14.8.1991 this Court passed an order directing the 4th defendant to give an undertaking. The order reads as under :-
"Counsel for the plaintiff and defendant No. 4 agree that defendant No. 4 may have the shares including bonus and rights shares registered in their name in the record of defendant No.3. It is further agreed between the parties that the dividends received by defendant No. 4 in respect of these shares will be reinvested in some security, fetching interest at the rate of 13% per annum and the defendant No. 4 shall refund the principal and interest thereon, if the suit is decided in favour of the plaintiff. In case the suit is decreed in favour of the plaintiff, defendant No. 4 shall transfer the shares including the rights and bonus shares to the plaintiff and shall also bear all the charges of stamps of retransfer of shares in favour of the plaintiff. The cost of purchase of the rights shares together with interest at 13% p.a. shall be paid by the plaintiff to defendant No. 4 in the event of such transfer. It is further agreed between them that the amount deposited in Court and kept in Fixed Deposit by the Registrar shall be encashed and a demand draft together with interest payable at Bombay in favour of defendant No. 4 may be handed over to the counsel for defendant No. 4 within 2 weeks. It is further agreed that defendant No. 4 shall reinvest this amount also in appropriate securities, fetching interest @ 13% p.a. Defendant No. 4 would refund the total amount received by way of dividend together with interest accrued thereon as may be directed by the Court after the disposal of the suit. It is further agreed that defendant No. 4 would give an undertaking in the form of affidavit to this Court within 30 days that the defendant No. 4 will comply with the order of this Court within 30 days from the date of judgment, in the event the suit is decreed. It is also agreed that the applications filed by the parties i.e. I.As. No. 1053/90 and 2628/91 shall stand disposed of in view of this arrangement.
The parties have arrived at an agreement as stated above. The parties shall be bound by the terms of this arrangement till disposal of the suit. The interim order granted by this Court in favour of the plaintiff shall stand vacated."
On 6.9.1991 Mr. Kirti kumar Pujara, Deputy General Manager (Legal) of the Unit Trust of India, 4th defendant, filed the affidavit of undertaking in the following terms :-
"1. That I am the Deputy General Manager (Legal) of the Defendant No. 4 in the above suit, and am fully authorised and competent to swear this affidavit.
2. I say that I undertake to comply with all the terms and conditions of the order dated 14.8.1991 made by this Hon'ble Court in IA No.5060/87, which inter alia, reads :
"Counsel for the plaintiff and defendant No. 4 agree that defendant No. 4 may have the shares including bonus and rights shares registered in their name in the record of defendant No.3. It is further agreed between the parties that the dividends received by defendant No. 4 in respect of these shares will be reinvested in some security, fetching interest at the rate of 13% per annum and the defendant No. 4 shall refund the principal and interest thereon, if the suit is decided in favour of the plaintiff. In case the suit is decreed in favour of the plaintiff, defendant No. 4 shall transfer the shares including the rights and bonus shares to the plaintiff and shall also bear all the charges of stamps of retransfer of shares in favour of the plaintiff. The cost of purchase of the rights shares together with interest at 13% p.a. shall be paid by the plaintiff to defendant No. 4 in the event of such transfer. It is further agreed between them that the amount deposited in Court and kept in Fixed Deposit by the Registrar shall be encashed and a demand draft together with interest payable at Bombay in favour of defendant No. 4 may be handed over to the counsel for defendant No. 4 within 2 weeks. It is further agreed that defendant No. 4 shall reinvest this amount also in appropriate securities, fetching interest @ 13% p.a. Defendant No. 4 would refund the total amount received by way of dividend together with interest accrued thereon as may be directed by the Court after the disposal of the suit. It is further agreed that defendant No. 4 would give an undertaking in the form of affidavit to this Court within 30 days that the defendant No. 4 will comply with the order of this Court within 30 days from the date of judgment, in the event the suit is decreed. It is also agreed that the applications filed by the parties i.e. I.As. No. 1053/90 and 2628/91 shall stand disposed of in view of this arrangement.
The parties have arrived at an agreement as stated above. The parties shall be bound by the terms of this arrangement till disposal of the suit. The interim order granted by this Court in favour of the plaintiff shall stand vacated."
3. I further undertake and agree to abide by the order of the court, within 30 days from the final disposal of the suit to comply with the above terms, in the event the suit is decreed in favour of the plaintiff and against the defendant No.4.
4. I further undertake and agree that all the charges of retransfer of the shares including rights and bonus thereof shall be reimbursed by the Defendant No. 4 when the shares including rights and bonus are required by this Hon'ble Court to be retransferred in favour of the plaintiff.
5. I further undertake that all the amounts of dividends received together with interest @ 13% p.a. shall also be refunded to the plaintiff if the suit is decreed by this Hon'ble Court against the Defendant No. 4 within 30 days from the date of the judgment."/blockquote>
243. The 4th defendant has to pay back the amounts received by it i.e. Rs.2,35,69,415.20 as dividend to the plaintiff with interest at 13% per annum as per the undertaking.
244. The plaintiff is bound to repay the debt to the 4th defendant. The second and the 4th defendants submitted that the plaintiff could be enti-tled to redemption only on the plaintiff's depositing the money borrowed with interest. While at once stating that the plaintiff had rights in the shares, the law is clear that the plaintiff is not obliged to deposit the money before asking for the return of the shares. In this case, the first defendant had disabled himself from returning the shares. And as I have pointed above, defendants 2 and 4 are claiming title to the shares, defend-ants 2 & 4 and had not acted in accordance with law in dealing with the shares. However, the 4th defendant dealing with public money cannot be deprived of the payment of the loan amount from the plaintiff. The plain-tiff should pay the sum of Rs. 14 lakhs with interest @ 24% per annum w.e.f. 1.9.1982 upto 31.8.1998. In this, the sum of Rs. 80,000/- paid by the plaintiff to the first defendant has to be deducted. The plaintiff shall pay Rs.66,96,000.00 to the 4th defendant.
245. The 4th defendant is bound to pay the plaintiff all the amounts re-ceived as dividend from the third defendant. The relief relating to rendi-tion of accounts against defendants 1 and 2 is not necessary in view of the reliefs granted to the plaintiff. While returning the monies to the plain-tiff, the 4th defendant shall retain the sum of Rs.66,96,000/-, payable by the plaintiff to the 4th defendant.
246. I am aware that the second defendant had credited the sum of Rs.1,34,892/-, the dividend received from the third defendant in the name of the Heritage and the Heritage must have taken the same. But that has to be ignored.
247. In view of the facts and circumstances I am of the view that the parties should be directed to bear their own costs.
248. The plaintiff is bound to pay Rs.2,32,387.00 as court fees on the sum of Rs.2,35,69,415.20.
249. The third defendant has changed its name and the cause title along with the original name of the third defendant, the present name of the third defendant is also shown i.e. SmithKline Beecham. Accordingly, there shall be a decree declaring:-
(1) that the plaintiff is the absolute owner of 86,469 shares along with bonus shares (6,74,452) of HMM Ltd. (SmithKline Beecham) and the plaintiff shall be entitled to deal with the same;
(2) directing the 4th defendant to pay the plaintiff a sum of Rs.2,35,69,415.20, the amount of dividend received by defendant No. 4, with interest at 13% per annum from September 1991 within thirty days from the date of the decree;
(3) directing the 4th defendant to deduct from the total amount payable i.e. Rs.2,35,69,415.20, the sum of Rs.66,96,000.00 payable by the plaintiff to the 4th defendant;
(4) declaring that the plaintiff shall be entitled to have his name entered in the Register of the third defendant as owner with reference to 86,469 shares along with bonus shares i.e. 6,74,452 bonus shares;
(5) directing the third defendant to enter the name of the plaintiff as the owner of shares and the bonus shares in its Register;
(6) directing the 4th defendant to hand over 86,469 equity shares and bonus shares (6,74,452) of the third defendant Company to the plaintiff within thirty days from the date of the decree;
(7) directing the plaintiff to pay a sum of Rs. 2,32,387.00 as court fee on the sum of Rs.2,35,69,415.20;
(8) directing the 4th defendant to deposit a sum of Rs.2,32,387.00 in this Court as court fees, out of the balance payable to the plaintiff as per sub para (3).
(9) directing the dismissal of the claim of the plaintiff for the reliefs claimed in (b), (d) and (e) as being unnecessary in view of the reliefs granted;
(10) directing the 4th defendant to pay the dividend received by it after 25.1.1998 to the plaintiff with interest at 13% per annum within thirty days from the date of the decree;
(11) directing the third defendant to pay the unpaid dividend to the plaintiff within thirty days from the date of the decree.
(12) directing the parties to bear their respective costs.