Bombay High Court
Standard Chartered Bank vs 1) Andhra Bank Financial Services on 13 July, 2010
Author: V.M. Kanade
Bench: V.M. Kanade
This Order is modified/corrected by Speaking to Minutes Order
1
BEFORE THE SPECIAL COURT CONSTITUTED UNDER THE
SPECIAL COURT (TRIAL OF OFFENCES RELATING TO
TRANSACTIONS IN SECURITIES) ACT, 1992 AT BOMBAY
SUIT NO. 6 OF 1994
Standard Chartered Bank, )
a Company incorporated under )
the provisions of the laws of )
England and Wales and having )
its Registered Office at 1, )
Aldermanbury Square, London
ig )
EC2V 7SB, carrying on banking )
business in India and having )
one of its branches at 23-25, )
Mahatma Gandhi Road, Fort, )
Bombay - 400 023. ) ..... Plaintiffs.
Versus
(1) Andhra Bank Financial Services )
Limited, a Company incorporated )
under the provisions of the )
Companies Act, 1956, having its )
Registered Office at Andhra Bank )
Buildings, Sultan Bazar, Hyderabad)
- 500 195 and one of its branch )
offices at 11 Homi Mody Street, )
rd
Bansilal Building, 3 Floor, Fort, )
Bombay - 400 023. )
)
(2) Hiten P. Dalal, Bombay )
Indian Inhabitant, residing at )
201, Shanti Towers, Military Road, )
Marol, Andheri (West), Bombay - )
400 059. )
)
(3) Canara Bank, a nationalised )
bank, constituted under the )
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provisions of the Banking )
Companies (Acquisition & Transfer )
of Undertakings) Act, 1970, )
having its head office at 112, J.C. )
Road, Bangalore 560 002, as the )
Principal Trustee of Canbank )
Mutual Fund, a Trust having its )
office at Orient House, 3rd )
Floor, Adi Marzban Path, Ballard )
Estate, Bombay - 400038 )
)
(4) V.R. Gupte )
(5) Mrs. Ishar Judge Ahluwalia )
(6) M.N. Kamath )
(7) N.V. Kamath ig )
(8) P.R. Nayak )
(9) D.M. Nanjundeppa )
(10) M.M. Khanna )
)
all being Trustees at the relevant )
time/presently of the Canbank )
Mutual Fund, a registered Trust, )
having its office at Oriental House )
2nd Floor, Adi Marzban Path, )
Ballard Estate, Bombay - 400 038 )
)
(11) The Custodian appointed )
under the Special Court Act, 1992 )
having office at 10th floor, Nariman )
Bhavan, Nariman Point, Vinay K. )
Shah Marg, Mumbai 400 021 ) .... Defendants.
----
Mr. Ram Jethmalani, Senior Counsel with Mr. T.K,.Cooper,
Ms. Mehernaaz Sam Wadia i/b Hariani & Co. for the Plaintiffs.
Mr. A.L. Pandya with Ms. Nina Kapadia i.b M/s Pandya
Gandhy & Co for Defendant No.1.
Mr. M.P.S.Rao, Senior Advocate with Mr. Sunil Kale for
Defendant No.2.
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Mr. Rohit Kapadia, Senior Counsel with Mr. Shaunak Thakker
with Mr Pradeep Sancheti, Senior Advocate with Mr.
Shreeniwas Deshmukh, Mr. Nilesh Parekh, Mr. Gandhar
Raikar & Ms. M. Sophia i/b M/s Mulla & Mulla & CBC for
Defendant Nos. 3 to 10.
Mr. J.Chandran with Ms. Shilpa Bhate i/b P.M. & Mithi & Co.
for Defendant No.11/Custodian.
----
Coram: V.M. KANADE, J.
Judge, Special Court.
Date : 13th July, 2010.
JUDGMENT:-
1. Plaintiffs - Bank are a Company incorporated by Royal Charter under the laws of England and Wales. They also carry on business at several branches in India, including their branch at 23-25, Mahatma Gandhi Road, Fort, Mumbai -
400023.
2. Plaintiffs filed a suit initially against Defendant No.1 only. Defendant No.1 is the wholly owned subsidiary of the Andhra Bank, a nationalized Banking Company incorporated under the provisions of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980. Plaintiffs - Bank also ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 4 had Investment Banking Division which had a Unit known as Money and Investment Unit which dealt with the sale and purchase of Securities, Bonds and Units. Defendant No.1 are also authorized to engage in sale and purchase of Securities, Bonds and Units. The dispute raised in the suit is in respect of purchase by Plaintiffs from Defendants 17% Taxable NPCL Secured Redeemable Non-cumulative Bonds -
'E' Series Vth Issue of the face value of Rs 50 crores at the rate of 96.05 and delivery was to be made on the same day.
The total price payable to Defendant No.1 was Rs 48,02,50,000/- which was paid by Pay Order dated 26/02/1992. A Banker's Receipt was issued to the Plaintiffs by Defendant No.1 vide Banker's Receipt No.23727 acknowledging the said payment and stating that the bonds would be delivered later on. The other documents acknowledging receipt of the money were also issued.
Thereafter, in May, 1992 after the reports were published in newspapers of a large scale fraud being perpetrated upon several banks including plaintiffs, investigation was made of the records and it was alleged that the Banker's Receipt (hereinafter referred to as "BR") given by Defendant No.1 ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 5 was discharged and letter dated 26/02/1992 was given to the Plaintiffs asking them to handover the said BR in lieu of the original allotment letter. Plaintiffs' initial case was that no such original was ever received by Plaintiffs and that they had received only photocopy of the Letter of Allotment.
Plaintiffs were not aware about the circumstances under which the BR was discharged and that the Defendant No.1 had handed over the original Letter of Allotment (hereinafter referred to as "LOA") to Hiten Dalal who was their broker in the transaction and that the original LOA never reached the Plaintiffs. It was alleged that Hiten Dalal had utilized the original LOA to undertake series of transactions involving various Banks. Plaintiffs were under the impression that the transactions were based on the very same LOA which was handed over to the Plaintiffs but, in fact, it was not handed over either by Defendant No.1 or by Hiten Dalal. It was further alleged that Defendant No.1 were under an obligation to fulfill their contractual obligation of delivering the purchased bonds to the Plaintiffs after having received the valuable consideration from the Plaintiffs being the amount of Rs 48,02,50,000/- for the purchase of suit bonds and, ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 6 therefore, they were liable to pay the said amount with interest to the Plaintiffs.
3. Thereafter, Written Statement was filed by Defendant No.1 on 19/09/1994 and, thereafter, Chamber Summons was filed by Plaintiffs on 20/10/1995 being Chamber Summons No.51 of 1995, inter alia, for adding parties as Defendants to the suit viz. Defendant Nos. 2 to 10. The Chamber Summons was allowed on 15/12/1995 by this Court and paragraphs 11A to 11C were added that the original LOA was taken by Defendant Nos. 3 to 10 from Defendant No.2 and the said LOA was wrongfully converted to their own use and that this fact became known to Plaintiffs in the course of proceedings before the Company Law Board being Company Petition No. 5/111/92-CLB (NR) which was transferred to the Special Court and renumbered as Misc. Petition No. 81 of 1995. It was, therefore, alleged that if this Court holds that Defendant No.1 are not liable then, in that event, Defendant Nos. 2 and 3 were jointly and severally liable to pay to the Plaintiffs the said sum with interest. Prayer clause was also amended and in the alternative to prayer clause (a) prayer clause (aa) was ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 7 made to the said effect.
4. Thereafter, second Chamber Summons was filed for amendment by Plaintiffs on 10/09/2006 being Chamber Summons No.10 of 2006 and the amendment was carried out by Plaintiffs - Bank on 17/10/2006. The additional Written Statement was filed by Defendant No.3 - Canara Bank on 08/01/2007 to the amended plaint. The Custodian was also added as Defendant No.11 on 19/01/2007. The additional Written Statement was also filed by Defendant No. 2 to the amended plaint. The substantial amendments were made by Plaintiffs pointing out the circumstances under which Plaintiffs discovered a hole i.e shortfall in Securities Account on 09/04/1992 and in order to cover-up the said hole, the dealers of the Plaintiffs entered into dummy transaction dated 10/04/1992 purportedly with Defendant No.1, though, in fact, no such transaction had taken place.
This was done by earlier unilateral set of entries effected in Plaintiffs' books and Plaintiffs did not receive any payment from Defendant No.1 nor Plaintiffs delivered any Securities. It was then alleged that the defence taken by Defendants in ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 8 their Written Statement was barred by principles of res-
judicata in view of the orders passed by the Apex Court.
5. Defendant No.2 filed his Written Statement and alleged that the plaint did not disclose any cause of action against him and, therefore, the suit was liable to be dismissed on that count. It was also alleged that the suit claim was barred by law of limitation. It was then contended that Defendant No.2 was not concerned with the transaction between Plaintiffs and Defendant No.1 on 26/02/1992 and in para 4(b) of the Written Statement he had made an averment in which he stated that the Plaintiffs lent to him two Securities viz.
17% NPC bonds of FV Rs 50 Crores and 9% NPC bonds of FV Rs 50 Crores and he had agreed to return the Securities on 18/4/1992 with interest at the rate of 24% per annum. Then in para 4(c), he came out with the case that on 13/04/1992, Plaintiffs were interested in purchasing Can Triple Units and the Defendant agreed to sell those Units at the rate of Rs 58.50 per Unit to the Plaintiffs. He has alleged that he was holding BR of City Bank of Rs 3.5 crores units of Can Triple and this BR was handed over to Plaintiffs by the Defendant.
::: Downloaded on - 09/06/2013 16:08:22 :::This Order is modified/corrected by Speaking to Minutes Order 9 He also agreed that the said transaction would be completed on 18/04/1992 and that the Defendant would retain the 9% NPC bonds and 17% NPC bonds and the value of the bonds would be adjusted against value of the Can Triple Units and the balance would be paid over to the Defendant. However, according to Defendant No.2, Plaintiffs were postponing the completion of the transaction and in para 4(d) he has alleged that sometime on/or about 09/05/1992, Plaintiffs purchased Can Triple Units and agreed to pay balance amount after adjusting the cost of two bonds. However, this was not done thereafter by Plaintiffs. Thereafter, it is alleged by Defendant No.2 that the Defendant sold 17% NPC bonds to CMF on 27/02/1992 and delivered to CMF LOA alongwith transfer deed which was received by Defendant No.2 from Plaintiffs. It was then contended that though Plaintiffs had admitted this transaction before the various authorities, in Misc. Petition No.36 of 1993, Plaintiffs in their affidavit had alleged that the said transaction was bogus. It is then contended that IDG report in the said Misc. Petition No.430 of 1994 stated that Plaintiffs were not liable to pay to the Defendant No.2 a sum of Rs 205 crores and the transaction ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 10 of the Defendant with Plaintiffs on 09/05/1992 was also confirmed. It is also contended that the case of Plaintiffs is proved to be false from the Flow Chart as submitted by Plaintiffs to CBI in respect of various transactions between Plaintiffs and the second Defendant. It is then contended that Defendant No.2 had never acted as broker in transaction between Plaintiffs and Defendant No.1. It is also denied that Defendant No.1 handed over original LOA to Defendant No.2.
The averment in paragraph 7 of the plaint to the effect that second Defendant had utilized the original LOA to undertake series of transaction with various banks is also denied. In the additional Written Statement, Defendant No.2 has alleged that Plaintiffs are seeking decree on totally contradictory and mutually exclusive cases.
6. Defendant No.3 in their Written Statement firstly alleged that the plaint did not disclose any cause of action since the plaint did not disclose that the Plaintiffs did not acquire any title or right to the suit bonds. It was contended by Defendant No.3 on the basis of list of transactions which were filed by the Plaintiffs with Joint Parliamentary ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 11 Committee in October, 1994 that there were continuous dealings in these Securities by the Plaintiffs which made it clear that either Plaintiffs had received these Securities and parted with the same for consideration or its worth and even otherwise were estopped from claiming from any other party.
It was then contended that Defendant No.3 had, on 27/02/1992 purchased through Hiten Dalal who was share and stock broker ig of the said 17% NPCL bonds for consideration in good faith and without knowledge of any prior transaction. The allegations of fraud and collusion were denied. It was contended that the said transaction was the result of 15% arrangement between the Plaintiffs and Hiten Dalal - Defendant No.2. Additional Written Statement is also filed by Defendant No.3 in which it was alleged that the alleged entries were fictitious and the purchase transaction dated 26/02/1992 was also fictitious and, therefore, there was no need to plug the hole on 10/04/1992. It was alleged that, in any case, such transactions and or entries were not only illegal but were also opposed to public policy. Further particulars about 15% arrangement alleged in the suit are mentioned in the written submissions. The particulars as to ::: Downloaded on - 09/06/2013 16:08:22 ::: This Order is modified/corrected by Speaking to Minutes Order 12 how the suit is barred by limitation were mentioned in the additional affidavit. The allegations that the plea of 15% arrangement and other averments made in the first Written Statement were barred by res judicata were denied.
7. In the meantime, Plaintiffs filed affidavit of documents on 12/06/1997. Affidavit of documents is filed by Defendant No.3 on 16/06/1997. Defendant No.1 filed their affidavit of documents on 19/06/1997. The supplementary affidavit of documents was filed by Plaintiffs on 23/06/1997. Chamber Summons No.14 of 1997 was filed by Defendant No.3 for permission to deliver interrogatories to Plaintiffs on 25/06/1997 and it was disposed of by order dated 15/07/1997. Plaintiffs also filed Chamber Summons No.15 of 1997 for permission to deliver interrogatories to Defendant No.3 and it was disposed of on 22/09/1997.
8. Following issues were framed on 05/03/2007 between Plaintiffs and CMF i.e Defendant Nos. 3 to 10 and Plaintiffs and HPD - Defendant No.2.
::: Downloaded on - 09/06/2013 16:08:22 :::This Order is modified/corrected by Speaking to Minutes Order 13 ISSUES BETWEEN PLAINTIFFS & CMF:
1. Whether the suit as against Defendant Nos. 3 to 10 is barred by limitation?
2. Whether the Defendant No.2 in collusion with one of the employees of the Plaintiff (viz. Santosh Mulgaonkar) fraudulently misappropriated the Suit LOA as alleged in para 6A(iii) of the Plaint?
3. Whether the Plaintiffs were unaware that the series of transactions involving Canbank Mutual Fund (CMF), ANZ Grindlays Bank, Defendant No.1 and the Plaintiffs themselves were "based on the very same Letter of Allotment" as alleged in para 7 of the Plaint?
4. Whether the Plaintiffs prove that they had purchased 17% taxable NPCL Bonds on 26th February, 1992 of the FV of Rs. 50 Crores from the Defendant No.1 or acquired any title to the Suit LOA as alleged by the Plaintiffs in para 5 of the Plaint?
5. Whether the Plaintiffs prove that the 3rd Defendant choose to issue its BR with a view to conceal the alleged "misappropriation" of Bonds as alleged in para 7D & 7E of the Plaint?
6. Whether the Plaintiffs prove that on 9-4-1992 there was a "hole" pertaining to the transactions of 26-2-1992 between the Plaintiffs and the 1st Defendant as alleged in para 7H of the Plaint?
7. Whether the Plaintiffs prove that the then Dealers of the Plaintiffs entered into a dummy transaction dated 10-4-1992 with the 1st Defendant to cover-up the said "hole"::: Downloaded on - 09/06/2013 16:08:23 :::
This Order is modified/corrected by Speaking to Minutes Order 14 as alleged in para 7 I of the Plaint?
8. Whether the Defendant No.3 have converted the Bonds/LOA as alleged in para 6A & 7(k) of the Plaint?
9. Whether the Suit transaction and the transactions referred to in para 7(a), 7(f) and 7(g) of the Plaint reflect that the same were fictitious transactions for funding and/or they were transactions at structured price and/or they were transactions involving difference between the actual rate (as transacted) and the derived rate as alleged in para 25 and 27 of the further Written Statement?
10. If the answer to the above issue is in the affirmative whether such transactions are illegal and/or opposed to the public policy?
11. Whether the contention that the transactions are opposed to public policy is barred by the principles of res judicata and/or constructive res judicata having regard to the judgment of the Spl. Court dated 13-3-1995 in Suit No.13 of 1994 and the decision of the Supreme Court in CA 4456/95 dated 30th October, 2001 and in CAs 2275 & 2276 dated 5th May, 2006?
12. Whether the Defendant No.2 was the broker for Defendant No.1 in the alleged suit transaction and Defendant No.1 handed over the original LOA to Defendant No.2 as alleged in para 6(c) and 11(a) of the Plaint?
13. Whether the Plaintiffs are estopped from making any claim as alleged in para 2 read with para 14 of the Written Statement of the Defendant No.3?
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14. Whether the Defendant No.3 proves that it had on 27th February, 1992 purchased the said 17% NPCL bonds through the Defendant No.2 who was allegedly acting as a mercantile agent of the Plaintiff and/or Defendant No.1 for consideration in good faith and without notice as alleged in paragraph 11 of the Written Statement of the said Defendant?
15. Whether the transactions under the 15% arrangement were transactions of HPD & not of SCB and HPD was entitled to deal with bonds at his discretion as alleged in para 7(g) of Defendant No.3's WS?
16. Whether the Defendant No.3's allegations that transactions under 15% arrangement were transactions of HPD, are barred by res judicata by the judgment of the Special Court in 13/94 dated 13-3-1995 and the decision of the Supreme Court in CA No.4456 of 1995 dated 30-10-2001 as alleged in para 7(L)(i) to 7(L)(v) of the Plaint and denied in 32, 33, & 34 of additional Written Statement and by the judgment of the Supreme Court dated 5-5-2006 in Appeal from Suit No.11 of 1996 as alleged in paras 7(L)(vii) to 7(L)(xv) of the Plaint?
17. Whether Defendant No.3's allegation that transactions of the Plaintiff under the 15% arrangement were actually transactions of HPD, is barred by constructive res judicata as alleged in para 7(L)(v) of the Plaint & denied in para 36 of the Additional Written Statement?
18. Whether the issue of payment of consideration by the 3rd Defendant for acquisition of Bond on 27-2-1992 is barred by virtue of the principles of res-judicata as ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 16 alleged in para 11(e) of the Plaint?
19. Whether the Defendant Nos. 3 to 10are jointly and severally liable to pay to the Plaintiffs the sum of Rs 55,26,16,438.36 as per the Particulars of Claim together with further interest on principal sum of Rs 48,02,50,000.00 @ 20% per annum from 28th November, 1992 till payment and/or realizations?
20. What relief?
ISSUES BETWEEN PLAINTIFFS & HPD -
DEFENDANT NO.2:
1. Whether the Plaint fails to disclose any cause of action against the Defendant No. 2 as alleged in para 1 of the Written Statement of Defendant No.2.?
2. Whether the suit is barred by limitation as against Defendant No.2 as alleged in para 2 of the Written Statement of Defendant No.2?
3. Whether allegations of Defendant No. 2 that the LOA was lent to him on 27th February, 1992 and/or that he purchased the same on 9th May, 1992 in the circumstances and manner set out in para 4 of his written statement are barred by res judicata as alleged in para 6B of the Plaint?
4. Whether the Defendant No.2 is jointly and severally liable along with the Defendant Nos 3 to 10 to pay to the Plaintiffs the sum of Rs 55,26,16,438.36 as per the particulars of claim together with further interest on principal sum of ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 17 Rs 48,02,50,000.00 @ 20% p.a. from 28th November, 1992 till payment and/or realisation?
5. Whether the Plaintiffs are entitled to any relief and if, what?
9. Plaintiffs examined five witnesses PW1 - R. Kalyanraman, PW2 - Mr. R. Kannan, PW3 - Mr. N. Srinivasan, PW4 - Mr. David Loveless and PW5 - Mr. R.R. . PW1 - R. Kalyanraman was an ex-employee of Defendant No.1 -
ABFSL. PW2 - R. Kannan, PW3 - Mr. N. Srinivasan and PW4 -
Mr David Loveless were all ex-employees of Plaintiffs. PW5 -
R.R. is an Officer working under the Right to Information Act with the Nuclear Power Corporation Limited (NPCL)
10. PW1 - R. Kalyanraman, alongwith his evidence has produced his affidavit dated 25/01/1993 at Exhibit P-1, annexures and documents of Written Statement at Exhibit P-2 collectively and the signature of Mr. R.V. Shenoy on Written Statement dated 19/09/1994 at Exhibit P-3.
11. In the cross-examination by Defendant Nos. 3 to 10, following documents were produced on record:-
::: Downloaded on - 09/06/2013 16:08:23 :::This Order is modified/corrected by Speaking to Minutes Order 18 Documents Exhibits 1 Letter dated 24/2/1992 at page 19 of the Annexures to Written Statement dated 25/1/1993 annexed to the Exh-D-3(1) Affidavit of Evidence of PW1.
2 Letter dated 26/2/1992 by ABFSL to NPCL at page 20 of the Annexures to Written Statement dated 25/1/1993 Exh.D-3(2) annexed to the Affidavit of Evidence of PW1.
3 Letter dated 26/2/1992 by NPCL to ABFSL at page 21 of the Annexures to Written Statement dated 25/1/1993 Exh-D-3(3) annexed to the Affidavit of Evidence of PW1 4 Letter dated 26/2/1992 by NPCL to ABFSL at page 24 of the Annexures to Written Statement dated 25/1/1993 Exh-D-3(4) annexed to the Affidavit of Evidence of PW1.5 Cost Memo No.23727 dated 26/2/1992
issued by ABFSL in favour of SCB at page 50 of the Annexures to Written Exh-D-3(5) Statement dated 25/1/1993 annexed to the Affidavit of Evidence of PW1.
12. Following documents were separately shown and tendered by Defendant Nos. 3 to 10:-
Documents Exhibits
1 Xerox copy of Bank Receipt No.56
dated 5/3/1992 of ANZ Grindlays Exh-D-3(6) Bank.
::: Downloaded on - 09/06/2013 16:08:23 :::This Order is modified/corrected by Speaking to Minutes Order 19 2 Letter dated 24/11/1992 by ABFSL to ANZ Grindlays Bank Exh-D-3(7) 3 Page 165, para 11 of Janakiraman Committee Report. Exh-D-3(8) 4 Entire Evidence of R. Kalyanraman (PW1) in Special Court Suit No.11 of Exh-D-3(9) 1996.
5 Daily Transaction Report dated
29/4/1992 Exh-D-3(10)
6 Page 2 of Daily Transaction Report
dated 29/4/1992 written and signed Exh-D-3(11) by R. Kalyanraman (PW1) 7 Daily Transaction Report dated
236) 26/2/1992 First Transaction 102 (At page except the last Exh-D-3(12) Transaction written & signed by R. Kalyanraman(PW1) 8 Daily Transaction Report dated 26/2/1992 at page 235 written and Exh-D-3(13) signed by R. Kalyanraman (PW1) 9 The Four Entries in Column of FUNDS RECEIVED FROM and in Column of THROUGH/REMITTED TO a Daily Exh-D-3(14) Transaction Report dated 26/2/1992 at page 235 & last Transaction 217 signed by R. Kalyanraman (PW1).
10 Further statement of R. Kalyanraman (PW1) recorded by Bhupinder Kumar, Exh-D-3(15) Dy. Suptd, of Police, CBI at page 441 to 448.
11 Daily Transaction Report dated 27/3/1992 at page 204 handwritten Exh-D-3(16) by Mr. Shenoy and signed by R.Kalyanraman (PW1) 12 Daily Transaction Report dated 28/2/1992 at page 234 Exh-D-3(17) ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 20 13 Letter dated 29/5/1992 by ABFSL to NPCL (enclosing letter of same date Exh-D-3(18) addressed by SCB to ABFSL page 46 of Notes of Evidence of PW1.
13. PW2 - Mr. R. Kannan produced the original letter dated 11/5/1992 by HPD to SCB at Exh-P-5 and the letter dated 20/5/1992 addressed by Mr. R. Kannan to the Company Secretary of NPCL at Exh-P-6. In cross-examination by Defendant No.2, original file note prepared by PW2 - Mr. R. Kannan was produced at Exh-D-2(1)
14. In the cross-examination by Defendant Nos. 3 to 10, the following documents were brought on record:-
Documents Exhibits
1 Letter dated 29/5/1992 addressed
by SCB to ABFSL which was duly Exh-D-3(19) signed by R. Kannan(PW2) 2 Page 379 para 17 of the affidavit in evidence dated 30/9/1998 of Exh-D-3(20) Mr. R Kannan (PW2) filed in Suit No.17 of 1994.
3 Copy of File Note dated 23/5/1992
duly signed by Mr. R. Exh-D-3(21)
Kannan(PW2)
4 Copy of File Note dated 28/5/1992
duly signed by Mr. R. Kannan Exh-D-3(22) (PW2) ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 21 5 Copy of File Note dated 6/8/1992 duly signed by Mr. R. Kannan Exh-D-3(23) (PW2) 6 Copy of File Note dated 1/6/1992 duly signed by Mr. R. Kannan Exh-D3(24) (PW2) 7 Deal Slip dated 10/4/1992 of Standard Chartered Bank Exh-D-3(25) 8 Page 426 and 427 of Notes of Evidence of witness R. Kannan in Exh-D-3(26) Suit No.17 of 1994 9 Page 364 of para 8 of Evidence of witness R. Kannan in Suit No.17 of Exh-D-3(27) 1994.
15. In the evidence of PW3 - Mr. N. Srinivasan, following documents have been brought on record:-
Documents Exhibits
1 Original File Note of Meeting
dated 7/11/1991 unsigned by Mr. Exh-P-8 N. Srinivasan 2 Letter dated 11/3/1996 addressed by Industrial Credit Company Ltd Exh-P-9 to Mr. SCB signed by N. Srinivasan
16. PW4 - Mr. David Loveless has produced the document viz Original Entry dated 26/2/1992 in Bank Receipt Held Registered, which is at Exhibit-P-10.
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17. In the cross-examination of PW4 by Counsel for Defendant No.2, following documents are brought on record viz a copy of the letter dated 3/5/1994 alongwith Report addressed by David Loveless to CBI at Exhibit D-2(2)
18. In the Cross examination by Counsel for Defendant Nos.
3 to 10 following documents are brought on record viz copy of FIR with annexures at Exh-D-3(28) and the entire Janakiraman Committee Report at Exh-D-3(29).
19. PW5 - Mr. R.R. Kakde has brought on record the following documents viz copy of the letter dated 1/6/1997 addressed by NPCL to M/s Hariani & Co at Exh-P-11, application under section 6 of the Right to Information Act 2005(22/2005) addressed by M/s Hariani & Co. to Mr. R.R. Kakde, Addl. Chief Engg at Exh-P-12.
20. In the cross-examination by Counsel for Defendant Nos.
3 to 10 following documents were brought on record viz copy of letter dated 10/1/2008 addressed by NPCL to M/s Mulla & Mulla & CBC at Exh-D-3(30) and application under section 6 ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 23 of the Right to Information Act, 2005 (22/2005) addressed by M/s Mulla & Mulla to Mr. R.R. Kakde at Exh.D-3(31).
21. Following Documents have been tendered by Plaintiffs which are not shown to the witnesses:-
Documents Exhibits
1. CHAMBER SUMMONS NO. 15 OF 1997
ALONGWITH AFFIDAVIT
Exh-P-13
2. COPY OF UNAFFIRMED AFFIDAVIT DATED
---- SEPTEMBER 1998 IN COMPLIANCE OF Exh-P-14 ABOVE ORDER ALONGWITH COVERING LETTER
3. AFFIDAVIT OF S. RAMARAJ DATED 13/7/1993 FILED IN COMPNAY PETITION Exh-P-15.
NO.5011/99 CLB(NR) OF 1993
4. BANK RECEIPT NO. 2767 DATED 17/3/1992 ISSUED BY CMF TO SCB WITH Exh-P-16 RESPECT TO 17% NPCL BONDS OF FACE VALUE RS.50 CRORES(NOT AVAILABLE WITH US NOT EVEN A COPY. CBI TO PRODUCE ORIGINAL AND CMF TO PRODUCE COPY)
5. ORDER DATED 21/4/1998 REMANDING SUIT 11/96 AND M.P. NO. 81/95 TO THE Exh-P-17 SPECIAL COURT.
6. REVIEW PETITION NO.391 OF 2002 AGAINST JUDGEMENT IN SUIT NO. 17/94 Exh-P-18
7. CHARGESHEET DATED 15/6/1995 IN R.C. NO. 11/(S)/92/CBI SCB/BOM.
Exh-P-19
8. ORDER DATED 1/5/2002 IN REVIEW PETITION NO.391 OF 2002 Exh-P-20
9. MISC. PETITION NO. 81 OF 1995 FILED BY Exh-P-21 CMF
10. AFFIDAVIT DATED 2ND JUNE 1993 BY ANDHRA BANK FINANCIAL SERVICES LTD.
Exh-P-22(A) ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 24
11. AFFIDAVIT DATED 14/6/1996 BY HITEN P.DALAL Exh-P-23
12. SUIT 11 OF 1996 DATED 28/11/ 1992 BY Exh-P-24 SCB
13. WRITTEN STATEMENT DATED 24/12/1996 OF DEFENDANT NO.1(ABFSL) Exh-P-25
14. WRITTEN STATEMENT DATED 14/10/1996 Exh-P-26 OF DEFENDANT NO.2(CMF)
15. FURTHER WRITTEN STATEMENT DT. Exh-P-27 29.7.1997 OF DEF.NO.2(CMF)
16. WRITTEN STATEMENT DATED 6/1/1997 OF DEF.NO.3(NPCL) Exh-P-28
17. APPLICATION NO.351 OF 2001 ALONGWITH AFFIDAVIT IN Exh-P-29 SUPPPORT( SUIT 13/94 - RES-JUDICATA)
18. REPLY DATED 5/12/2001 TO APPLICATION NO. 351 OF 2001 Exh-P-30
19. MISC.PETITION NO 36 OF 1993 DATED Exh-P-31 6/4/1993 BY CMF
20. REPLY DATED 6/10/1993 BY HITEN P.DALAL Exh-P-32
21. ORDER DATED 21/7/2000 PASSED BY HIS LORDSHIP MR. JUSTICE S.H. KAPADIA Exh-P-33
22. ORDER DATED 28/1/2000 PASSED BY HIS Exh-P-34 LORDSHIP MR. JUSTICE S.H. KAPADIA(AMENDMENT)
23. SUIT 9/94 FILED ON 27/11/1992 BY SCB Exh-P-35
24. WRITTEN STATEMENT DATED 13/12/1994 Exh-P-36 OF DEF.NO.2(HPD)
25. ORDER DATED 2ND AUGUST 2000 PASSED Exh-P-37 BY HIS LORDSHIP MR. JUSTICE S.H. KAPADIA
26. SUIT NO. 13 OF 1994 FILED ON 27TH Exh-P-38 NOVEMBER 1992 BY SCB
27. WRITTEN STATEMENT DATED 12/10/1994 Exh-P-39 OF DEF.NO.1(CANARA BANK)
27. ORDER DATED 13/3/1995 PASSED BY HIS Exh-P-40 LORDSHIP MR. JUSTICE S.N. VARIAVA
28. CIVIL APPEAL NO. 2275 DATED 22/2/2002 Exh-P-41 BY SCB
29. CIVIL APPEAL NO. 2276 DATED 22/2/2002 Exh-P-42 BY SCB
30. ORDER DATED 5/5/2006 PASSED BY THEIR LORDSHIPS MR.JUSTICE Exh-P-43 ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 25 Y.K.SABHARAL,MR. JUSTICE C.K.THAKKER AND MR. JUSTICE ALTAMAS KABIR
31. JUDGEMENT DATED 30/10/2001 PASSED Exh-P-44 BY HIS LORDSHIP MR. JUSTICE B.N. KRIPAL IN CIVIL APPEAL NO. 4456 OF 1995(ARISING FROM SUIT 13/94)
32. CIVIL APPEAL NO. 5357 DATED 28/8/2000 Exh-P-45 BY HITEN P.DALAL
33. CIVIL APPEAL NO/5072 OF 2000 BY HITEN Exh-P-46 P.DLAL
34. ORDER DATED 21/2/2002 PASSED BY Exh-P-47 THEIR LORDSHIPS MR. JJUSTICE B.N. KRIPAL, MR. JUSTICE SHIVARAJ V. PATIL AND MR. JUSTICE BISHESHWAR PRASAD SINGH.
35. CIVIL APPEAL NO. 762 OF 1999 BY Exh-P-48 STANDARD CHARTERED BANK
36. CIVILAPPEAL NO.1878 OF 1999 BY HITEN Exh-P-49 DALAL
37. ORDER DATED 18TH APRIL 2000 PASSED Exh-P-50 BY THEIR LORDSHIPS MR. JUSTICE B.N. KRIPAL & MR. JUSTICE R.P. SETHI.
22. Defendant No.2 has produced the following documents which are taken on record viz. Chamber Summons No.1 of 1997 in Suit No.11 of 1996 along with Affidavit in support dated 10/01/1997 at Exh-D2-3 and the order dated 20/03/1997 in Chamber Summons No.1 of 1997 at Exh-D2-4
23. Following documents have been tendered by Defendant Nos. 3 to 10 :-
Documents Exhibits
1. Order dated 2/3 March 1995 in Suit No. 13/94 (regarding 15% Exh-D3-(32) ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 26 arrangement)
2. S. Raghunandan Menon's Affidavit dated 2/7/93 in CLB Exh-D3-(33) Petition No. 5/111/92/CLB(NR) ( paras 1,2, & 7) pgs 1-7
3. S. Raghunandan Menon's Affidavit dated 2/7/93 in CLB Exh-D3-(34) Petition No. 5/111/92/CLB(NR) ( paras 1,2,5 & 6) pgs 8-13
4. Rashna Mistry's Affidavit dated 05/08/98 in CHS 14 of 1997 in Exh-D3-(35) Suit 6/94( paras 2,3 alogwith the relevant interrogatories) pgs 14-17
5. List of Transactions given by Exh-D3-(36) SCB to RBI pgs 18-189
6. Notes of Evidence of
(a) Wasim Saifee in suit Exh-D3-(37) 17/94(pages 5,6,7,56,57,58,68,69) pgs 190-192
(b) Parvesh Singh Nat in Suit 17/94(pages 84G, 84L and 118) pgs 193 (c) Rabvi Iyer in suit 17/94 (pages 211,212,213 read with 213,second half of para 29,233,237,238 read with page 204 to 206,299 read with 212) pgs 194-197
7. RBI Correspondence and entire Exh-D3-(38) JPC Report is taken on record -
pgs 209-210
8. Affidavit of ANZ in suit No. 12 of 1995 showing ANZ is SCB pgs Exh-D3-(39) ::: Downloaded on - 09/06/2013 16:08:23 ::: This Order is modified/corrected by Speaking to Minutes Order 27 211-215
9. JPC REPORT Exh-D3-(40) Interrogatories in Suit No. 6 of
10. 1994, Suit No. 11 of 1994, Suit Exh-D3-(41) No. 12 of 1994 and Suit No. 14 of 1994.
24. To summarise, therefore, the case of Plaintiffs in brief is that they had purchased bonds for consideration from ABFSL on 26/02/1992. The original LOA was taken by HPD and it was given to CMF on the same day. Plaintiffs sold bonds to ANZ and gave BR and in order to discharge their liability had to purchase the bonds from CMF and paid consideration to them for the said purchase. Plaintiffs' case is that, as a result, they had made payment twice for the same bonds;
one to ABFSL & other to CMF. Plaintiffs' case is that CMF had no title and, therefore, they were entitled to get the possession of original LOA for the purpose of handing over the same to ANZ to whom they had sold the bonds on 27/02/1992. They could not do so since the bonds were converted by HPD and, ultimately, by CMF to their own use.
25. On the other hand, the case of Defendant No.2 is that ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 28 the LOA was initially borrowed from Plaintiffs and they purchased after adjustment of sale consideration of Can Triple Units and that the Plaintiffs were, on the contrary, liable to pay Rs 205 crores to Defendant No.2
26. The case of Defendant No.3 is that the entries in the Plaintiffs' books were fictitious and if the last entry was fictitious then even the first entry was fictitious. Secondly, the rate at which the bonds were purchased and sold demonstrated that these transactions were bogus and this was done as a result of 15% arrangement between Plaintiffs and HPD whereby the LOA would be used by HPD and, after a fixed period, entries would be reversed after adjusting the interest. Alternatively it is urged that the HPD had squared off his liability. It is also urged that Plaintiffs were estopped, therefore, from claiming money and, lastly, it is submitted that the transactions were against the public policy. The reliance is placed on the Joint Parliamentary Committee's Report and Ganapathi Report and it is, therefore, submitted that there was no cause of action. Lastly, it is submitted that the suit was barred by limitation.
::: Downloaded on - 09/06/2013 16:08:24 :::This Order is modified/corrected by Speaking to Minutes Order 29
27. Plaintiffs, after Written Statement was filed, amended their plaint and contended that issue of 15% arrangement between Plaintiffs and HPD and that the transactions were against the public policy and other related issues were barred by principles of res judicata and it was not open for Defendant No2 and Defendant Nos. 3 to 10 to raise these issues in this suit.
CONVERSION
28. In the present case, since the suit is filed alleging conversion of the suit bonds by Defendant No.2 and Defendant Nos. 3 to 10, it would be necessary to consider definition of conversion. In the Commentary on the Law of Torts by Salmond & Hueuston, 20th Edition published by Sweet & Maxwell, the conversion has been defined in Chapter 6.4 page 101 as under-
"A conversion is an act, or complex series of acts, of wilful interference, without lawful justification, with any chattel in a manner inconsistent with the right of ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 30 another, whereby that other is deprived of the use and possession of it."
Conversion has been defined by John G. Fleming in the Law of Torts as under:-
"Conversion may be defined as an intentional exercise of control over a chattel which so seriously interferes with the right of another to control it that the intermeddler may justly be required to pay its full value."
Winfield and Jolowicz on Tort, 13th Edition at page 470 have observed in respect of conversion as under:-
"Conversion at common law may be committed in so many different ways that any comprehensive definition is probably impossible but the connecting thread running through the cases seems to be that the wrong is committed by a dealing with the goods of a person which constitutes an unjustifiable denial of his rights in them or the assertion of rights inconsistent therewith."::: Downloaded on - 09/06/2013 16:08:24 :::
This Order is modified/corrected by Speaking to Minutes Order 31 In Butterworths Common Law Seriries on the Law of Tort, conversion is defined at page 536 at 11.5 as under:-
"11.5 It is important to recognise at the outset that the term 'conversion' is a legal term of art. It has been described as an unfortunate expression because in many cases where conversion is brought 'no conversion in one sense has taken place; the goods are in the same state as they always were; there is no actual conversion in the sense in which a person, not a lawyer, might possibly understand the term'."
Then in para 11.9 regarding modes of conversion, it is observed as under:-
"11.9 It has been said that there are 'thousands' of reported cases on conversion, most of which turn upon their particular facts. It is, therefore, difficult to generalise to any great degree, but for explanatory purposes a ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 32 number of classifications have been adopted. It should be noted, however, that the categories are not mutually exclusive, the question always being whether the conduct of the defendant is inconsistent with the right to immediate possession of the claimant."
29. From the above definitions, therefore, it is clear that the conversion is a common law tort and the conversion is voluntary act by one person inconsistent with ownership rights of another. It is a tort of strict liability.
30. In the present case, according to Plaintiffs, the suit bonds belonged to the Plaintiffs and they were to be delivered to ANZ. However, BR was given to ANZ and the original bonds were converted by Hiten Dalal and were given by him to Defendant No.3 - CMF and, therefore, though the Plaintiffs were entitled to possession of the said bonds, they were taken out of their possession by Hiten P. Dalal and consequently by CMF who sold the same bonds to Plaintiffs, though CMF was not the owner and the Plaintiffs had already purchased the same bonds from ABFSL.
::: Downloaded on - 09/06/2013 16:08:24 :::This Order is modified/corrected by Speaking to Minutes Order 33
31. Before I record my findings on issues between the parties, it will be necessary to briefly take into consideration the evidence of Plaintiffs.
32. PW1 - R. Kalyanraman has been inter alia examined by Plaintiffs to bring on record the sale of the suit bonds by ABFSL to Plaintiffs on 26/02/1992 for consideration and the acknowledgment by the ex-employee of ABFSL for consideration received by ABFSL for the said transaction and the various documents which were executed viz cost memo etc for the purpose of proving the said transaction. Secondly for proving that on 10/04/1992 ABFSL had not purchased the suit bonds from Plaintiffs and that, in fact, neither they had paid any amount nor delivered any securities and thirdly for the purpose of bringing on record the Written Statement of ABFSL in earlier suit.
33. Plaintiffs have also examined PW2 - Mr. R. Kannan, PW3 - Mr. N. Srinivasan and PW4 - Mr. David Loveless.
::: Downloaded on - 09/06/2013 16:08:24 :::This Order is modified/corrected by Speaking to Minutes Order 34
34. PW2 - Mr. R. Kannan has been examined to prove that there was a shortfall in the Securities in the Bank's portfolio and that various meetings were held in connection with the Securities Scam and HPD had admitted that the losses were caused by him to the Bank to the tune of Rs 1,258 crores as also to bring on record various letters written by HPD to SCB and that large number of Securities had been purchased through HPD but they were not backed by Bank Receipts or physical securities and also that they had noticed that original LOAs were not traceable in SCB's records and request was made to NPCL to issue duplicate LOAs in favour of SCB and, inadvertently, both the sets of bonds were mentioned as 9% NPCL bonds. He has stated that latter on he learnt that, in fact, 17% NPCL bonds had been sold to ANZ Grindlays who, in turn, had sold it to ABFSL which had, thereafter, sold the bonds to Fair Growth Financial Services Limited and that Kalyanraman (PW1) had, therefore, informed the Plaintiffs that they could not issue any confirmation in respect of 17% NPCL bonds though they were ready to issue such letter in respectof 9% NPCL bonds.
He has also deposed about the meetings which were held ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 35 between 11/5/1992 and 5/6/1992 between the various Officers of SCB, HPD and other brokers in order to sort out the shortfall in SCB's portfolio and one such meeting was held on 23/5/1992 which was also attended by HPD. In his evidence, he has also stated that Hiten P. Dalal in the said meeting informed the Plaintiffs that though full consideration was paid to SCB, records reflected receipt of only photocopies of the original LOA and that he had diverted the said bonds to Canara Bank. It was further stated in para 11 of his affidavit of evidence that the information which was given by HPD was purely informal and that he would deny his conversation with SCB if they were to seek formal use of his statement. He has also stated that he made file note of the said statement which was brought on record. He further stated that he had a discussion with Senior Managers of SCB but since no particulars were given by HPD, it was felt that no reliance could be placed on the said statements made by HPD.
35. PW3 - Mr. N. Srinivasan has been examined to bring on record two documents viz (i) original file note dated ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 36 7/11/1991 which was unsigned by him and (ii) letter dated 11/3/1996 addressed by Industrial Credit Company Ltd to SCB signed by Mr. N. Srinivasan. He was examined to prove that the said documents were prepared as record of meeting which took place on 7/11/1992 and confirmation in respect of transactions was mentioned in the documents. He has stated that the said memo of meeting was not signed by him. One Mr. Sanjeev Chugh from SCB sometime in 1996 inquired from him as to whether copy of the minutes forwarded by Chugh to Srinivasan was in fact prepared by Mr. Srinivasan and whether they reflected what had transpired at that meeting. He has stated that he confirmed to the said Mr. Sanjeev Chugh that the memo of the meeting reflected the correct position and Mr. Chugh asked him to confirm the same to the Bank in writing. He had addressed a letter dated 11/3/1996 to SCB, stating that due to inadvertence, he has not signed the note and confirmed that the original of the said note reflected a true and correct statement of what transpired on 7/11/1992.
36. PW4 - Mr. David Loveless was also an ex-employee of ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 37 the Plaintiffs - Bank and he has stated the initial scope of his role after he joined Plaintiffs - Bank as Director of Security and Investigations. He has deposed on a matter concerning some of the decisions taken in one of the Bank's civil litigation viz the present suit and he had been shown various documents in para 4 to refresh his memory. He has also stated that he was appointed as Head of the Office of the Special Representative for India (OSRI) in November, 1994.
He has also stated that the Bank had to file all its civil litigations within a short space of time in the High Court since it was widely assumed that Original Side, Civil Side Jurisdiction was going to transfer to the City Civil Court and the Bank was advised that all these civil suits should be filed before 30/11/1992 so that they could be heard in the High Court at Bombay. He has also stated the circumstances under which certain other facts became known to the Plaintiffs on 7/11/1992 and that the Plaintiffs on that day became aware of the fact that CMF claimed to have received original LOA from HPD and accordingly the Plaintiffs realized that the suit bonds were diverted to CMF on 27/2/1992 and that the CMF had fraudulently converted the said bonds. He ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 38 has also stated as to how, though the meeting was held on 23/5/1992, HPD had not fully cooperated with the Plaintiffs and had refused to furnish any details regarding diversion and the manner and circumstances thereof and he has, therefore, stated that under these circumstances, Plaintiffs took steps to amend its Plaint and make alternative prayer against CMF for conversion. He has further stated that Plaintiffs learnt in the course of hearing of Misc. Petition No. 81 of 1995 that at all material time, there was only one set of NPCL bonds issued by NPCL at the relevant time and, therefore, an inquiry was made with NPCL under the Right to Information Act, 2005 which confirmed the said fact.
37. Finally, Plaintiffs examined PW5 - Mr. R.R. Kakde who was working as Central Public Information Officer. He stated that pursuant to the letter written by M/s Hariani & Co., he has inquired from the concerned Department and has provided the information by letter dated 1/6/2007. He has further stated that they had a Finance Group which maintains all records and from the information given by this Finance Group, he has conveyed the information to M/s ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 39 Hariani & Co., stating therein that there was only one set of 17% NPCL bonds issued by the NPCL.
38. Neither Defendant No.2 nor Defendant Nos. 3 to 10 have examined any witness.
39. It is pertinent to note that all these witnesses have been very extensively cross-examined by the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10. The said cross-examination essentially is on the credibility of the witness about his selective memory and attempt is made to demonstrate as to how the best evidence has not been produced by the Plaintiffs and for the purpose of putting the case of the Defendants that the entries were sham and bogus and that actually there was a 15% arrangement between HPD and SCB and the transactions were of HPD and not SCB and that these transactions were fictitious and, therefore, opposed to public policy and that, in fact, there was no hole in the transaction pertaining to 26/2/1992 and that the Plaintiffs had not purchased the bonds from ABFSL and were therefore not the owners since the relevant ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 40 documents were not produced to prove their ownership. The witnesses have been cross-examined also on the point of discharge of the BR by ABFSL and how non-production of the reverse side of the BR was fatal to the Plaintiffs' case and, lastly, on the point of limitation also, PW2, PW3 and PW4 have been cross-examined at length. Since the issue of 15% arrangement and the transactions being fictitious and therefore opposed to public policy and other related issues have been held by me as barred by principles of res judicata including the issue No.3 between the SCB and HPD, the cross-examination on that point including the question in respect of the report given by Janakiraman Committee is not relevant for the purpose of deciding the said issue. The cross-examination on the point of limitation has been considered wherever it is necessary. Since most of these issues have been held to be barred by res judicata by the Apex Court in the appeal from judgment in Suit No.11 of 1996, the said finding is binding on this court and, therefore, in view of the said finding, question of considering the cross-
examination on these points does not arise. Therefore, I have not referred to the cross-examination by the Counsel ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 41 for Defendant Nos. 3 to 10 at great length since it is not relevant for the purpose of deciding the issue of res judicata.
I have considered the evidence on each issue and the arguments and counter arguments by the Counsel for parties in the findings recorded hereinafter.
FINDINGS:
ISSUE NO. 1 BETWEEN SCB & CMF:
1. Whether the suit as against Defendant Nos. 3 to 10 is barred by limitation?
ISSUE NO.2 BETWEEN SCB and HPD:
2. Whether the suit is barred by limitation as against Defendant No.2 as alleged in para 2 of the Written Statement of Defendant No. 2?
40. Shri Ram Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs has urged that the period of limitation started running against them from 07/11/1992. He submitted that, on this date, a meeting took place in the Office of CMF and it was attended by CBI Officers. CMF was ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 42 represented by their employee Shri S.R. Ramraj. P.W. 3 Mr. Srinivasan was also present in this meeting and in this meeting Shri Ramraj informed the SCB that CMF had acquired suit bonds from HPD on 27/02/1992. It is submitted that this was a date on which the Plaintiffs had acquired sufficient degree of credibility regarding the person in whose possession the letter of credit had passed and who was the person who could be sued. He submitted that Article 91 of the Limitation Act, 1963 would govern the question of limitation in the present suit. He submitted that the word "learns" in Article 91(a) had been construed by various judgments of the Apex Court, High Courts and the Supreme Court to mean certain knowledge and not merely suspicion, surmise or conjecture. He relied upon the judgments in Seshappier Vs. Subramania Chettiar & Ors1, K.M. Talyarkhan vs. Gangadas Dwarkadas & Ors2 and in Allareddi Sudarsanamma vs. B.V. Ragavaiah & Ors3. It is then urged that the dates which were suggested by Defendants viz 18/3/1992, 10/04/1992, 20/05/1992, 23/05/1992 and 20/06/1992 could not possibly be the dates on which it could 1 ILR 40 Madras 678 2 ILR 60 Bombay 848 3 (1966) 1 Andhra Weekly Reporter 218 ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 43 reasonably be argued that Plaintiffs' knowledge was adequate and as such it could be said that from these dates the period of limitation would start.
41. It is then submitted that though it was pleaded in para 16 of the Written Statement that the claim against Defendant Nos. 3 to 10 was barred by limitation, the earlier date prior to 07/11/1992 was not disclosed or alleged as the starting point of limitation. It is, therefore, submitted that burden of proving this fact was on the defendants. It is further urged that no suggestion was made to the three witnesses examined by SCB in cross-examination that SCB had acquired credible information and knowledge on an earlier date on the basis of which they could have reasonably sued CMF. Further, no witnesses were examined by Defendants. The learned Senior Counsel for Plaintiffs relied upon the judgment of the Calcutta High Court in AEG Carapiet vs. A.Y. Derderian 1 and judgment of the Supreme Court in Sarwan Singh vs. State of Punjab2.
42. On the other hand, Shri Rohit Kapadia, the learned 1 AIR 1961 Calcutta 359 2 AIR 2002 SC 3652 ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 44 Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 submitted firstly that Article 91 of the Limitation Act was not applicable to the facts of the present case. He submitted that (a) Article 91 was applicable to the specific movable property (b) that bonds are not movable property but are "chose in action" and (c) "Chose in action" is not a thing capable of being produced. It is then submitted that the argument of the Plaintiffs in this case is contrary to the argument of the Plaintiffs before the Supreme Court in appeal from Judgment in Suit No.11 of 1996 and, therefore, the finding given by the Apex Court also is binding on the Plaintiffs. It is also submitted that the reliance placed by Plaintiffs on the judgment of the Apex Court in Shivanarayan Laxminarayan Joshi & Ors vs. State of Maharashtra & Ors 1 and on the judgment in Manchersha Ardeshir Devierwala vs. Ismail Ibrahim Patel & Ors2 cannot be placed in civil suits to decide the nature of suit bonds since the observation made by the Apex Court was in respect of provisions of section 403 of the Indian Penal Code. Reliance was also placed on the Judgment of the Apex Court reported in Raghunath Das v.
1 AIR 1980 SC 439 2 AIR 1936 Bombay 167 ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 45 Gokal Chand and another1. It is then urged that assuming that provisions of Article 91 apply to the facts of the said case, the word "learn" had to be construed literally. It is submitted that the expression such as subjective, primary, derivative knowledge etc. was not used in Article 91 and, therefore, mere first information was enough for starting point of limitation. It is further urged that on the following dates the Plaintiffs had learnt about possession by CMF viz 18/03/1992, 10/4/1992, 23/05/1992 and the last week of May 1992. It is further urged that the word "learn" cannot could not be construed as complete knowledge since the word "known" is also used in Articles 56 to 59 and the word "knowledge" is used in Article 123 and, therefore, if the Legislature intended to use the word "knowledge" in Article 91, it would have done so. It is, therefore, submitted that the meaning of the word "knowledge" cannot be given to the word "learn" in Article 91. Reliance was placed on the judgment of the Apex Court in The Member, Board of Revenue vs. Arthur Paul Benthall. It is then urged that the word "wrongful" could not be read with the word "conversion". In support of the said submission, reliance 1 AIR 1958 SC 827 ::: Downloaded on - 09/06/2013 16:08:24 ::: This Order is modified/corrected by Speaking to Minutes Order 46 was placed on the judgment of the Privy Council reported in Lewis Pugh Evans Pugh vs. Ashutosh Sen and others1. It is then urged that the fraud was not a relevant ingredient for an action in conversion. In support of this submission, reliance was placed on the judgment in Champalal vs. Ramchander and another2, and on the judgment in Dhian Singh Sobha Singh and another vs. Union of India3. It is submitted that ratio of the judgment of Privy Council ig in Rahimbhoy Hubibbhoy vs. Turner4 and that of the Judgment in K.M Talyarkhan vs. Gangadas Dwarkadas & others5 on which the reliance is placed by the Plaintiffs, is not applicable to the facts of the present case since those cases were based on fraud under section 18 of the then Limitation Act which is now section 17. It is further urged that the Plaintiffs' case was not based on fraud or on section 17 of the Limitation Act. It is then urged that on the basis of the evidence led by Plaintiffs itself the Plaintiffs had first learnt on the following dates viz. 18/03/1992, 10/04/1992, 23/05/1992 and on 29/05/1992. On the question of onus of 1 AIR 1929 Privy Council 69 2 AIR 1976 Rajasthan 75 para 9 3 AIR 1958 SC 274 para 15.
4 1892 (20) IA PC 1 5 ILR 1935 (60) Bom 848 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 47 proof it is urged that burden was on the Plaintiffs to plead exemption from limitation under Order VII Rule 6 and Plaintiffs had to prove its pleading in para 7E. Lastly, it is urged that various circumstances indicated that, in fact, the alleged meeting did not take place on 07/11/1992 and the said meeting was imaginary meeting created to bring the claim against CMF in limitation. It is urged that the evidence of Plaintiffs' witness Sriniwasan (P.W.3) is not reliable and no veracity could be placed on the unsigned minutes of the alleged meeting dated 07/11/1992 and lastly it is submitted that if Plaintiffs had said knowledge about conversion on 07/11/1992, yet, when the suit was filed on 27/11/1992, no claim was made against the HPD and CMF. It is, therefore, submitted that setting up of 07/11/1992 as a date for running of time for limitation is an after thought to bring time barred claim within limitation.
43. For the purpose of deciding issue of limitation, it will be necessary first to ascertain whether Article 91 of the Limitation Act applies to the facts of the present case.
Secondly, it will have to be ascertained what is the true ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 48 meaning and import of the word "first learns". Thirdly, it will have to be ascertained whether limitation had started running from 07/011/1992 or on the earlier dates as alleged by Defendant Nos. 3 to 10. Before I consider the aforesaid aspects, one important question regarding burden of proof has to be resolved. It is now well settled by catena of judgments that the initial burden of establishing that the suit is within limitation is on the Plaintiff and if he has alleged that the period of limitation, particularly in a case which falls within the parameters of Article 91, starts running from a particular date and establishes this fact then the burden shifts on the Defendant to prove that the period of limitation had started running from an earlier date. The first judgment on this point is in the case of K.M. Talyarkhan vs. Gangadas Dwarkadas & Ors1 It has been fully approved by the Supreme Court by its judgment in K.S. Nanji & Co. vs. Jatashankar Dossa & Ors2. In para 12 of the said judgment the Apex Court has observed as under:-
"12. Let us now consider some of the decisions cited at the Bar. A Division Bench of the Patna High Court in Sundari 1 ILR 60 Bombay 848 at page 860.
2 AIR 1961 SC 1474 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 49 Shivaji v. Secretary of State of Inida1 held that "when a defendant in an action based on tort seeks to show that the suit is not maintainable by reason of the expiry of the statutory period of limitation, it is upon him to prove the necessary facts". There the suit was for conversion of property, and the learned Judges applied Article 48 of the Limitation Act to the said suit. After noticing the words in the last column of the article, the learned Judges proceeded to observe thus at p. 360:
"The starting date of limitation in the case of conversion is the date when the person who has the right to possession first learns of the act of conversion."
Adverting to the burden of proof, the learned Judges observed:
"There is nothing in the pleadings which would show precisely at what period the plaintiff or the plaintiff's agent, which is the same thing, became aware of the sale and its wrongfulness, that is to say, became aware of the fact of conversion. The defendant was unable to provide us with any materials to fix that date and therefore his plea of limitation fails altogether, because he is unable to show a date outside the period of three years which would entitle him to succeed."
With great respect to the learned Judges, we hold that this case had not been correctly decided. The burden of proof, as we have explained earlier is on a 1 (1934) ILR 13 Pat 752, 760 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 50 plaintiff who asserts a right, and it may be, having regard to the circumstances of each case, that the onus of proof may shift to the defendant. But to say that no duty is cast upon the plaintiff even to allege the date when they had knowledge of the defendant's possession of the converted property and that the entire burden is on the defendant is contrary to the tenor of the article in the Limitation Act and also to the rules of evidence. A Division Bench of the Calcutta High Court in Kalyani Prasad Singh v. Borrea Coal Co. Ltd.1 did not accept the view of the Patna High Court, but followed that of the Bombay High Court in the Bank of Bombay v.
Fazulbhoy Ebrahim2. In the context of the application of Article 48 of the Limitation Act, the learned Judges of the Calcutta High Court observed at p. 127 thus:
"The burden of proof rests upon the party who substantially asserts the affirmative of the issue..... We are of opinion that the onus is upon the plaintiff in these suits to prove that the knowledge of his father was within three years of the suit."
In Talyarkhan v. Gangadas 3 Rangnekar, J., formulated the legal position thus at p.
860:
"The onus is on the plaintiff to prove that he first learnt within three years of the suit that the property which he is seeking to recover was in the possession of the defendant. In other words, he has 1 AIR 1946 Cal 123 2 (1922) 24 Bom LR 513 3 (1935) ILR 60 Bom 848 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 51 to prove that he obtained the knowledge of the defendant's possession of the property within three years of the suit, and that is all. If he proves this, then to succeed in the plea of limitation the defendant has to prove that the fact that the property was in his possession became known to the Plaintiff more than three years prior to the suit."
We accept the said observations as representing the correct legal position on the subject."
From the ratio of the aforesaid judgments it is thus obvious that initial burden is on the Plaintiffs to prove that the period of limitation started running from 07/11/1992 and not on 18/03/1992 as alleged in para 7E by the Plaintiffs which reads as under:-
"On 18 March 1992, it appears that 2nd Defendant arranged the return of Plaintiff BR bearing No.1939 favouring ANZGB by delivering to ANZGB the original Letter of Allotment in respect of the said bonds from 3rd Defendant. .... Had 3rd Defendant, delivered to Plaintiff against the transaction of 17th March, 1992, the original letter of allotment, which was in possession of 3rd Defendant, Plaintiff would have immediately realized the fraud that had been played on the Plaintiff."::: Downloaded on - 09/06/2013 16:08:25 :::
This Order is modified/corrected by Speaking to Minutes Order 52 Once this fact is proved by the Plaintiffs then the Defendants would have to prove from the evidence on record that, in fact, the limitation did not start running from 07/11/1992 but on the earlier dates mentioned by them during the course of their arguments.
44. Before I consider the evidence on record on this aspect, it would be relevant to briefly deal with the judgment on which reliance is placed by the Plaintiffs viz the judgment of the Privy Council in Rahimbhoy Hubibbhoy vs. Turner1 (hereinafter referred to as "Rahimbhoy Hubibbhoy") in support of the contention that the word "first learns" means knowledge which is not mere suspicion but knowledge and certain information. It is urged that the principle laid down by the Privy Council in this case also applies to the dishonest conversion by bailee and to any other person benefiting by such dishonest conduct. In my view, ratio of the judgment on the said aspect in Rahimbhoy Hubibbhoy would not apply to the facts of the present case. Admittedly, the said case was regarding proving the knowledge of fraud as laid down 1 1892(20) IA PC 1 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 53 under section 18 of the old Limitation Act which, after an amendment, now relates to section 17 of the Limitation Act and in this context it was held that by virtue of section 18 of the Limitation Act right of person who was defrauded was extended by the said section for the period when the Plaintiff had been kept in dark by means of fraud from the knowledge of such right or title or where any document which is necessary to establish such right had been fraudulently concealed from him. In this case, a suit was brought by the Official Assignee against Rahimbhoy Hubibbhoy for recovery of the property of his insolvent brother, which was alleged to have been privately transferred to him in fraud of the creditors under the insolvency. In this context, it was observed by the Privy Council as under:
"It is not disputed that the transfer was voluntary one, that it cannot be maintained, and that if this action had been brought in 1867 the assets must have been recovered. But it is said that as the action was not brought till 1887, it is barred by time. The answer is that the transfer was not only a voluntary one and bad against the creditors, but that it was committed in pursuance of a fraud, and was concealed from the creditors, that it was a fraud which ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 54 prevented the assignee from having knowledge of his right to recover the assets, and therefore falls within the 18th section of the Limitation Act XV.of 1877, which directs that in such a case the time for instituting an action shall be computed from the time when the fraud first became known to the person injuriously affected thereby.
The assignee is positive that he did not know anything about this fraud until the year 1885, when he learnt it in the course of a suit brought against Ahmedbhoy to recover a number of other items, in conjunction with this one, belonging to the insolvent's estate.
Their Lordships consider that when a man has committed a fraud and has got property thereby, it is for him to show that the person injured by his fraud and suing to recover the property has had clear and definite knowledge of those facts which constitute the fraud, at a time which is too remote to allow him to bring the suit. That is attempted in the present case. But their Lordships consider, and in this they agree with both the Courts below, that all that the Appellant Rahimbhoy has done is to show that some clues and hints reached the assignee in the year 1881, which perhaps vigorously and acutely followed up, might have led to complete knowledge of the fraud, but that there was no disclosure made which informed the mind of the assignee that the insolvent's estate had been defrauded by Rahimbhoy of these assets in the year 1867."
45. It is evident, therefore, that the observation made by ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 55 the Privy Council about complete knowledge is in respect of the fraud which prevented the official assignee from having knowledge of his right to recover the assets and, therefore, the said observation has been made in the light of the provisions of section 18 of the Limitation Act (XV of 1877). In my humble view, the said observation cannot be of any assistance to the Plaintiffs for the purpose of interpreting the word "learn" which is used in Article 91 of the Limitation Act, 1963. Admittedly, fraud had not been pleaded by the Plaintiffs in this suit nor any evidence has been led on this aspect and consequently it has not been argued. It will, therefore, not be possible to derive the said analogy which has been used by the Privy Council in the context of section 18 of the Limitation Act (XV of 1877) to a case of conversion as pleaded by the Plaintiffs in this case. For the same reasons the other judgments in respect of fraud will not apply to the facts of the present case.
46. It will have to be seen now as to whether Article 91 of the Limitation Act applies in this case. Article 91 reads as under:-
::: Downloaded on - 09/06/2013 16:08:25 :::This Order is modified/corrected by Speaking to Minutes Order 56 Description of suit Period of Limitation Time from which period beings to run
91. For compensation When the person
(a) for wrongfully having the right to taking or detaining the possession of the any specific movable Three years property first learns property lost, or in whose possession acquired by theft, or it is.
dishonest misappropriation or conversion.
(b) for wrongfully taking or injuring or When the property is wrongfully detaining any other specific movable property ig Three years wrongfully taken or injured, or when the detainer's possession becomes unlawful.
47. It is the case of Plaintiffs that their case falls under Article 91(a) and that the bonds in question are a specific movable property. It is secondly argued that the word "dishonest" which is used to describe misappropriation would also apply to conversion and it is, therefore, argued that the ratio of the judgment in Rahimbhoy Hubibbhoy would also apply to the facts of this case. In my view, taking into consideration the averments in the plaint, the provisions of Article 91 are applicable in this case. Taking into consideration the provisions of section 3(36) of the General Clauses Act, even incorporeal property would fall within the ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 57 definition of the movable property. Movable property has been defined under General Clauses Act, 1897 under section 3(36) as under:-
"movable property, shall mean property of every description, except immovable property;"
Immovable property has been defined under General Clauses Act, 1897 under section 3(26) as under:-
"Immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth."
Since every thing that is not immovable is movable, incorporeal property is also a movable property under the said Act. Therefore, submission of the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that the suit bonds being "actionable claims" and as such incorporeal rights in property, are not property and therefore not capable of being possessed, cannot be accepted.
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48. Secondly, it is further urged by Shri Rohit Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that in view of arguments of SCB in Suit No.11 of 1996 and consequent decision of the Apex Court that bonds are "chose in action", the said judgment is binding on the Plaintiffs. This submission also, in my view, cannot be accepted. It must be remembered that SCB's argument in that suit was in respect of the word "thing" in section 110 of the Evidence Act and, in that context, it was argued that it did not include the "chose in action". In my view, perusal of the observations of the Apex Court in Suit No.11 of 1996 clearly reveals that the said observations are made in the context of section 110 of the Evidence Act and, therefore, in my view, it cannot be said that those observations are binding on the Plaintiffs in respect of the facts of the present case. Therefore, in my view the suit bonds are movable property which is capable of being possessed.
49. Once it is held that the bonds are specific movable property which is capable of being possessed, the second question which falls for consideration is whether conversion ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 59 could be treated as dishonest conversion. In my view, on plain reading of the said Article, the word "conversion"
cannot be split into two parts by classifying it into two parts i.e. "honest conversion" and "dishonest conversion". The word "dishonest" which is used to describe misappropriation, in my view, cannot be used to describe conversion either as an honest conversion or dishonest conversion. The Privy Council in Lewis Pugh Evans Pugh vs. Ashutosh Sen and others1 while considering this question in the context of Article 48 of the Limitation Act 1908 which is pari materia with Article 91 of 1963 Act has observed on page 71 as under:-
"......Art.48 alone refers to conversion, and their lordships can see no ground for splitting up conversion into two classes, one dishonest and other not dishonest.----
The trust is that if the article is read without commas inserted in the print, as a Court of law is bound to do, the meaning is reasonably clear...."
From the above observations, therefore, it is clear that the word "wrongful" is attached to misappropriation and not to conversion.
1 AIR 1929 Privy Council 69 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 60
50. Similarly, tort of conversion cannot be split into honest conversion and dishonest conversion since tort of conversion is a strict liability. Rajasthan High Court has followed the judgment of Privy Council in its judgment in Champalal vs. Ramchander and another1 Therefore, so having held, the next question which needs to be decided is regarding meaning of the word "first learns". Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs has urged that taking into consideration definition of the word "learn" in the Oxford Dictionary to mean to acquire knowledge of or skill in (something) through study or experience or by being taught. He has urged that the word "learn"must be understood in the context of acquiring knowledge and, therefore, in the ordinary dictionary sense the word "learn" is equivalent to the knowledge. In support of the said contention, Shri Jethmalani, the learned Senior Counsel relied upon the judgment of the Bombay High Court in K.M. Talyarkhan vs. Gangadas Dwarkadas & Ors.2 and the judgment of the Andhra Pradesh High Court in Allareddi 1 AIR 1976 Rajasthan 75 para 9 2 ILR 60 Bombay 848 ::: Downloaded on - 09/06/2013 16:08:25 ::: This Order is modified/corrected by Speaking to Minutes Order 61 Sudarsanamma vs. B.V. Raghavaiah & Ors1
51. On the other hand, Shri Rohit Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 has urged that the word "learn" appearing in Article 91 of the Act cannot be equated with the complete knowledge or knowledge as argued by the Plaintiffs. He has further submitted that the Limitation Act, 1963 has used the word "known" in Articles 56 to 59 and the word "knowledge" in Article 123 and, therefore, it is urged that if the legislature intended to use the word "knowledge" in Article 91, it would have done so and, therefore, by analogy meaning of word "knowledge" cannot be given to word "learn" in Article 91. In support of his submission he relied upon the judgment of the Apex Court in The Member, Board of Revenue vs. Arthur Paul Benthall2
52. It is true that in Arthur Paul Benthall (supra) it has been observed by the Apex Court that when two words of different import are used in a statute in two consecutive provisions, it would be difficult to maintain that they are used in the same 1 (1966) 1 Andhra Weekly Reporter 218 2 AIR 1956 SC 35 ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 62 sense, yet it has to be seen that the word "learn" has an element of knowledge in the sense that when you say that "one learns" it meas that one gains knowledge about something and though in the Limitation Act, the word "knowledge" is found in Article 123 and the word "known" is used in Articles 56 to 59, these words have been used in different context. If, therefore, it is interpreted to mean the abstract knowledge, it would lead to absurd consequences.
A negotiable instrument can pass through various hands and unless there is concrete knowledge about the person who is in possession of the specific movable property, it will not be possible for the Plaintiffs to file suit for compensation from such person. In this context, therefore, the submission made by Shri Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs will have to be accepted that the word "first learns" would indicate clear and definite knowledge.
The Bombay High Court in K.M. Talyarkhan (supra) has also interpreted Article 48 which is pari materia with Article 91 in a similar manner and it has observed as under:-
"The plain meaning of Article 48 is that time begins to run against the owner of ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 63 the property lost, from the time when he first discovered that it is in the possession of the Defendant. The words "whose possession" in that Article, mean, the possession of some definite person who can be identified and against whom effective relief for restoration of the property in question can be obtained. In such a case the onus is in the first place on the Plaintiff to prove that he first learnt it within three years of the suit that the property which he is seeking to recover was in possession of the Defendant. If he proves this, then to succeed on the plea of limitation the Defendant has to prove that the fact that the property was in his possession became known to the Plaintiff more than three years prior to the suit."
Same view has been taken by the Madras High Court in Seshappier vs. Subramania Chettiar & Ors.1 wherein it is held that the time began to run "when the Plaintiff came to know in whose possession" the concerned article was. Same view has been taken by the Andhra Pradesh High Court in Allareddi Sudarsanamma vs. B.V. Raghavaiah & Ors.2 wherein the Court has observed as follows:-
"The onus lies on the plaintiffs to prove that they first learnt of the Defendant's possession within three years prior to suit which is the same thing as saying that they had 1 ILR 40 Madras 678 2 (1966) 1 Andhra Weekly Reporter 218 ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 64 knowledge that the defendants took possession within three years prior to the suit. The question of knowledge is one of fact and that can be found on the pleadings. If it can be so found the question of taking evidence may not arise."
From the aforesaid three judgments, it is abundantly clear that all the High Courts have held that the word "learn"
implies knowledge regarding possession by some definite person. The contention of Shri Rohit Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that the word "first learns" cannot be equated with knowledge of a definite person, therefore, is unacceptable.
53. Having so held, the next crucial question which is required to be decided is whether the Plaintiffs prove that they first learnt or had knowledge about possession of the bonds with CMF for the first time on 07/11/1992 and if it is held that the Plaintiffs have proved this fact then whether on the basis of evidence which is on record, Defendants prove that, in fact, the Plaintiffs had knowledge about possession of the bonds in question prior to 07/11/1992.
::: Downloaded on - 09/06/2013 16:08:26 :::This Order is modified/corrected by Speaking to Minutes Order 65
54. It has, therefore, to be seen as to whether the Plaintiffs have established that they first learnt on 07/11/1992 that the bonds were in possession of CMF. In my view, Plaintiffs have not first proved this fact for the reasons mentioned hereinbelow. It is therefore necessary first to see the chronology of events. Plaintiffs initially filed a suit only against ABFSL and claimed recovery of the said amount from Defendant No.1. igHowever, on 25/10/1995, a Chamber Summons was filed by them for amendment of the plaint in which they gave up their claim against Defendant No.1 and set up a claim against Defendant Nos. 2 to 10 i.e HPD and CMF. This amendment was allowed in 2005. By virtue of the amendment, it is now claimed that the Plaintiffs subsequently came to know more particularly in a meeting held on 07/11/1992 that the bonds were unauthorizedly delivered and diverted by HPD to CMF. According to the Plaintiffs on 07/11/1992, a meeting was held in the Office of CMF and which was attended by Shri S.R. Ramraj representative of CMF, Kannan , Kalyanraman and the Officers of the CBI and in the said meeting S.R. Ramraj informed the Plaintiffs that the bonds were diverted by HPD ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 66 to CMF on 27/2/1992. Plaintiffs relied upon the unsigned note - Exh.D2-1 of Kannan which had recorded the said event and it was confirmed by him in March 1996 vide letter Exh.
D2-2. In para 7E of the plaint, it is averred by the Plaintiffs that on 18/3/1992 since the bonds were directly given to ANZ, the Plaintiffs did not realize that these were the same bonds which belonged to the Plaintiffs and they were fraudulently not given to the Plaintiffs by CMF because they had they done so, Plaintiffs would have realized on 18/03/1992 itself that the bonds belonged to the Plaintiffs were sold by CMF. In view of these pleadings, therefore, the Plaintiffs will have to establish firstly that such meeting did take place on 07/11/1992 and and that it was attended by S.R. Ramraj of CMF, Kannan, Officers of CBI and Kalyanraman amongst others. Secondly, unsigned note was prepared by Kannan and, thirdly, it was confirmed subsequently by him in March, 1996.
55. In my view analysis of the evidence on records creates serious doubt regarding the story of the Plaintiffs about the said meeting dated 07/11/1992. Firstly, if 07/11/1992 was ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 67 the date on which the Plaintiffs had definite knowledge about possession of the bonds with CMF, the Plaintiffs would have made claim against CMF and HPD at the time of filing of the suit itself on 27/11/1992. No explanation has been given by the Plaintiffs as to how and why this discrepancy has arisen.
Secondly, no reference has been made about this meeting which was allegedly held on 07/11/1992 by P.W. 1 -
Kalyanraman who also was shown to be present when the said meeting was held. Thirdly, there is no reference about this meeting in the correspondence between Plaintiffs and NPCL or ABFSL. P.W.4 - Devid Loveless does not make any reference about this meeting. P.W. 2 - Kannan was in Zambia at the relevant time when he had confirmed about this meeting by letter Exh.D2-2. Shri Kannan in his evidence does not mention as to how this note was delivered to him on the basis of which he could send the confirmation. The evidence of P.W.2 - Kannan itself does not inspire confidence since though he was a member of the investigation team, he does not remember anything else about the transaction of the Plaintiffs except the circumstances under which he has signed the letter of ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 68 confirmation - Exh D2-2 Therefore, in my view, Plaintiffs, in the first place, have not established that such a meeting, in fact, had taken place and the only evidence on record is the statement of Kannan - P.W.2 and his letter of confirmation.
The initial burden, in my view, is on the Plaintiffs of establishing the date of their first knowledge. Since it is not established, it cannot be said that period of limitation had started running from 07/11/1992 as claimed by the Plaintiffs.
56. Even otherwise, in my view Defendants have, on the basis of evidence of the Plaintiffs which is on record, established that Plaintiffs had knowledge about possession of the bonds atleast on 18/03/1992 or 23/5/1992 or last week of May 1992.
57. Plaintiffs, in their amended plaint, in para 7A, have given flow chart of various transactions which took place in respect of 17% NPCL bonds. Para 7A along with chart read as follows:-
7A. The Plaintiffs state that after purchase of the said bond viz. 17% NPCL bonds of face value of Rs ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 69 50 crores, the Plaintiffs records reflect the following further transactions:
Sr. Date Purchase Sale Balance Counter Brok- Plaintifffs' No Party ker Deal Slip No.
1. 26.2.1992 50,00,00,000 50,00,00,000 ABFSL Direct 8682
2. 26.2.1992 50,00,00.000 NIL ANZGB Direct 8683
3. 17.3.1992 50,00,00,000 50,00,00,000 CMF Direct 9054
4. 23.3.1992 50,00,00,000 NIL ANZGB Direct 9215
5. 8.4.1992 50,00,00,000 50,00,00,000 ANZGB Direct 9671
6. 10.4.1992 50,00,00,000 NIL ABFSL Direct 9712
58. According to the Plaintiffs, the bonds were purchased initially by ABFSL from NPCL which were, in turn, purchased by Plaintiffs and, thereafter, they were sold to ANZ.
Ultimately they were again repurchased by Plaintiffs from CMF in order to given delivery of bonds to ANZ. According to Plaintiffs, if the bonds had been directly delivered to Plaintiffs by CMF, they would have come to know that the bonds which were purchased by them from ABFSL were returned to them and on that date they would have realized the conversion of bonds at the behest of HPD. Unfortunately, in my view, there is no material on record to show that the Plaintiffs did not have knowledge that this was only set of bonds which were used by NPCL and, therefore, there was no ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 70 question of other bonds being in circulation. The burden of establishing this fact being on the Plaintiffs, in the absence of any evidence on this point, it will have to be held that when the bond s were returned by CMF to ANZ on that date itself the Plaintiffs - SCB became aware of the possession of the bonds by CMF and, therefore, period of limitation, naturally, would start running from 18/03/1992.
59. Mr. Jethmalani, the learned senior Counsel appearing on behalf of Plaintiffs strenuously urged that 18/03/1992 could never be the date of knowledge. It is urged that the burden was on CMF to prove that the bonds did not go directly to ANZ through HPD but that they had delivered them to SCB and SCB had, in turn, delivered them to ANZ. In my view, in view of the specific plea of the Plaintiffs in para 7E to the said effect, the burden of proving that the Defendant No.3 did not deliver the original letter of allotment to the Plaintiffs and instead delivered the same to the ANZ was on the Plaintiffs and not on the Defendants. It is the case of the Plaintiffs that they did not realize on 18/3/1992 hat CMF had sold suit bonds to the Plaintiffs and in order to conceal the ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 71 said bonds, CMF had issued its BR No.2767 even though CMF was not in possession of the suit bonds. It is also their case that the BR could not have been issued by CMF as BR could be issued when physical securities were available. It is also urged that the BR is issued only when the Bank is in possession of the physical securities. However, securities cannot be delivered to the counter-party bank. A contrary stand, however, has been taken by them in the FIR and, therefore, this stand which has been taken appears to be an afterthought for the purpose of bringing the suit within a period of limitation. It is also pertinent to note that P.W.1 had adopted Written statement of Defendant No.1 who has in para 4(k) stated that ANZ Grindlays received bonds from the Plaintiffs on 18/03/1992. P.W.1 also has stated in his evidence on page 31 as under:-
Q: Between 13/11/1992 and
20/11/1992, were you aware of ANZ
saying that LOA was received by
them from Plaintiff?
A: I say that I was aware of it
earlier on or around 18/3/1992 and it was on account of telephonic conversation between ABFSL and Grindlays ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 72 Lastly P.W.4 also has stated in his evidence at page 92 that the Plaintiffs were aware about the alleged fraud on 17/3/1992 itself.
60. It is also strenuously urged by Shri Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs that in para 4 of the affidavit dated 13/7/1993 of S.R. Ramraj, authorized employee and agent of CMF, which is at Exhibit-
P-15, it has been stated as under:-
"(iv) Even in respect of 17% NPCL bonds which were subsequently sold on 17.3.1992 by the Petitioners to Respondent no.4 as set out in para A above, the Petitioners had entered into the transaction through Respondent No.2 who acted as a broker. As set out th hereinabove, even on 17 March, 1992 there was a netting of transactions against purchase of 13% NLC bonds by the Petitioner from Respondent No.4 was also brought about by Respondent No.2 acting as broker. The R.B.I cheque for the net amount of Rs. 15,23,973.61 issued by Respondent No.4 in favour of the Petitioners was delivered to the Petitioner by Respondent No.2 and likewise the B.R. in respect of the sale of 17% NPCL bonds was delivered by the Petitioner to Respondent No.2 for onwards delivering to the Purchaser. Subsequently, even ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 73 when the original letter of allotment was exchanged for the B.R., the said exchange also had taken place through Respondent No.2 and/or his servants and agents."
In fact, a careful perusal of the said paragraph reveals that the bonds were delivered through HPD to the Plaintiffs.
Defendants, therefore, in my view, on the basis of evidence which is on record have established that Plaintiffs had the knowledge about possession of the bonds by CMF on 18/3/1992 when they delivered them to the Plaintiffs, who, in turn delivered them to ANZ through HPD.
61. The next date on which the reliance is placed by Shri Kapadia, the learned Senior Counsel appearing on behalf of the Defendants is 10/04/1992. It is urged that Plaintiffs settled the said transaction of 10/04/1992 with Defendant No.2 against IRFC bonds for valuable consideration and that they came to know on 09/04/1992 that there was a hole in the Plaintiffs' books pertaining to the transaction of 26/2/1992. It is submitted that the transaction could be settled on 10/4/1992 as per Exh.D2(1) only if the Plaintiffs were aware that the suit bonds were already dealt by them ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 74 on 18/03/1992 and it could not demand delivery from Defendant No.1. It is also urged that transaction could be settled with HPD only since they were fully aware that they were in possession of the LOA and had dealt with the same.
Lastly, it is urged that the Plaintiffs could have learnt about physical stock of 17% security on physical stock taking of flows of financial year 1991-92 and would have therefore settled the issue on 10/4/1992 and, ultimately, it is urged that 10/4/1992 would be a relevant date for the purpose of limitation since on 10/4/1992 there was settlement/adjustment of money payable and receivable under three transactions under Deal Slip Nos. 9712, 9713 and 9714 and, therefore, it is difficult to conceive how the Plaintiffs were not aware of the three transactions for the purpose of settlement.
62. On the other hand Shri Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs submitted that this contention was incorrect in view of HPD's letter dated 11/5/1992 signed on 18/5/1992 - Exhibit-P-5. It is submitted that by this letter HPD had acknowledged his liability of more ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 75 than 1200 crores to SCB and this liability did not include liability for suit bonds. It is, therefore, submitted that it could not be said that in April 1992 HPD imparted relevant knowledge to SCB.
63. There is much substance in the submission of Mr. Jethmalani the learned Counsel appearing on behalf of Plaintiffs that the submissions made by Mr. Kapadia in respect of this date are hypothetical and Defendants have not proved by leading any cogent evidence or by pointing out from the evidence led by Plaintiffs that they became aware of the conversion on 10/4/1992. So far as entry dated 10/4/1992 is concerned, Plaintiffs had averred that this was to cover the hole which they had noticed and it was a dummy entry made. It has not been established by Defendant No.2 - HPD that the said transaction was settled against IRFC bonds for valuable consideration. In my view, therefore, 10/04/1992 cannot be treated as a date on which Plaintiffs had knowledge.
64. The next suggested date by Defendant Nos. 3 to 10 is ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 76 23/05/1992. Shri Kapadia, the learned Senior Counsel for Defendant Nos. 3 to 10 submitted that Plaintiffs have admitted that their Officers had meetings with HPD in May 1992 and specifically in the meeting of 23/5/1992 there was discussion about 19% NPCL bonds. It is urged that (a) Plaintiffs have also admitted that HPD had informed Plaintiffs' Officers that the bonds had been delivered/diverted to CMF; (b) that minutes of the meeting dated 23/5/1992 Exh.D-3(21) reveals that the Plaintiffs had learnt in whose possession the bonds were by 23/5/1992 ;
(c) that in these minutes apprehension of the Plaintiffs as later on urged by them about non-cooperation by HPD or doubt about truthfulness of the said conversation by HPD is not mentioned; (d) that Defendant No.3 had specifically made an averment in the additional Written Statement that Plaintiffs had learnt about conversion on 23/5/1992 in the meeting between Plaintiffs and HPD; (e) that Plaintiffs had not pleaded about meeting of 23/5/1992 and therefore had suppressed material fact from the court. It is submitted that P.W. 2 - Kannan had stated in his evidence that HPD told P.W.2 and one Wasim Saifee, an Officer of the Plaintiffs that ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 77 he had diverted suit LOA to CMF. It is further submitted that P.W.2 stated in his evidence that HPD had told them that he would deny the said meeting if the Plaintiffs were to use the said meeting in any legal proceedings. Further P.W.2 and P.W.4 both have stated in their evidence that no reliance could be placed on what HPD informed the Plaintiffs since HPD was evasive and became non-cooperative after the said meeting. Shri Kapadia, learned Senior Counsel submitted that the statement that HPD would deny the conversaion is not mentioned in the minutes of the meeting. It is submitted that since HPD had not made any such statement, it was not mentioned in the minutes. It is further submitted that even in Suit No.17 of 1992 P.W. 2 was examined as witness and, in his evidence in that suit also he has not mentioned about the statement of HPD in Exh.D-3(26). It is further urged that Shri Wasim Saifee in his handwritten note also did not mention the alleged statement of HPD in Suit No.17 of 1994.
Similarly, it is urged that other Officers of Plaintiffs i.e Nat also had not deposed about it and in the FIR also the denial of HPD is not mentioned. It is further urged that the story about HPD's statement that he would deny the meeting if ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 78 used in legal proceedings was added to discard what HPD had informed the Plaintiffs about the conversion.
65. On the other hand Shri Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs submitted that even on that date i.e on 23/5/1992 HPD had stated that he had diverted bonds to Canara Bank and the name of CMF was not mentioned. ig It is further submitted that the word "divert" in its ordinary sense means preventing something from reaching its normal destination and, therefore, if the bonds had been diverted before they reached SCB, the cause of action would be against ABFSL and not against CMF and this diversion which was disclosed was perfectly consistent with the inference from the "photocopy" entry in SCB's books. It is therefore submitted that when FIR was lodged on 10/6/1992, they had made HPD as an accused without paying any attention to the disclosure made on 23/5/1992. It is, therefore, urged that Plaintiffs felt that though HPD had cooperated to some extent, he was uncooperative after the said meeting which is evident from number of circumstances and, therefore, Plaintiffs did not have clear and definite ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 79 knowledge about wrongful conversion. It is, therefore, submitted that the observation of the Privy Council in 1892(2) IA page 1 is applicable to a case of wrongful and dishonest conversion by a bailee and to any other person benefiting by such dishonest conduct. He submitted that in the said case Privy Council had held that the onus on the Defendants is not discharged by saying that some hints and clues had reached Plaintiffs which might have led to such knowledge.
66. In my view, the Defendant Nos. 3 to 10 have, on the basis of the evidence on record, have clearly established that the Plaintiffs were aware about conversion of the suit bonds by Defendant No.2 in favour of Defendant No.3. In para 9 of his examination in chief P.W. 2 has stated that series of meetings were held between various officers of SCB with HPD and other brokers in order to sort out the short falls in SCB's portfolio and in respect of diversion of funds and securities from SCB. He has referred to meeting dated 23/05/1992 in which he has stated that he, along with other Officers of SCB, was present along with HPD and also some ::: Downloaded on - 09/06/2013 16:08:26 ::: This Order is modified/corrected by Speaking to Minutes Order 80 brokers were present in the said meeting. In para 10, he has stated that this meeting was held to find out how the bank's assets had been diverted and the people to whom they were diverted. In the said paragraph in respect of disclosure by HPD about the suit bonds he states as under:-
".......in the course of the meeting held on 23rd May 1992 as to what had really happened in respect of the said transactions with ABFSL on 26th February 1992, H.P. Dalal also informed us that insofar as the transactions wherein SCB had purchased 9% NPCL Bonds of FV 50 crores and 17% NPCL Bonds of FV 50 crores were concerned and in respect of which SCB had paid full consideration, but in respect of which SCB records reflected receipt of only photocopies of the original LOA's, that he (HPD) had diverted the said bonds to Canara Bank."
In para 11, however, he (P.W.2) has stated as under:-
"11. In the said meeting, I pressed H.P. Dalal to furnish me the details and particulars with regard to his allegations of alleged diversion to Canara Bank of the said NPCL Bonds. HPD was however evasive and did not afford any cogent reply. I specifically inquired from him as to the manner and circumstances of the alleged diversion. However, when pressed by me to give particulars and details, he ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 81 refused to state anything further on the subject and instead insisted that the said information of the alleged diversion of the Bonds to Canara Bank was purely informal and that he would deny his conversation with SCB if SCB were to seek to make formal use of his statement."
He (P.W.2) has also identified the minutes of the meeting which are now taken on record as Exh.D2-1. In the minutes of the meeting, however, there is no reference to the evasive reply given by HPD or that he had stated that the information given was informal and that he would deny this conversation with SCB if SCB were to seek formal use of the said statement. In the minutes of the meeting, however, what is mentioned is as under:-
".....On the Andhrafina transactions relating to NPCL bonds where SCB was provided with photocopies of bonds instead of originals, HPD admitted that he had diverted the bonds to Canbank. He also attributed the problem in which SCB and Canfina were caught, to irregularities in the Public Debt Office of the RBI."
It is equally true that in other statements made by various Officers of SCB, there is no reference to evasive replies given by HPD. P.W. 2 - Kannan who was examined as witness in ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 82 Suit No.17 of 1994 did not mention about the said statement of HPD though he has deposed in his deposition which is at Exhibit D-3(26) about the meeting of 23/5/1992. Wasim Saifee who had prepared the handwritten note of the meeting has not deposed about the alleged statement of HPD in Suit No.17 of 1994. No reference also is made about it in the FIR lodged by police against HPD on 20/06/1992.
However, the fact remains that HPD did disclose in the meeting on 23/05/1992 about diversion of the bonds to Canara Bank and Canfina and, therefore, Plaintiffs had first learnt about the diversion on 23/05/1992 of the suit bonds to Canara Bank and Canfina and, therefore, that also is a date on which the Plaintiffs had first learnt or had knowledge about the conversion.
67. Shri Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs, on the other hand, has relied on the affidavit of HPD filed in one of the proceedings where he has made a similar statement on oath.
68. Though an attempt is made to explain that the word ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 83 "divert" in English language means preventing a thing from reaching its normal destination, that explanation cannot be accepted. The explanation given by the Plaintiffs that statement of HPD made on 23/05/1992 intensified SCB's belief in genuineness of the photocopy entry also cannot be accepted. The fact remains that irrespective of what cooperation which HPD was willing to give or not give, the Plaintiffs having come to know about the diversion or having first learnt or had knowledge about the said fact, the period of limitation, in my view, would start running from that date since the said information was definite information given by the person who had diverted the original LOA to Defendant No.3 which is a subsidiary of Canara Bank. In this context, it is relevant to note that after disclosure by HPD on 23/05/1992, criminal complaint was filed against him by the Plaintiffs on 20/06/1992. Therefore, even if the statement of P.W.2 - Kannan is to be accepted in para 11 of his affidavit in examination in chief that HPD had stated that he would deny his conversation with SCB if they were to make formal use of his statement, cannot be accepted as an excuse for not proceeding against the Canbank or Defendant No.3 for ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 84 the conversion of bonds since the Plaintiffs could have independently sued Defendant No.3 for conversion. The last date for limitation, therefore, in my view, would start running from 23/05/1992.
69. The last date on which reliance is placed by Shri Rohit Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 is last week of May 1992 or on or about 25/5/1992. It is submitted that since confirmation was not given by Defendant No.1 in respect of 17% NPCL bonds, that was an additional confirmation of the fact of conversion after disclosure by HPD of diversion of bonds in the meeting held on 23/05/1992. It is, therefore, suggested that, in his letter dated 29/05/1992 by P.W.2, he did not mention about confirmation of 17% NPCL bonds since he was aware of the diversion of bonds by the HPD.
70. In my view, 25/05/1992 cannot be taken as a date for the purpose of holding that on this date the Plaintiffs had learnt about conversion of bonds. Merely because no reference is made in the letter written by P.W.2 dated ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 85 29/05/1992, an inference cannot be drawn that this was done because Plaintiffs and P.W.2 were aware about conversion of 17% NPCL bonds by HPD in favour of Defendant No.3.
71. For the aforesaid reasons, therefore, in my view, the period of limitation had started running from either 18/03/1992 and further from 23/05/1992.
ig The amendment application for impleading defendant Nos. 2 to 10 was filed on 20/10/1995 and, therefore, if the period of limitation is calculated from 18/03/1992 or 23/05/1992, the said period expires either on 18/03/1995 or 23/05/1995. I have already given by reasons as to why 07/11/1992 cannot be treated as a date on which Plaintiffs came to know about the conversion by HPD in favour of Defendant No.3 and, therefore, Plaintiffs in my view have miserably failed in filing the suit within a period of limitation. Issue No.2 as against HPD and Issue No.1 as against Defendant Nos. 3 to 10, therefore, are answered in the affirmative.
::: Downloaded on - 09/06/2013 16:08:27 :::This Order is modified/corrected by Speaking to Minutes Order 86 ISSUE NO.2 BETWEEN SCB AND CMF
2. Whether the Defendant No.2 in collusion with one of the employees of the Plaintiff (viz. Santosh Mulgaonkar) fraudulently misappropriated the Suit LOA as alleged in para 6A(iii) of the Plaint?
72. Mr. Jethmalani, the learned Senior Counsel fairly conceded that this issue has not strictly been proved by the Plaintiffs and that the only evidence that Mulgaonkar is the person involved in the charge-sheet which is filed by the prosecution in criminal case and that though it makes the belief reasonable, it does not prove the fact. He, however, submitted that this was partially proved by circumstantial evidence. He submitted that one of the employees of the Bank made an entry in the ledger at Exh-T-10 (BRN Register). He submitted that some employee did make a false entry that the original bonds were not received. He submitted that the entry that photo copies were received was proved to be the false entry. He submitted that the Bank believed that it was Mulgaonkar. However, this fact is not proved. He submitted that the Apex Court in appeal ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 87 from judgment in Suit No.11 of 1996 had held in paragraphs 69, 79 and 99 of its judgment that it was not the part of the duty of the Plaintiffs to prove this since, practically, there is no evidence led by the prosecution on this issue to prove that Santosh Mulgaonkar was responsible for fraudulently misappropriating the Suit LOA. Issue No.2 is, therefore, answered in the negative.
ISSUE NO.3 BETWEEN SCB AND CMF
3. Whether the Plaintiffs were unaware that the series of transactions involving Canbank Mutual Fund (CMF), ANZ Grindlays Bank, Defendant No. 1 and the Plaintiffs themselves were "based on the very same Letter of Allotment" as alleged in para 7 of the Plaint?
ISSUE NO.5 BETWEEN SCB AND CMF
5. Whether the Plaintiffs prove that the 3rd Defendant choose to issue its BR with a view to conceal the alleged "misappropriation" of Bonds as alleged in para 7D & 7E of the Plaint?
73. It is submitted by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs that 17% NPCL ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 88 bonds were acquired on 26/02/1992 from Defendant No.1 and they had agreed to sell these bonds to ANZ Grindlays Bank. Plaintiffs issued BR to ANZ and, therefore, they were under an obligation to deliver bonds to them. This obligation was discharged because ANZ returned the BR to Plaintiffs on 18/3/1992 when the bonds were delivered on 18/3/1992 to ANZ since Canbank themselves arranged to deliver bonds to ANZ. It is urged that nobody knew how many bonds were issued. It is further urged that Plaintiffs did not know that only one series of bonds was issued. It is submitted that the Plaintiffs bought these bonds from 3rd Defendant and Canbank issued the BR on 17/3/1992. It is, therefore, submitted that Plaintiffs did not physically see the bonds. It is further submitted that BR No.2767 issued by Canbank which is at Exh-P-16 did not mention the number of bonds or any other identification. It is, therefore, submitted that from these facts, two inferences could be drawn; firstly, that it was an intentional act on the part of Canbank since though they had bonds in their possession, they did not want the Plaintiffs to know that they were selling the very same bonds to Plaintiffs and the second inference was that it was ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 89 possible that it was an unintentional act. Even then the Plaintiffs were prevented from realizing that they were the same bonds. In any event, it is further submitted that Plaintiffs had agreed to sell the bonds to ANZ Grindlays and if ANZ Grindlays had not received these bonds, it would have created problem for the Plaintiffs and, therefore, the Canbank quietly sent the LOA to ANZ. It is, therefore, submitted that Plaintiffs did not realize that they were buying their own bonds. It is submitted that the Plaintiffs later on realized this fact. Reliance was placed on the evidence of P.W.5 - Mr. Kakde. My attention was invited to Exh-P-11 - letter dated 1st June 2007 written by NPCL. It is submitted that on 17/3/1992, Defendant No.3 dealt with these bonds as if they were their own. In my view, Plaintiffs have partly proved this issue though this issue is not very relevant for the purpose of proving the case of the Plaintiffs against the Defendants. Plaintiffs, initially, when they filed the suit against Defendant No.1 only, had come out with a case that they had not received the original LOA but had received a photo copy of the LOA. Later on, however, by way of amendment, this plea was given up and it was ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 90 contended in the plaint that, in fact, the original LOA was received by the Plaintiffs and it was surreptitiously handed over by HPD to Canbank. In either case, therefore, Plaintiffs had an occasion to see the LOA and it is difficult to accept the proposition that the same LOA was purchased by them from Canbank. In my view, there is no evidence on record to prove this fact that Plaintiffs were unaware that series of transactions involving ig CMF and ANZ Grindlays Bank, Defendant No.1 and Plaintiffs were based on the very same Letter of Allotment. In my view, no evidence has been led by the Plaintiffs to establish this fact and, therefore, no inference can be drawn as submitted by the learned Senior Counsel appearing on behalf of the Plaintiffs. Issue Nos.3 and 5 are, therefore, answered in the negative ISSUE NO.4 BETWEEN PLAINTIFFS AND CMF
4. Whether the Plaintiffs prove that they had purchased 17% taxable NPCL Bonds on 26th February, 1992 of the FV of Rs. 50 Crores from the Defendant No.1 or acquired any title to the Suit LOA as alleged by the Plaintiffs in para 5 of the Plaint?
::: Downloaded on - 09/06/2013 16:08:27 :::This Order is modified/corrected by Speaking to Minutes Order 91
74. Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs submitted that the Plaintiffs had examined R. Kalyanraman (PW1), an employee of ABFSL. It is submitted that in the Written Statement filed by ABFSL, they had admitted the transaction of purchase by SCB from ABFSL. It is submitted that R. Kalyanraman(PW1) had admitted issuing Bank Memo No.058 dated 26/2/1992 and also BR issued in favour of SCB of the same date. It is submitted that delivery of the bonds also was admitted by covering letter dated 26/2/1992 and the actual delivery of the bonds to the Plaintiffs on 27/2/1992. It is further submitted that the SCB had purchased 17% NPCL bonds and 9% NPCL bonds. It is submitted that this was by way of single transaction and the bonds were bought in the same manner and on the same date as a part of the same transaction. He submitted that the Counsel appearing on behalf of CMF had admitted this fact in the suit which was filed in respect of 9% NPCL bonds. He submitted that the Supreme Court in its said judgment dated 5/5/2006 in Standard Chartered Bank vs. Andhra Bank Financial Services ::: Downloaded on - 09/06/2013 16:08:27 ::: This Order is modified/corrected by Speaking to Minutes Order 92 Ltd.1 held that SCB had title to the 9% NPCL bonds and the very same documents which were produced in the present case were also produced in the said case. He relied upon paragraphs 63, 64 and 67 of the said judgment of the Apex Court.
75. On the other hand, it is submitted by the Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that the pleadings of the Plaintiffs in the suit were mutually destructive. Secondly, it is submitted that the claim against Defendant Nos. 3 to 10 was only contingent claim. It is submitted that no damage or loss was caused to the Plaintiffs. After pointing out discrepancies in the original plaint and amendment, it is submitted that the plea in the green amendment was completely contrary to the plea in the original plaint. It is then contended that the admission in the original plaint that the original LOA was not received by the Plaintiffs was binding on the Plaintiffs. Thirdly, it is submitted that the admission made in the plaint stood on a higher footing. It is then submitted that the Plaintiffs' own case in the plaint is that unless and until claim against 1 (2006) 6 SCC 94 ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 93 Defendant No.1 fails, Plaintiffs are not seeking decree against Defendant Nos. 3 to 10. It is further submitted that since essential pre-condition to any claim against Defendant Nos. 3 to 10 was absent, claim against these defendants was no longer maintainable. It is then submitted that Kalyanraman (PW1) had not produced any documentary proof to show by whom the LOA was delivered to the Plaintiffs on 27/2/1992. It is then contended that though the Plaintiffs maintained inward/outward book, they did not produce the same and it was also not shown that Plaintiffs in their office received the LOA on 27/2/1992 from Defendant No.1. It is submitted that the documents which were produced by the Plaintiffs were not sufficient to prove that they had purchased the suit bonds from Defendant No.1.
76. In my view, the submissions made by the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 cannot be accepted. It is a matter of record that NPCL had issued two types of bonds viz. (i) 17% NPCL bonds and
(ii) 9% NPCL bonds. In respect of 9% NPCL bonds also suit was filed by SCB against Defendant Nos. 3 to 10 vide Suit ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 94 No.11 of 1996. The said suit was dismissed by the Special Court and in the appeal which was filed by the SCB, Counsel appearing on behalf of Defendant Nos. 3 to 10 had submitted that both these bonds were part of the same transaction. The submission of the learned Senior Counsel as reproduced by the Apex Court in para 67 of its judgment is as under:-
"67.
He also pointed out that both 17% NPCL bonds and 9% NPCL bonds (suit bonds) were bought in the same manner and on the same day as a part of the same transaction and suit is filed for 17% NPCL bonds also being Suit No.3809 of 1992 only against ABFSL and only for money decree............"
In the said suit also, the very same documents which are produced by the Plaintiffs in this suit for the purpose of proving the title over the said 9% NPCL bonds have been produced to prove their title over 17% NPCL bonds. In paragraphs 63 and 64 of the said judgment, the Apex Court has observed as under:-
::: Downloaded on - 09/06/2013 16:08:28 :::This Order is modified/corrected by Speaking to Minutes Order 95 "63. It is the case of SCB that it had the title to the suit bonds as it obtained the suit bonds under a contractual agreement by paying consideration for the suit bonds. This transaction is based on documentary evidence on record.
The cost memo (Exhibit B) dated 26-2-1992 issued by ABFSL evidences that the suit bonds were offered to SCB at the consideration indicated in the document. The cost memo indicates the details of the transactions such as the description of the bonds, the number of bonds sold, the rate at which they were sold and the total consideration payable.
This is accompanied by a BR. Against this, there is a pay order dated 26-2-1992 issued by SCB in favour of ABFSL in the sum of Rs 42,52, 50,000 evidencing that such consideration had been paid. BR No.23728 dated 26-2-1992 evidences that upon receipt of the agreed consideration, being the cost of the suit bonds sold to SCB, the BR was issued to undertake that bonds of the face value of Rs 50 crores would be delivered when ready, in exchange for the BR duly discharged and that in ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 96 the meantime the suit bonds would be held on account of SCB. The letter dated 26-2-1992 from ABFSL to SCB shows that the LOA of the suit bonds was forwarded to SCB, inter alia, with a request for discharging the corresponding BR No.23728 on receipt of the LOA. The register of SCB shows that with reference to BR No.23728, the bonds had been received, although, the word "photocopies" appears to have been inserted therein. It is the case of SCB that one of its employees, Mulgaonkar, had acted fraudulently by inserting this word and causing misappropriation of the suit bonds. We find that this part of the case was not part of the pleadings of SCB either in its plaint or in the written statement filed in reply to CMF's petition. There was also no reference to it at any time when evidence was led by the parties. The first time this part of the case appears is in the copy of the charge-sheet filed by CBI against certain employees of SCB and HPD for several criminal offences.
Mr. Jethmalani contended that since this charge-sheet was produced on record ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 97 at the instance of CMF, the averments in the charge-sheet must be taken to have been proved before the court. Even assuming Mr Jethmalani is right in characterising the charge-sheet as a public document within the meaning of Section 35 of the Evidence Act, 1872, we cannot accept all that is stated in the charge-sheet as having been proved. All that we can say is that it is proved that the police had laid a charge-sheet which such allegations have been made in against the accused. We need not delve further into it since the criminal proceedings against HPD and others are still pending and it will be up to the appropriate court to decide the correctness or otherwise of the charges in the charge-sheet. All that can be said at this stage is that there are serious allegations that the original LOA went out of the possession of SCB by some nefarious means."
"64. Learned counsel for CMF contended that even as on 26-2-1992 SCB had no title to the suit bonds since the suit bonds were under the 15% ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 98 arrangement and that under the 15% arrangement the transaction was one merely of funding; in other words, that there was no real buyer or seller and it was mere paper work intended as a cover for lending money to HPD. We are unable to accept this argument for more than on reason. The documents which we have referred to above clearly evidence a transaction of sale and purchase of the suit bonds by SCB upon payment of consideration. Secondly, ABFSL, who was the other party to the transaction, has come forward and accepted the transaction unhesitatingly.
There is no reason why all this evidence should be discarded by choosing the chimera of the 15% arrangement theory. We, therefore hold that SCB validly acquired title to the suit bonds as a result of the transaction entered into between itself and ABFSL on 26-2-1992.
And that the suit bonds were in fact handed over to SCB although, it is not evident as to how the suit bonds went out of the possession of SCB. Therefore, the contention of CMF that SCB never acquired title to the suit bonds cannot ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 99 be accepted. Even the Special Court finds that the contract of 26-2-1992 with regard to the suit bonds had been proved by the evidence on record.
However, the Special Court goes on to say that merely proving the suit contract was not sufficient because it had to be further proved that the suit bonds had been acquired by SCB, in its view, the mystique of the 15% arrangement made HPD the real owner of the bonds."
Further, in paragraph 69 of the said judgment, the Apex Court has observed as under:-
"69.................. We are, therefore, satisfied that there was transfer of the property in the suit bonds to SCB and the evidence on record is sufficient to arrive at such a conclusion. It was wholly unnecessary for SCB to go further and prove how the BR was discharged and how the LOA went out of its possession, which were the facts emphasised on behalf of CMF. Nor was it necessary for SCB to lead evidence as to how HPD had intercepted the original ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 100 LOA, when and in what manner."
In the present case also, the very same documents which were produced in the earlier suit have been brought on record. Over and above that, the Plaintiffs have examined R. Kalyanraman(PW1) who was working with Defendant No.1, who has also in his evidence admitted that the suit bonds were sold by ABFSL to SCB. This fact is also admitted by Defendant No.1 in their Written Statement. The contentions raised by Defendant Nos. 3 to 10, therefore, cannot be accepted. Issue No.4, therefore, is proved and is answered in the affirmative.
RES JUDICATA
77. Following issues have been framed between SCB and CMF on the point of res judicata or constructive res judicata.
ISSUE NOS. 10, 11, 15, 16, 17BETWEEN PLAINTIFFS & CMF:
10. If the answer to the above issue is in the affirmative whether such transactions are illegal and/or opposed to the public policy?::: Downloaded on - 09/06/2013 16:08:28 :::
This Order is modified/corrected by Speaking to Minutes Order 101
11. Whether the contention that the transactions are opposed to public policy is barred by the principles of res judicata and/or constructive res judicata having regard to the judgment of the Spl. Court dated 13-3-1995 in Suit No.13 of 1994 and the decision of the Supreme Court in CA 4456/95 dated 30th October, 2001 and in CAs 2275 & 2276 dated 5th May, 2006?
15. Whether the transactions under the 15% arrangement were transactions of HPD & not of SCB and HPD was entitled to deal with bonds at his discretion as alleged in para 7(g) of Defendant No.3's WS?
16. Whether the Defendant No.3's allegations that transactions under 15% arrangement were transactions of HPD, are barred by res judicata by the judgment of the Special Court in 13/94 dated 13-3-1995 and the decision of the Supreme Court in CA No.4456 of 1995 dated 30-10-2001 as alleged in para 7(L)
(i) to 7(L)(v) of the Plaint and denied in ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 102 32, 33, & 34 of additional Written Statement and by the judgment of the Supreme Court dated 5-5-2006 in Appeal from Suit No.11 of 1996 as alleged in paras 7(L)(vii) to 7(L)(xv) of the Plaint?
17. Whether Defendant No.3's allegation that transactions of the Plaintiff under the 15% arrangement were actually transactions of HPD, is barred by constructive res judicata as alleged in para 7(L)(v) of the Plaint & denied in para 36 of the Additional Written Statement?"
ISSUE NO.3 BETWEEN PLAINTIFFS & DEFENDANT NO.2 - HPD:
78. So far as issues between SCB and HPD are concerned, issue No.3 raises the issue of res-judicata and which reads as under:-
3. Whether allegations of Defendant No. 2 that the LOA was lent to him on 27th ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 103 February, 1992 and/or that he purchased the same on 9th May, 1992 in the circumstances and manner set out in para 4 of his written statement are barred by res judicata as alleged in para 6B of the Plaint?
79. The issue of res judicata, therefore, can be divided in three different categories viz (i) transactions which are illegal and are opposed to public policy, (ii) transactions under 15% arrangement were transactions of HPD and not of SCB and (iii) payment of consideration by the 3rd Defendant qua HPD lending LOA to HPD on 27/2/1992 and/or purchase by him of the said bonds on 9/5/1992.
80. So far as the issue of res judicata is concerned, Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs submitted that the said issue does not depend only upon the cause of action in two suits being the same or subject matter being the same. He submitted that it would also arise if issues raised in earlier suit and the subsequent suits were same and were relevant. He submitted that, in the present case, the transaction in ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 104 respect of purchase of 9% NPCL bonds and 17% NPCL bonds was composite transaction and the bonds were from the same consideration and, therefore, the matter in the suit pertaining to 9% NPCL bonds was directly and substantially in issue in the present suit also. He relied upon the following judgments:-
(1) AIR 1938 Nagpur page 401 [Mt. Sitabai w/o Ratiram Powar V/s Hari & Ors] (2) AIR (29) 1942 Bombay 309 [Rama Maruti Chaugule vs. Mallappa Krishna Chaugule] (3) AIR 1959 Bombay 396 [Head-note (C)] [Chiranjilal Ramchandra Loyalka & Ors vs. Life Insurance Corporation of India] (4) AIR 1935 PC 139 [Kedar Nath Goenka vs. Munshi Ram Narain Lal and others (5) AIR 1953 SC 33 [Srimati Raj Lakshmi Dasi and others vs. Banamali Sen and others] He also relied upon the said judgment of the Apex Court in appeal from judgment in Suit 11 of 1996 and the various paragraphs in which these issues were discussed. He then invited my attention to Suit No.13 of 1994 and the decision ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 105 given by the Special court on the said issues and the judgment of the Apex Court in appeal from judgment in Suit 11 of 1996 particularly paragraphs 36, 37, 38 and 39. He also invited my attention to the Written Statement of Defendants - CMF and more particularly paragraphs 22 and 29 of the Written Statement in Suit No.11 of 1996 and para 14(2) in the present suit. It is, therefore, submitted that all these issues were barred by principles of res judicata and or constructive res judicata.
81. On the other hand, it is submitted by Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that there are number of differences between Suit No.11 of 1996 and the present suit. He has submitted a Chart pointing out the differences between Suit 6 of 1994 and Suit No.11 of 1996 which is annexed at Annexure-VIII to the written arguments submitted by him. It is submitted that, in case, there is a difference in facts of a case, the said judgment cannot be used for the purpose of relying on the principles of res judicata or as a judgment having precedential value. He relied upon the judgment of the Apex ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 106 in Bank of India and another vs. K. Mohandas and others 1 (paras 58 and 59). He further submitted that in order to fall within the parameters of section 11 of the Civil Procedure Code, two requisite criteria were (a) issue raised in a suit must be directly and substantially in issue in the former suit and (b) such an issue in the former suit has also been decided finally by the court. He relied upon the judgment of the Apex Court in ig Sajjadanashin Sayed Md. B.E. Edr. vs. Musa Dadabhai Ummer2 (paras 13, 14 and 16).
82. It is then submitted that : (i) in Suit No.13 of 1994 CMF had pleaded that there was an informal arrangement (15% arrangement) between Plaintiffs and HPD whereby Plaintiffs lent monies to HPD under the guise of securities transactions, (ii) CMF in suit No.13 of 1994 wanted to lead evidence to show that this informal arrangement was against the public policy being in contravention of RBI Circulars and, therefore illegal, (iii) the Special Court in its ruling dated 2-3/3/1993 [Exh-D-3(32)] at page 77 held that there was no pleading that informal arrangement was against public policy and, therefore, illegal. In view thereof, Special Court did not 1 (2009) 5 SCC 313 2 AIR 2000 SC 1238 ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 107 allow CMF to lead evidence on this aspect for want of pleadings, (iv) the issue as to whether the 15% arrangement between Plaintiffs and HPD was against public policy and illegal was not adjudicated upon by Special Court in Suit No. 13 of 1994, (v) as regards to CMF's contention that transactions were fictitious or at derived structured rates, the Special Court in its judgment dated 3/3/1995 observed in para 38 as under. "However, it must be immediately stated that if there was fictitious transactions, it could possibly construed as being against public policy, even de horse these circulars. It is also possible that the practice, if any of arriving at a derived price, which is different from contract rate can be termed as against public policy.......". It is submitted that these observations have been quoted with approval by the Supreme court in its decision in C.A. 4456 of 1995, (vi) the Supreme Court in its judgment dated 5/05/2006 in C.A. No.2275 and 2276 of 2002 has considered observations of Supreme court in para 36 in CA No.4456 of 1995. However, observations considered are only from para 37 and not from para 38 of CA No. 4456 of 1995, (vii) the Supreme court in its judgment in Civil Appeal No.2275 and ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 108 2276 of 2002 does not decide the issue of whether 15% arrangement being against the public policy but relied upon observation of the Supreme Court in C.A. No.4456 of 1995 to hold that it operates as res judicata in that case, (viii) after judgment in CA 2275 and 2276 of 2002 was pronounced for the first time in 2006, the Plaintiffs came out in open about its arrangement with HPD and admit that HPD was to assure/guarantee 15% return to the Plaintiffs irrespective of profit or loss in securities transactions. My attention is invited to para 7A of the plaint. It is therefore submitted that, in the present case, the Plaintiffs have specifically pleaded in para 41 of the Plaint that it had 15% arrangement with HPD and, therefore, the question which is to be decided is whether it is against the public policy.
83. So far as the issue of fictitious transactions and all these transactions being against the public policy is concerned, it is submitted by the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 as under:-
(i) On the perusal of transactions set out in para 7A, it is clear that transaction at Sr. No.4 ::: Downloaded on - 09/06/2013 16:08:28 ::: This Order is modified/corrected by Speaking to Minutes Order 109 and 5 are funding transactions, the Plaintiff had in fact admitted in para 7F and 7G that the Plaintiff did not have physical security or BR of third party to enter into sale transaction with ANZ on 23/03/1992. The said transaction was reversed on 8/04/1992.
(ii) The Plaintiff sold securities on 23/03/1992 at the rate of Rs 96.00 whereas it bought the securities on 8/04/1992 at the rate of Rs 95.87.
(iii) Similarly, the Plaintiff has consistently bought the securities at higher rates and sold them at lower rates (Refer Annexure VII).
(iv) It is submitted that in para 7 of the Plaint, the Plaintiff had specifically sated that Defendant No.2 has undertaken series of transactions mentioned in para 7A of the Plaint. In the list of transactions set out in para 7A, the word "direct" is mentioned in column "broker".
(v) The PW4 has deposed, at Pg. 202 Vol.II, that "direct" means HPD is involved in capacity as principal or broker. Thus, the Plaintiff had allowed the Defendant No.2 to ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 110 undertake a series of transactions mentioned in para 7A and transactions were executed at a price, which was totally different from the market price as discussed in para (ii) above.
(vi) Thus, it is clear that the price at which the Plaintiff entered into transactions mentioned in para 7A of the Plaint were at behest of HPD and did not have bearing on the market price. In view of these facts Issue No.10 and 15 is not res-judicata having regard to judgment of Special Court dated 13/3/1995 in Suit No.13 of 1994 and decision of the Supreme Court in C.A. No.4456 of 1995 dated 30/10/01 and in C.A. No.2275 and 2276 of 2002 dated 5/5/06.
84. It is then submitted that the judgment dated 5/5/2006 in C.A. No.2275 and 2276 of 2002 does not independently adjudicate whether arrangement between Plaintiffs and HPD is against the public policy and, therefore, illegal. It is submitted that for holding the issue of res-judicata the Supreme Court had relied upon the judgment of the Supreme Court in C.A. No.4436 and the Special Court Judgment in Suit No.13 of 1994. It is, therefore, submitted that the said issue was not res-judicata as it was not decided ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 111 since CMF had not pleaded that the arrangement was against the public policy.
85. Lastly, on the question of issue of consideration by CMF for acquisition of suit bonds it is submitted by the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that :
(i) consideration
ig of CMF
material for adjudication of the present Suit;
is really not
(ii) in the present Suit, the inquiry relevant is only concerning the alleged title of the Plaintiffs;
(iii) without prejudice to this, it is submitted that consideration of CMF is not barred by constructive res-judicata;
(iv) it is submitted that a issue to become res judicata, that issue should have been necessary for decision in the said suit and it should not be merely ancillary to main issue. The consideration of CMF for acquisition of Suit bond (i.e. 17% NPCL) was not necessary for deciding suit No.11 of ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 112 1996. The issue was not directly and substantially in issue in Suit No.11 of 1996;
(v) It is submitted that there are number of differences between Suit No. 11 of 1996 and the present suit, which are set out at Annexure VIII hereto (tendered to the Hon'ble Court on 7/01/2010). It is submitted that in case there is a difference in the facts of a case, it cannot be used for res judicata or as having precedential value.
behalf reliance is placed on the observations In this of the Supreme Court in 2009 (5) SCC 313 para 58.
86. It is then submitted that Defendant No.3, in the present suit, had specifically pleaded that the suit bonds were purchased on 27/2/1992 from HPD and, therefore, consideration paid by CMF to HPD for acquisition of suit bonds is good consideration and, for the aforesaid reasons, the issue of payment of consideration by Defendant No.3 (CMF) for acquisition of suit bonds on 27/2/1992 is not barred by virtue of principles of res-judicata as alleged in para 11(e) of the Plaint or for any other reason.
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87. Mr. M. P. S. Rao, the learned counsel appearing for Defendant No.2 submitted that the said plea raised on the basis of the judgment of Hon'ble Supreme Court in Civil Appeal No. 2275 of 2002 and 2276 of 2002 would not be applicable in the present case; firstly, since Defendant No.2 was not a party to Suit No. 11 of 1996 and though Defendant No.2 had taken out the Chamber Summons for impleading him as a necessary party in Suit No. 11 of 1996, the said Chamber Summons was opposed by the Plaintiffs and, as such, the Chamber Summons was dismissed; and, secondly, Hiten Dalal was not allowed to participate in Suit No. 11 of 1996. He, therefore, submitted that Defendant No.2 was denied an opportunity to defend or prove his case and Misc.
Petition No. 81 of 1995 to which he was a party was never tried on merits.
88. After having heard all the counsel at length on the issue of 'res-judicata', before referring to the rival contentions, it would be necessary to consider the legal position on this aspect. Section 11 of the C.P.C. lays down the circumstances under which finding recorded in another ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 114 proceedings is binding on the parties in the subsequent proceedings. In the present case, it has been urged by Mr. Jethmalani, learned Senior Counsel appearing on behalf of the Plaintiffs that certain issues which were the subject matter of earlier proceedings were decided by the Special Court and the Supreme Court and in view of the finding given by the Special Court and the Supreme Court in these cases, it was not open for the Defendants to re-agitate these issues in this suit and the said issues were barred by the principles of res-judicata.
89. In my view, there is much substance in the submissions made by the learned Senior Counsel appearing on behalf of the plaintiffs. In this connection, it would be relevant to take into consideration the ratio of the judgments on which reliance is placed by the plaintiffs, in support of the said contentions. The first reliance is placed on the judgment in Rama Maruti Chaugule Vs. Mallappa Krishna Chaugule 1. The question raised in the appeal was whether the finding about the plaintiff's adoption in the former execution proceedings operates as res judicata in a subsequent suit between the 1 AIR (29) 1942 Bombay 309 ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 115 same parties. Following observation was made by the learned Single Judge-
"In the present case, the order was passed by the Executing Court after hearing both sides as to whether the plaintiff was entitled to continue the darkhast on the strength of his adoption and it was held in evidence that he was adopted. I do not see why that decision should not operate judicata in the present suit between the same as the res parties with reference to a part of the same estate. The principle of res judicata would apply even though the subject matter of the two proceedings may be different, provided the issue is the same; vide 12 IA 16, which was case of adoption. In my opinion, therefore, the defendant's contention that the plaintiff was not a validly adopted son of Shivubai is barred by res judicata. The decree of the lower appellate Court is therefore, correct and the appeal is dismissed with costs."
The second judgment on which reliance has been placed is in Chiranjilal Ramchandra Loyalka & Ors. Vs. Life Insurance ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 116 Corporation of India1. In this case, the trial Court had held that suit which it was considering was barred by res-judicata and against the said order, an appeal has been preferred.
The suit that was held to be barred was a suit filed under Rule 8 of Order I of the C.P.C. and the plaintiffs represented Hindu community of Bombay. The suit was for a declaration that members of the Hindu community have acquired vested rights to use Mumbadevi ig Tank for various religious ceremonies. The suit was filed against the defendants who were purchasers from the defendants in the earlier suit, being Suit No. 438 of 1994. That suit was filed by the plaintiffs as relators under S. 92 of the C.P.C. and in that suit, the plaintiff alleged that there was dedication by one Putlibai in 1976 in respect of the very property which was the subject matter of the present suit and as a result it was claimed that the Hindu community has the rights which they asserted in the subsequent suit. The defendants claimed that they were absolute owners of the property, claiming title from Putlibai and, therefore, there was no Trust and no rights were created in the Hindu community. Consent terms were filed in the said suit and decree was passed in terms of the 1 AIR 1959 Bombay 396 ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 117 consent terms. By virtue of the consent terms, an area of 3000 sq. yards was set apart and Trustees were appointed and the scheme was sanctioned. So far as rest of the property is concerned, a declaration was sought that the defendants were absolute owners. The short issue which was raised in the subsequent suit was whether the consent decree constitutes bar to the filing of the subsequent suit under S. 11 of the C.P.C. In this context it was held in paragraph 7 as under-
"7. But the real and substantial point that has been urged by Mr. Laud is that the cause of action in Suit No. 438 of 1934 and in the present suit are different and therefore, S.11 of the Civil Procedure Code has no application. Now, what S. 11 requires is not that the cause of action in the two suits must be identical, but that the matter directly and substantially in issue in the subsequent suit should also be directly and substantially in issue in the former suit. It will be noticed that under S. 11, not only the suit itself may be barred but also an issue, and therefore what we have to consider is whether a particular issue which the ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 118 plaintiffs seek to be tried in this suit was directly and substantially the same in the earlier suit ..." (Emphasis supplied) It was further held that the matters in issue in two suits was the same.
90. In the case of Jambu Tavanappa Adake & Ors. Vs. Gopalkrishnacharya Rangcharya Karvir1, in this context, in a suit for rent, question of title was incidentally raised and it was held that decision of that question would operate as res judicata to the subsequent suit based on title. The Court however, while deciding the said question has made following observations :-
"..........But apart from this, in my opinion, there is no substance in the contentions. The plaint in the rent suit is not before me, but as is the practice in the Moffusil it is set out in the decree which is an exhibit. Now, before a matter can be set to operate as res judicata, it is necessary inter alia, to establish that the matter was directly and substantially in issue in the earlier suit, and further, that the matter which is relied 1 AIR 1938 Bombay 291 ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 119 upon has been directly and substantially in issue was heard and finally disposed of by the Court in the earlier suit. In order to determine whether a particular issue or matter is res judicata, the Court can only look at the pleadings, the judgment and the decree. In this case, there is no judgment before me. Admittedly, there is nothing to show what issues were raised. It is, of course, not necessary that before a matter can be said to be res judicata, it should form the subject matter of the definite issue. If the Court can gather from the materials before it, namely the pleadings, judgment and the decree, that the matter was directly and substantially in issue and form the basis of the judgment arrived at in the earlier suit, either expressly or by necessary implication, then the principle of res judicata would apply."
It was, therefore, held in this case that it was not necessary that before a matter could be said to be res judicata, it should form the definite matter of subject issue and this could be noticed after going through the pleadings, judgment and the decree to find out what was directly and substantially in issue and what was the basis on which the judgment was arrived at in the earlier suit.
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91. The next judgment on which a reliance is placed is in the case of Mt. Sitabai w/o Ratiram Powar Vs. Hari & Ors. 1 In this case a widow of a deceased incurred debts and the creditor obtained a decree and attached the property of the deceased. The suit was instituted by reversioner claiming release of the property from attachment on the ground that the debts were without legal necessity and not binding on his reversionary interest and secondly because he had become owner of the property, pursuant to the gift in favour of the widow. The issue of legal necessity was decided against the plaintiff and the suit was dismissed. Subsequently, the plaintiff brought a suit for declaration that the sale was binding on his reversionary interest as the debts were without legal necessities. Under these circumstances, it was held that the suit was barred by res judicata.
92. From the aforesaid cases on which reliance is placed by the learned Counsel appearing on behalf of the Plaintiffs, it is abundantly clear that if the issue in the prior suit is directly and substantially heard and decided by the Court in the 1 AIR 1938 Nagpur 401 ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 121 earlier suit and if the said issue is raised again in subsequent suit though cause of action in the two suits is not identical even then the finding given in the earlier suit on that issue would be barred by principles of res judicata in the subsequent suit.
93. In the present case, the issue that the transactions under 15% arrangement were transactions of HPD and not SCB directly fell for consideration in the earlier suits and the said issue was decided. The very same issue has been raised now. Apart from that, the Apex Court has in its judgment in appeal from judgment in Suit No.11 of 1996 has given a clear finding that the said issue of 15% arrangement was clearly barred by principles of res judicata. The very same issue has been raised in this suit and, therefore consequential issue of 15% arrangement cannot be agitated either by Defendant No.2 or Defendant Nos. 3 to 10. It is inconsequential that Defendant No.2 was not a party to the earlier suit and his Chamber Summons for adding him as party defendant was rejected by the Court. It would be relevant to take into consideration the said observations of ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 122 the Apex Court on this issue. The Supreme Court in its judgment dated 5/5/2006 in appeal from judgment in Suit No.11 of 1996 has exhaustively dealt with this issue in paragraphs 35 to 39 which read as under:-
"35 ........ The so-called "15% arrangement" was an informal arrangement with HPD under which SCB bought securities from other counter-
parties, as directed by HPD, and also sold them to such parties at such rates as designated by HPD. A desired sale price was arrived at so as to ensure that SCB obtained a return of 15% of the transaction. The evidence on record consisting of the Janakiraman Committee Report (the report of a high-powered committee appointed by RBI to investigate into the irregularities in the funds management in commercial banks and financial institutions, in particular in relation to the dealings in government securities) has examined this arrangement and report upon it in paras 8.1 to 8.7 of its Fourth Interim Report (March 1993), particularly with regard to the way in which the arrangement ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 123 operated in SCB. The Joint Parliamentary Committee Report (hereinafter referred to as "the JPC Report") (Exhibit 26) vide paras 8.49-8.51 has also explained this arrangement. There is also the evidence tendered on record in the form of replies to interrogatories in which SCB has explained the details of the scheme and how the 15% arrangement worked. The agreement between HPD and SCB was that, if SCB followed the instructions of HPD in the matter of which securities are to be bought or sold, from or to which parties, at what rates and when, SCB was assured of a net return of 15% of the outlay in the purchase of the securities concerned. If the return was less than 15%, HPD would bear the difference; if the return happened to be higher than 15%, HPD would be paid the difference. The evidence on record clearly bears out that this is how the 15% arrangement worked between SCB and HPD.
"36 Mr. Jethmalani invited our attention to an earlier judgment of this Court in Canara Bank v. Standard Chartered Bank where the nature of the 15% arrangement ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 124 was carefully considered by this Court. Incidentally, the said judgment was delivered in a dispute between the same parties and after analysing the nature of the 15% arrangement, this Court categorically rejected the argument that it was opposed to public policy. This Court upheld the judgment of the Special court rejecting the contention that the 15% arrangement was contrary to public policy.
While rejecting the contention that the 15% arrangement was opposed to public policy, the Special Court had made the following findings : (SCC p. 701 para 4) "The object and consideration of the suit contracts are purchase/sale of the securities and payment of price. Such securities contracts are normally entered into by banks. These may be for SLR purposes or in the normal course of business of the bank. It is the business of the bank to try and make profit. Thus even if these were part of the 15% arrangement, provided there was such an arrangement, would not make them against public policy if it was a genuine ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 125 security transaction. None of the circulars relied upon by Mr. Salve prohibit such transactions. In my opinion none of the circulars have any bearing on the point under consideration. The suit transactions or transactions under the alleged 15% arrangement are not against the subject-matter of these circulars. They are also not even against any policy laid down therein. I thus see no illegality."
"37 These were expressly approved by this Court in the judgment. It appears to us that much of the controversy about the nature of 15% arrangement could have been avoided if the judgment in Canara Bank case had been kept in mind. We notice from the impugned judgment that the decision of this Court in Canara Bank was specifically brought to the notice of the Special Court, but it appears to have been brushed aside on the grounds, first, that the doctrine of res judicata would not apply as Section 13 of the Act had an overriding effect; second, the exact scope of the 15% arrangement was not determined by evidence in the ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 126 previous suit; and third, that an arrangement by which banks and public financial institutions are enabled to earn a return higher than what is stipulated by the Government/RBI, would cause inflation and the Government would not be able to control its deficit, hence it was opposed to public policy. The Special Court said: "In the economic sense, they are not legitimate. On this point also, therefore ig there is arguments advanced on behalf of SCB."
no merit in the
38. We are afraid that the Special Court was wrong on all the counts. On the question of res judicata, the Special Court failed to notice that the doctrine of res judicata is not merely a matter of procedure but a doctrine evolved by the courts in larger public interest. What is enacted in Section 11 of the Civil Procedure Code ("CPC") is not the fountainhead of the doctrine, but merely the statutory recognition of the doctrine, which rests on public policy. (See in this connection Daryao v. State of U.P. Guda Vijayalakshmi v. Guda Ramachandra Sekhara Sastry1 and Hopte Plantations 1 5 (1981) 2 SCC 646 : 1981 SCC (Cri) 574 ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 127 Ltd. v. Taluk Land Board1) In the previous suit to which both SCB and Canara Bank were parties, the same issue with regard to "15% arrangement" with HPD was urged by CMF as a non-suiting factor, but was negatived both by the Special Court and by this Court. Issue 10 in the previous suit was the relevant issue dealing with 15% arrangement, which was as follows: (Canara Bank case, SCC p. 699, para 3) "3. (10) Whether the suit transactions entered into by the plaintiffs with Canbank Mutual Fund were in fact entered into by the Plaintiffs on behalf of Hiten Dalal as alleged in para 5(d) of the written statement of Defendant 1?"
"39. This was an issue raised by CMF which was Defendant No.1 in that suit (Special Court Suit No.13 of 1994) The burden of proving this issue was on the defendant and the Special Court answered the issue in the negative and observed that the counsel for Defendant 1 had admitted that there was no evidence to support this issue. 1 (1999) 5 SCC 590 ::: Downloaded on - 09/06/2013 16:08:29 ::: This Order is modified/corrected by Speaking to Minutes Order 128 Consequently, the Special Court held that the issue was answered in the negative i.e against Defendant 1. Since the Special Court findings were finally upheld by this Court in the judgment in Canara Bank and a review petition thereagainst was also dismissed, we are of the view that it is not open for this Court to again raise the issue and take a view contrary to what had already been decided in the previous there has suit, particularly in view of the fact that been no new revelatory evidence on this issue.
94. In view of the clear observations of the Supreme Court on this issue, therefore, it will have to be held that issue regarding 15% arrangement is clearly barred by principles of res judicata.
95. So far as issue No.3 is concerned between SCB and HPD, it is submitted by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs that the contention of HPD of borrowing of bonds on 27/02/1992 and subsequent purchase by him of the suit bonds on 09/05/1992 being denied by the SCB, it was the duty of the HPD to have ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 129 established his case by leading positive evidence. It is submitted that HPD did not lead any evidence. He further submitted that, even otherwise, the story relating to purchase of NPCL bonds against sale of Can-Triple Units of the face value of Rs 35 crores is negatived by the affidavit dated 23/5/1992 affirmed by HPD which affidavit is annexed as Exhibit-A to Misc. Petition No. 36 of 1993 being Exhibit P-31. It is submitted that in the said affidavit, HPD had expressly taken up a stand that Can-Triple units were forcibly seized from him by the SCB and, therefore, it is contended that story of sale of Can-Triple Units against the alleged purchase of NPCL bonds is clearly belied by the said affidavit and the stance of the HPD. It is further submitted that story relating to the sale of Can-Triple Units against purchase of NPCL bonds was considered by the Special Court and the Supreme Court in various judicial proceedings viz (a) Suit No. 17 of 1994; (b) Misc. Petition No.36 of 1993; (c) Suit No.9 of 1994; and (d) Suit No.11 of 1996. It is submitted that in view of the finding of the Apex Court in appeal against judgment of the Special Court in Suit No.11 of 1996 and in other suits and petition, the said finding would operate as res judicata ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 130 against the HPD and he would be barred from raising the same issue again in this suit.
96. Mr. M.P.S. Rao, on the other hand, submitted that the plea of res judicata based on the judgment of the Apex Court would not be applicable in the present case for the following reasons viz (a) HPD - Defendant No.2 was not a party to Suit No.11 of 1996; (b) Defendant No.2 took out Chamber Summons for impleading him as a necessary party to Suit No.11 of 1996. The said Chamber Summons was opposed by SCB and, as such, the Chamber Summons was dismissed and, therefore, HPD was not allowed to participate in Suit No. 11 of 1996; (iii) by virtue of order dated 21/04/1998 passed by the Apex Court in various appeals, the orders passed in Suit No.11 of 1996 and Misc. Petition No.81 of 1995 were set aside and the matters were remanded back to the Special Court. It is submitted that, therefore, finding in Suit No.11 of 1996 and Misc. Petition No.81 of 1995 would not operate as res judicata as against HPD - Defendant No.2 since no opportunity was given to him to defend his case.
::: Downloaded on - 09/06/2013 16:08:30 :::This Order is modified/corrected by Speaking to Minutes Order 131
97. In the present case, it is an admitted position that number of proceedings were filed in respect of Can-Triple Units. HPD did file an affidavit in Petition No.36 of 1993 -
Exhibit P-31 in which he took up a stance that Can-Triple Units were forcibly seized from him by SCB. So far as Suti No.11 of 1996 and Misc. Petition No.81 of 1995 which were tried together, an issue came to be framed as follows:-
"6 Whether on 9-5-1992 the Plaintiffs purchased Cantriple units of the face value of Rs 42.50 crores for Rs. 266.18 crores (approximate) and against which various securities including the suit bonds of the face value of Rs 50 crores and whether the plaintiffs have applied for and got the said Cantiple Units of face value Rs 45.50 crores transferred in their name in January 1993 disclosing a sale consideration of about Rs 266.18 crores as stated in paras 14 and 15 of the written statement?"
The said issue was answered by the Special Court in the following manner:-
::: Downloaded on - 09/06/2013 16:08:30 :::This Order is modified/corrected by Speaking to Minutes Order 132 "This issue is divisible into three parts;
(i) CMF has proved that SCB has purchased Cantriple Units of the face value of Rs 45.50 crores on 9-5-1992. To that extent, issue is answered in the affirmative, (ii) however, CMF has not proved that the said purchase was against sale ig of the suit bonds on 9-5-1992. To that extent the sub-issue is answered in the negative, (iii) CMF has proved that in January 1993 SCB applied for and have got the said Cantriple Units of the face value of Rs 45.50 crores transferred in their name. Therefore, to that extent, the sub-issue is answered in the affirmative."
In Appeal, the Supreme Court while dealing with this aspect in paras 80 and 81 on page 135 and 136 of its judgment dated 5th May 2006 has held as under:-::: Downloaded on - 09/06/2013 16:08:30 :::
This Order is modified/corrected by Speaking to Minutes Order 133 "80. It is the stand of CMF that SCB lost its title to the suit bonds as a result of sale of the suit bonds on 9-5-1992 as consideration for its purchase of Cantriple Units worth Rs 205 crores. While answering Issue 6, the Special Court has clearly held that purchase of the Cantriple Units on 9-5-1992 had been proved but CMF had not been able to prove that the said purchase was against sale of the suit bonds on 9-5-1992. In the face of this finding, the argument of CMF that SCB lost title because it had sold the suit bonds in lieu of which it purchased Cantriple Units, has been rejected by the Special Court itself."
"81. For these reasons, we are clearly of the view that whatever might have been the conjectures on the part of the Special Court, whatever might have been the suspicion generated on account of sham entries made by one or the other party, when it came to the crux of the issue, the Special Court ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 134 has correctly answered it and negatived the case of CMF that SCB lost title of the suit bonds because the suit bonds were sold in consideration of purchase of Cantriple Units."
The case of the HPD has been expressly rejected by the Special Court and the Apex Court in Misc. Petition No.36 of 1993 and Suit No.9 of 1994. Apart from that it was the duty of Defendant No.2 to have led evidence to prove his case.
His contention that the Plaintiffs have admitted his case as alleged by him cannot be accepted. His contention that because he was not party to the said suit No.11 of 1996, observations made by the Apex Court in respect of the said issue will not be binding on him also cannot be accepted since the said issue has been heard and decided by the Apex Court in the said suit and would be binding on him.
98. It is submitted by the learned Counsel appearing on behalf of Defendant No.2 that the Plaintiffs had mentioned three proceedings other than Suit No. 17 of 1994 filed by ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 135 Plaintiffs against Defendant No.2 for a declaration and the Special Court upheld the liability of Plaintiffs - SCB towards Defendant No.2 for Rs 205 crores in Cantriple transaction. It is submitted that other three proceedings are M.A. 36 of 1993, Suit No.9 of 1994 and Suit No.45 of 1995. It is then submitted that Suit No.45 of 1995 is still pending. However, M.A. No.36 of 1993 and Suit No.9 of 1994 have been disposed of. It is submitted that the reliance was placed on the finding in M.A. No.36 of 1993 in support of the contention that Plaintiffs are not liable to pay Rs 205 crores to Defendant No.2. It is submitted that in view of findings of the Special Court in Suit No.11 of 1996, the said finding is misplaced. It is then submitted that finding of the Special Court on issue No.6 had been upheld by the Apex Court while deciding Civil Appeal Nos.2275 and 2276 of 2002. It is, therefore, submitted that Plaintiffs' liability of Rs 205 crores on Cantriple transaction has been crystallized. It is, however, submitted that this was without prejudice to his contention that Defendant No.2 was not party to Suit No.11 of 1996 and any observation adverse to the interest of Defendant No.2 in Civil Appeal No.2275 and 2276 of 2002 is ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 136 not binding on him.
99. In my view, the said contention of the learned Counsel appearing on behalf of Defendant No.2 cannot be accepted.
The Special Court in appeal from judgment in Suit No.11 of 1996 and in Civil Appeal No.2275 & 2276 of 2002 has clearly observed as under:-
"80. It is the stand of CMF that SCB lost its title to the suit bonds as a result of sale of the suit bonds on 9-5-1992 as consideration for its purchase of Cantriple Units worth Rs 205 crores. While answering Issue 6, the Special Court has clearly held that purchase of the Cantriple Units on 9-5-1992 had been proved but CMF had not been able to prove that the said purchase was against sale of the suit bonds on 9-5-1992. In the face of this finding, the argument of CMF that SCB lost title because it had sold the suit bonds in lieu of which it purchased Cantriple Units, has been rejected by the Special Court itself."::: Downloaded on - 09/06/2013 16:08:30 :::
This Order is modified/corrected by Speaking to Minutes Order 137 "81. For these reasons, we are clearly of the view that whatever might have been the conjectures on the part of the Special Court, whatever might have been the suspicion generated on account of sham entries made by one or the other party, when it came to the crux of the issue, the Special Court has correctly answered it and negatived the case of CMF that SCB lost title of the suit bonds because the suit bonds were sold in consideration of purchase of Cantriple Units."
Since this was the observation of the Special Court which has been confirmed by the Apex Court, it is not open for Defendant No.2 to allege that the said liability of Rs 205 crores was to be adjusted against sale of suit bonds on 09/05/1992. Defendant No.2 has not led any evidence to prove this fact in this case. The contention of the learned Counsel appearing on behalf of Defendant No.2, therefore, cannot be accepted.
100. The submissions made by Mr. Kapadia, the learned ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 138 Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 and Mr. M.P.S. Rao, the learned Counsel appearing on behalf of Defendant No.2 for the aforesaid reasons cannot be accepted. Mr. Kapadia, the learned Senior Counsel has relied upon the judgment in Bank of India v. K. Mohandas 1 He submitted that since there are number of differences between Suit No.11 of 1996 and the present suit more particularly mentionedig in Annexure-VIII to the written submissions filed by Defendant Nos. 3 to 10, the observations made by the Apex Court on this issue would not be barred as res judicata. This submission cannot be accepted. Firstly, since the judgment in Bank of India (supra) was a judgment on the precedential value of a judgment by the Supreme Court and in that context the Apex Court has observed that if facts in two cases are different then the observations of the Apex Court or High Court are not to be treated as precedent in the subsequent case. In the present case, the issue involved is that of res judicata and as observed hereinabove if the issue involved in earlier suit was conclusively decided in that suit, the said issue cannot be re-
agitated even though the cause of action in both the suits is 1 (2009) 5 SCC 313 ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 139 different. The ratio of the judgment therefore in Bank of India (supra) would not apply to the facts of the present case. Similarly, ratio of the judgment in Sajjadanashin Sayed Md. B.E. Edr. vs. Musa Dadabhai Ummer 1 also will not apply to the facts of the present case. In the said judgment, the Apex Court has observed in paragraphs 13, 14 and 16 as under:-
"13. As pointed out in Halsbury's Laws of England (Vol. 16 1538) (4th Ed), the fundamental rules is that a judgment is not conclusive if any matter came collaterally in question (R v. Knaptoft Inhabitants (1824) 2 B & C 883; Heptulla Bros v. Thakore (1956 (1) WLR 289 (297) (PC); or if any matter was incidentally cognizable (Sanders (otherwise Saunders) v. Sanders (otherwise Saunders) (1952) 2 ALL ER 767 at 771.
"14. A collateral or incidental issue is one that is ancillary to a direct and substantive issue; the former is an auxiliary issue and the latter the principal issue. The expression 'collaterally or incidentally' in 1 AIR 2000 SC 1238 ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 140 issue implies that there is another matter which is 'directly and substantially' in issue (Mulla, CPC 15th Ed., p. 104)"
"16 ......... It is suggested by Dixon J. that even where this inquiry is answered satisfactorily, this inquiry is still another test to pass; viz whether the determination is the 'immediate foundation' of the decision as opposed to merely a ig proposition subsidiary only, i.e not more than part of collateral or the reasoning supporting the conclusion."
It is well settled, say the above authors, "that a mere step in reasoning is insufficient. What is required is no less than the determination of law, or fact or both, fundamental to the substantive decision".
In the aforesaid case, therefore, what was observed is that the collateral or incidental issue which is ancillary to a direct and substantive issue, would not be barred by res judicata.
In the present case, the issue as to whether it is opposed to public policy or whether the transactions were covered by 15% arrangement was directly in issue in the earlier suits ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 141 and the Apex Court had held that it was barred by res judicata in view of the finding given on that issue in the earlier suit. The ratio of the said judgment, therefore, would not apply to the facts of the present case.
101. Even otherwise, no evidence has been led by the Defendants in respect of 15% arrangement and, therefore it has not been proved that there was 15% arrangement between HPD and Plaintiffs or other banks. Reliance was sought to be placed by Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 on certain averments made in the plaint. However, these averments in paragraphs 6 and 7 do not admit the so-called 15% arrangement between Plaintiffs and HPD or other banks.
The said issues are therefore accordingly answered.
102. Hence, issue No.15 is answered in the negative and issue Nos 16 and 17 are answered in the affirmative. On the same ground, issue No.10 is answered in the negative and the issue No.11 is answered in the affirmative. For the aforesaid reasons, the ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 142 Issue No.3 between Plaintiffs and Defendant No.2 is also answered in the affirmative.
ISSUE NO.12 BETWEEN PLAINTIFFS & CMF
12. Whether the Defendant No.2 was the broker for Defendant No.1 in the alleged suit transaction and Defendant No.1 handed over the original LOA to Defendant No.2 as alleged in para 6(c) and 11(a) of the Plaint?
103. This issue has become redundant in view of subsequent amendment of the Plaint by the Plaintiffs. Hence, Issue No.12 does not arise.
ISSUE NO.13 BETWEEN PLAINTIFFS &
CMF
13. Whether the Plaintiffs are estopped from making any claim as alleged in para 2 read with para 14 of the Written Statement of the Defendant No.3?
104. It has been submitted by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs that this issue was squarely raised in the earlier Suit No.11 of ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 143 1996 by the CMF and the Special Court had decided the said issue in favour of CMF. However, in appeal, the Supreme Court reversed the said finding and it held in favour of the SCB. It is submitted that issue in Suit No.11 of 1996 was similar to the issue No.13 which is raised in this suit.
105. In my view, there is much substance in the submission made by Mr. Jethmalani, the learned Counsel appearing on behalf of the Plaintiffs. The said issue was raised as Issue No.5 in the earlier suit No.11 of 1996 which reads as under:-
"Whether the Plaintiffs are estopped from making any claim as alleged in paragraph 1 read with paragraph 22 and 29 of the Written Statement".
Perusal of paragraphs 21, 22 and 29 of the Written Statement of CMF in Suit No.11 of 1996 and the averments made in para 14(ii) of the Written Statement of CMF in the present suit indicate that they are almost identical. The Apex Court in appeal from judgment in Suit No.11 of 1996 has considered the said issue in paragraphs 55 to 59 of its ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 144 judgment, which read as under:-
"55. Issue No.5 framed by the Special Court was whether SCB was estopped from making any claim to the suit bonds by denying the authority of HPD to deal in the suit bonds, as SCB had actually, ostensibly or negligently permitted HPD to deal with the suit bonds.
Although the Special Court answered the issue in the affirmative i.e in favour of CMF and against SCB, there does not seem to be an specific discussion on this issue nor any reason supporting the said finding. It is, however, true that the Special court took the view that the direct fallout of the 15% arrangement was that HPD became the owner of the suit bonds and had the right to deal with the suit bonds as he pleased, and since this was done to the knowledge of and with acquiescence of SCB, SCB was estopped from denying that HPD had acquired any such right to deal with the suit bonds or to transfer them to any other person."
"56 The Special Court has taken the view that the transactions reflected in the security ledger (Exhibit 11), indicated funding of the broker by SCB and that it was something like a ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 145 "running account" of HPD in the books of SCB, which had opened with an entry of 26-2-1992 and was settled on 9-5-1992. It then observed:
"Under Exhibit 11, the suit scrip of 9% NPCL bonds was made available to HPD for raising finances either by sale, pledge or ready forward. It was bought for HPD as he had assured a fixed return to SCB. The (sic) HPD was entitled to trade. He was entitled to take position in the market on the suit bonds bought for him as he has assured a fixed return. He was entitled to take a position on suit bonds. He took that position through SCB.
Therefore, SCB had taken his position under Exhibit 11. Under the above arrangement, SCB could claim return of the security or equivalent money value only from HPD as the transactions in Exhibit 11 are under 15% arrangement. Therefore, SCB cannot claim any relief against CMF. They can only claim relief against HPD. SCB is estopped from claiming any relief against CMF. SCB, therefore, has no right to object to the transfer of bonds by NPCL in favour of CMF."
"57 Learned counsel for SCB however ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 146 criticised the impugned judgment of the Special Court on the ground that this finding, though not made specifically, but diffusely over the impugned judgment arises from misapprehension as to the exact nature of the doctrine of estoppel. Learned counsel contended that estoppel would require a representation by SCB, by acting upon which CMF should have altered its position to its prejudice. Since the burden of proving the issue was on CMF, CMF had to show what the representation was, to whom it was made, how CMF had altered its position as a result of such representation and what prejudice it had suffered. It was contended that no evidence was led by CMF on any of these aspects and, therefore, the Special court had no material whatsoever before it to make any finding on the issue of estoppel other than pure conjecture and speculation based upon its understanding of the 15% arrangement. Further, learned counsel contended that if HPD had obtained the suit bonds by theft or by committing any other offence, then there would be no question of estoppel of SCB from denying the title of HPD or of anyone else who claimed to have obtained title to the suit bonds from HPD. In Mercantile Bank of India ::: Downloaded on - 09/06/2013 16:08:30 ::: This Order is modified/corrected by Speaking to Minutes Order 147 Ltd v. Central Bank of India Ltd.1 it was observed : (IA pp.85, 86 & 92) "[Though estoppel has been described as a mere rule of evidence, it may have the effect of creating substantive rights as against the person estopped. Of the many forms which estoppel may take, it is here only necessary to refer to that type of estoppel which enables a party as against another party to claim a right of property which in fact he does not possess. Such estoppel is described as estoppel by negligence, or by conduct, or by representation, or by a holding out of ostensible authority......
* * * '.......that it must be the neglect of some duty that is owning to the person led into that belief, or, what comes to the same thing, to the general public of whom the person is one, and not merely neglect of what would be prudent in respect to the party himself or even of some duty owning to third persons, with whom those seeking to set up the estoppel are not privy.' * * * There is a breach of the duty if the party estopped has not used due precautions to 1 (1937-38) 65 IA 75 : AIR 1938 PC 52 ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 148 avert the risk. The detriment may entitle the innocent third person either to prosecute or to defend a claim. His identity may be ascertainable only by the event, in the sense that he has turned out to be the member of the general public actually reached and affected by the conduct, negligence, representation or ostensible authority.
"58. It was thus held that a plea of estoppel could not be availed of if there was no duty owned by the person sought to be estopped, nor any representation made by such person. In New Marine Coal Co. (Bengal) (P) Ltd. v. Union of India1 this Court had occasion to examine the doctrine of estoppel and cited (at SCR p.873) with approval the following observations in Halsbury's Laws of England2, "before anyone can be estopped by a representation inferred from negligent conduct, there must be a duty to use due care towards the party misled, or towards the general public of which he is one", that, it was required that 1 (1964) 2 SCR 859 : AIR 1964 SC 152, paras 19, 20 2 Vol 15, p.243, para 451.::: Downloaded on - 09/06/2013 16:08:31 :::
This Order is modified/corrected by Speaking to Minutes Order 149 "the negligence on which it is based should not be indirectly or remotely connected with the misleading effect assigned to it, but must be the proximate or real cause of that result"1.
The judgment of the Privy Council 2 was approvingly cited by this Court, which also observed, "before invoking a plea of estoppel on the ground of negligence, some duty must be shown to exist between the parties and negligence must be proved in relation to such duty". (SCR p. 876) "59 Mr. Jethmalani, therefore, is justified in his submission that there was no such duty owned by SCB to CMF. At any rate, none was shown to have existed. Hence, there is no substance in the plea of estoppel raised by CMF."
106. In my view, therefore, the observations made by the Apex Court in the said appeal in Suit No.11 of 1996 would operate as res judicata and, therefore, Defendant Nos.
3 to 10 are barred by the principles of res judicata from 1 Ibid., at para 453 2 Mercantile Bank of India Ltd. v. Central Bank of India Ltd, (1937-38) 65 IA 75 : AIR 1938 PC 52 ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 150 raising this issue again in this suit. The said issue No.13 is accordingly answered in the affirmative.
CAUSE OF ACTION:
107. Following issue is framed between SCB and HPD in respect of cause of action:-
ISSUE NO.1 BETWEEN PLAINTIFFS AND DEFENDANT NO.2-HPD:
1 Whether the Plaint fails to disclose any cause of action against the Defendant No.2 as alleged in para 1 of the Written Statement of Defendant No.2.?
108. Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 also during the course of arguments argued that the Plaintiffs had no cause of action to maintain the present suit. He submitted that, initially, the suit was filed against ABFSL and subsequently it was amended on 20/10/1995 in which a case of conversion was pleaded against HPD and CMF. He submitted that the claim ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 151 against ABFSL was abandoned and the cause of action was restricted against CMF/HPD on the basis of the alleged conversion. It is submitted that the claim against Defendant Nos. 3 to 10 was only a contingent claim. Secondly, it is submitted that the pleadings of the Plaintiffs were mutually destructive. It is submitted that the subsequent amendment of the plaint was completely contrary to the pleadings in the original plaint viz that the original LOA was not received by the Plaintiffs. It is submitted that the admission in the original plaint that the original LOA was not received by the Plaintiffs was binding upon the Plaintiffs. It is further submitted that the admission made in the pleadings stood at a higher footing than the admission given in evidence.
Reliance was placed on the Judgment of the Apex Court in Nagindas Ramdas vs. Dalpatram Iccharam alias Brijram and others1 and also upon the Commentary on Law of Evidence by Phipson, 16th Edition and Sarkar on Evidence, 16th Edition.
It is further submitted that no evidence was led in support of its alleged impression that the LOA was not handed over and, therefore, this admission was purposely not explained by leading evidence.
1 AIR 1974 SC 471 ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 152
109. Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs, however, submitted that in view of Order VI Rule 7 and Order XII Rule 1, it was always open for the Plaintiffs to give up its earlier case after amending its plaint. He also relied upon the judgment of the Apex Court in appeal from judgment in Suit No.11 of 1996.
110. The aforesaid submission made by Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 cannot be accepted in view of clear provisions of Order VI Rule 7 and Order XII Rule 1 which read as under:-
"ORDER VI PLEADINGS GENERALLY
7. Departure.- No pleadings shall, except by way of amendment, raise any new ground of claim or contain any allegation of fact inconsistent with the previous pleadings of the party pleading the same."
"ORDER XII ADMISSIONS
1. Notice of admission of case.- Any party to a suit may give notice, by his pleading, or otherwise in writing, that he admits the truth of the whole or any part ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 153 of the case of any other party."
A conjoint reading of the said two rules clearly reveals that it is always open for the party to admit whole or part of the case of any other party and by making an amendment raise any new ground of claim which may be inconsistent with the previous pleadings. In the present case, though, initially, the Plaintiffs had filed a suit against ABFSL, after the Written Statement was filed by Defendant No.1, an application for amendment was made and the claim against Defendant No.1 was given up and a new claim was made against Defendant Nos. 2 to 10. The said application for amendment was allowed by this Court and pursuant to the amendment made, further additional Written Statement also has been filed. The submission of Mr. Kapadia, the learned Senior Counsel, therefore, that the admission made in the original pleadings, therefore, is binding on the Plaintiffs cannot be accepted in view of subsequent amendment whereby the earlier claim was given up and a new claim was made against Defendant Nos. 2 to 10. Having given up the earlier claim, therefore, any averment made in the pleadings in respect of prior claim, obviously, was given up by the Plaintiffs and it cannot ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 154 be relied upon as an admission. Order XII Rule 1 also permits a party to amend its pleadings or accept in writing the truth of whole or any part of the case of any other party. In the present case, therefore, the Plaintiffs, at a subsequent stage, admitted the claim of Defendant No.1 that, in fact, the original LOA was delivered by Defendant No.1 and they were, therefore, not liable to make any payment to the Plaintiffs. Plaintiffs, ig therefore, having accepted the contention of Defendant No.1, after they had filed Written Statement, always had an option of applying for an amendment of the plaint to make a claim against Defendant Nos. 2 to 10. The Apex Court also in its judgment in appeal from judgment in Suit No.11 of 1996 has accepted this position which is evident from observations made by the Apex Court in para 71 and 72 of its judgment which read as under:-
"71. Mr. Jethmalani rightly contended, that when these admissions were placed on record formally, there was no objection by CMF to these admissions being taken on record nor was there any challenge by CMF to the ruling given by the Special Court, ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 155 overruling the framing of the aforesaid two issues. In the circumstances, he submits that it is not open to CMF to raise an objection at this stage. Apart therefrom, Mr. Jethmalani also relied on Order 12 Rule 1 of the Civil Procedure Code to contend that it is open to a party at any time to give notice, by his pleading, or otherwise in writing, that he admits the truth of the whole or any part of the case of any other party.
This was precisely what happened during the trial on 2-7-1997. Merely because such a situation arises, the rest of the case does not get affected and has to be tried in accordance with law. In Bhagwati Prasad v. Chandramaul 1 while dealing with the argument that it would not be open to a party to sustain a claim on a ground which is entirely new or not pleaded, this Court rejected the contention and held that it was a general doctrine which could not be applied irrespective of the facts of the case on hand and observed thus (vide AIR para 10): (SCR p.291) "But in considering the application of this doctrine to the facts of the present case, it is necessary to bear in mind the 1 (1966) 2 SCR 286:AIR 1966 SC 735 ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 156 other principle that considerations of form cannot override the legitimate considerations of substance. If a plea is not specifically made and yet it is covered by an issue by implication, and the parties knew that the said plea was involved in the trial, then the mere fact that the plea was not expressly taken in the pleadings would not necessarily disentitle a party from relying upon it if it is satisfactorily proved by evidence. The general rule no doubt is that the relief should be founded on pleadings made by the parties. But where the substantial matters relating to the title of both parties to the suit are touched, though indirectly or even obscurely, in the issues, and evidence has been led about them, then the argument that a particular matter was not expressly taken in the pleadings would be purely formal and technical and cannot succeed in every case. What the court has to consider in dealing with such an objection is : did the parties know that the matter in question was involved in the trial, and did they lead evidence about it? If it appears that the parties ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 157 did not know that the matter was in issue at the trial and one of them has had no opportunity to lead evidence in respect of it, that undoubtedly would be a different matter. To allow one party to rely upon a matter in respect of which the other party did not lead evidence and has had no opportunity to lead evidence, would introduce considerations of prejudice, and in doing justice to one party, the court cannot do injustice to another."
"72. We respectfully concur with the said observations and reject the contention of Mr. Kapadia that SCB could not be permitted to rely on its changed stand."
111. It is then submitted by Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 that the suit bonds being actionable claim and, as such, incorporeal rights to property are not property and are not capable of being possessed. It is then submitted that in order to allege conversion, the SCB had to first establish that it had title or possession to the suit bonds at the time of ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 158 alleged conversion. Reliance was placed on the two judgments of the Apex Court in L.J. Leach and Co. Ltd. and another vs. Messrs. Jardine Skinner and Co.1 and in K.S. Nanji and Co. vs Jatashankar Dossa2. So far as the first submission that the suits bonds are not property is concerned, it is urged that in the earlier suit, it was contended by Mr. Jethmalani the learned Senior Counsel appearing on behalf of Plaintiffs that it was a chose in action.
He invited my attention to para 84 of the judgment of the Apex Court in appeal from judgment in Suit No.11 of 1996.
He, therefore, submitted that it is now not open for the Plaintiffs to argue that Defendant Nos. 3 to 10 had converted the suit bonds since conversion of incorporeal property is not permissible.
112. On the other hand, it is submitted by Mr. Jethmalani, the learned Counsel appearing on behalf of the Plaintiffs that the submission made in the appeal from judgment in Suit No.11 of 1996 was made in the context of section 110 of the Evidence Act and, therefore, no reliance could be placed by the Defendants on the said submissions 1 AIR 1957 SC 357 2 AIR 1961 SC 1474 ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 159 made in the said paragraph of the judgment of the Apex Court in appeal from judgment in Suit No.11 of 1996.
Secondly, it is submitted that the property could be either movable or immovable and the General Clauses Act, 1897 defines the movable property under section 3(36) as every property except immovable property. It is also submitted that the immovable property is also defined under section 3(26) of the General Clauses Act, 1897.
ig It is, therefore, submitted that since every thing that is not immovable is movable, the incorporeal property also is a movable property in every statute passed after the General Clauses Act.
Reliance in this context was placed on the judgments of the Apex Court in Shivanarayan Laxminarayan Joshi and others vs. State of Maharashtra and others 1 and in Manchersha Ardeshir Devierwala vs. Ismail Ibrahim Patel and others2
113. The submission made by Mr. Kapadia, the learned Senior Counsel appearing on behalf Defendant Nos. 3 to 10 cannot be accepted on this point. So far as the question whether the bonds are actionable claim and, as such, incorporeal rights to property is concerned, the said 1 AIR 1980 SC 439 2 AIR 1936 Bombay 167 ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 160 submission cannot be accepted for the following reasons.
114. The "movable property" has been defined in General Clauses Act, 1897 under section 3(36) as under:-
"movable property, shall mean property of every description, except immovable property;"
The "immovable property", on the other hand, is defined under the Transfer of Property Act, 1882 under section 3 as under:-
"Immovable Property" does not include standing timber, growing crops or grass"
The "immovable property" also has been defined under the General Clauses Act, 1897 under section 3(26) as under:-
"Immovable property shall include land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth."
In view of definition of immovable property under section ::: Downloaded on - 09/06/2013 16:08:31 ::: This Order is modified/corrected by Speaking to Minutes Order 161 3(26) of the General Clauses Act, 1897, all other properties other than immovable property are movable and, therefore, even the incorporeal property is movable property. As such, movable property includes both, corporeal and incorporeal rights in property and, therefore, bonds are movable property and a suit for conversion can be filed on the basis of conversion of the suit bonds. Though the judgments on which reliance is placed by the Plaintiffs are in respect of the definition of the word "property" under section 409 of the Indian Penal Code or under section 421 since the judgments deal with the definition of the word "property" observations made in the said judgments would be relevant for the purpose of deciding this question. The Supreme Court in its judgment in Shivnarayan Laxminarayan Joshi & Ors vs. State of Maharashtra and others1 in para 11 has observed as under:-
"11........... "The property being an actionable claim against Rekchand Gopaldas, accused No.1 as the Managing Director was entrusted with complete dominion over the right to recover the same under the said 1 AIR 1980 SC 439 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 162 articles and as such he was capable of committing dishonest misappropriation or conversion of that actionable claim. ..................."
"12. ........... the word "property" is wide enough to include a chose in action."
Then in the judgment in Manchersha Ardeshir Devierwala vs. Ismail Ibrahim Patel and others1, it has been observed that the definition of the word "movable property" is inclusive one and it does not mean only corporeal property. It is further observed that it includes every description of property except immovable property. Similarly while considering the question of the meaning of the word "property" in section 421 of the Indian Penal Code, it has been observed in the said judgment that the word "property" in section 421 is wide enough to include a chose in action. Similarly, so far as the reference made by Mr. Kapadia, the learned Senior Counsel to the observations made by the Apex Court in para 84 of its judgment in appeal from judgment in Suit No.11 of 1996, it has to be noted that 1 AIR 1936 Bombay 167 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 163 submissions made by Mr. Jethmalani, the learned Senior Counsel for Plaintiffs, were in the context of section 110 of the Evidence Act regarding burden of proof. Para 84 of the said judgment of the Supreme Court in appeal from judgment in Suit No.11 of 1996 reads as under:-
"84. Rebutting these arguments, Mr. Jethmalani contends that Section 110 is contained in Chapter VII of the Evidence Act, 1872, which deals with the burden of proof. As a matter of fact, Section 110 merely enunciates the burden of proof as to ownership. He rightly submits that any rule of burden of proof is irrelevant when the parties have actually led evidence and that evidence has to be considered. Reliance is placed by him on Sita Ram Bhau Patil v. Ramchandra Nago Patil1 for the proposition that when the entire evidence is before the court, the burden of proof becomes immaterial. Even assuming that the rule of burden of proof in Section 110 is relevant, Mr. Jethmalani contended that Section 110 would be applicable only to a "thing", which is capable of being possessed. He rightly 1 (1977) 2 SCC 49 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 164 submits that a chose-in-action is not a "thing", as, by definition, it is not in the possession of someone, but that possession has to be acquired by some action which is why it is called as chose- in-action. He rightly distinguished the judgment of this Court in Chuharmal 1 as wholly inapplicable to a situation of a chose-in-action. In the said judgment, the possession was with respect to certain wrist watches, which were obviously not choses-in-action. According to him, Section 137 of the TP Act makes Section 132 inapplicable to debentures but the principles of common law and equity must surely govern even such transactions of transfer of debentures."
and in that context it was contended that section 110 would be applicable only to a thing which is capable of being possessed. There is, therefore, no substance in the submissions made by Mr. Kapadia, the learned Counsel appearing on behalf of Defendant Nos. 3 to 10 on this aspect also.
1 (1988) 3 SCC 588 : AIR 1988 SC 1384 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 165
115. So far as submission of Mr. Kapadia that SCB had to establish title or possession to the suit bonds at the time of alleged conversion and only if it was established that they had title or possession at the time of the alleged conversion, they could seek compensation is concerned, it is contended that the suit bonds were sold to ANZ on 26/2/1992 itself and, therefore SCB had no title in the suit bonds on 27/2/1992 when the alleged conversion took place. In the original plaint it was alleged that they had never received possession of the bonds but they had received only photo copy. It is contended that the SCB had failed to prove receipt of bonds on 27/2/1992. It is also alleged that since SCB had failed to produce the discharged BR, the receipt of the suit bonds by SCB on the strength of the alleged discharged BR was not established. Lastly, it is contended that even if title or possession is assumed by virtue of SCB having received BR and Cost Memo even then since the title and possession was transferred to ANZ on 26/2/1992, Plaintiffs would be in possession as Trustee for ANZ and not as an owner. Mr. Kapadia relied upon the judgments in L.J. Leach and Co. Ltd.
::: Downloaded on - 09/06/2013 16:08:32 :::This Order is modified/corrected by Speaking to Minutes Order 166 and another vs. Messrs. Jardine Skinner and Co.1 and in K.S. Nanji and Co. vs Jatashankar Dossa2.
116. On the other hand Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs submitted as under on this question.
It is firstly submitted by the learned Senior Counsel appearing on behalf of the Plaintiffs that the Plaintiffs had title to the suit bonds pursuant to the purchase of suit bonds by the SCB from ABFSL. Secondly, it is submitted that Plaintiffs also had possession of the suit bonds which is evident from the evidence of Kalyanraman (PW1). It is then submitted that SCB continued to be a bailee of the bonds holding the same for ANZ and even assuming that title therein had passed to ANZ, Plaintiffs, as a bailee, were entitled to possession of the suit bonds. Reliance was placed on section 180 of the Contract Act, Section 7, Explanation-2 of the Specific Relief Act and section 117 of the Evidence Act. Reliance was also placed on the following judgment:-
1 AIR 1957 SC 357 2 AIR 1961 SC 1474 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 167
1. AIR 1965 Raj 121 [Kanhaiyalal vs. Badrilal & Anr.
2. AIR 1916 Calcutta 788 [Ramnath Gagoi vs. Pitamber Deb Goswami]
3. 1902 ALL ER Rep 346 [The Winkfield]
4. 1976 (3) ALL ER 129 [The Albazero vs. Owners of the Ship or Vessel Albazero]
5. AIR 1984 Calcutta 230 (Sm. Umarani Sen & Ors vs. Sudhir Kumar Dutta & Ors)
117. In rejoinder, Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 submitted that a question of statutory bailment would not arise in this case and the contractual bailment was not pleaded and could not arise since there was no delivery from bailor (ANZ) to the bailee (Plaintiffs). Secondly, it is submitted that upon issuance of BR to ANZ, Plaintiffs became the bailee of the suit bonds and, therefore, they could maintain action against the Defendants. It is submitted that the goods were deliverable by Plaintiffs to ANZ pursuant to sale of bonds by Plaintiffs to ANZ and its obligation was as a seller of the bonds and not because of any bailment. So far as reliance by Plaintiffs on section 180 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 168 of the Contract Act is concerned, it is submitted that the Plaintiffs could not claim to be in possession either actual or constructive and to become a bailee, Plaintiffs ought to have had BR in its possession on 27/02/1992 or the original LOA of the suit bonds. It is lastly submitted that even assuming that Plaintiffs held the position of a bailee on 27/02/1992, it ceased to have that position on or after 27/02/1992 when the Plaintiffs discharged and returned to Defendant No.1 its BR 27372 dated 26/02/1992 and, secondly, on/ or after 18/03/1992 the Plaintiffs' BR to ANZ having been discharged and returned, the Plaintiffs cannot claim to be a bailee under that BR.
118. So far as this issue is concerned, Defendant No.2 in his Written Statement has raised an issue of cause of action in para No.1 as under:
"1. At the outset, this Defendant states that the plaint discloses no cause of action against this defendant and therefore the suit deserve to be dismissed."
Similarly, Defendant Nos. 3 to 10 in their Written Statement in paragraph 1 have stated as under:-
::: Downloaded on - 09/06/2013 16:08:32 :::This Order is modified/corrected by Speaking to Minutes Order 169 "1. The plaint does not disclose any cause of action in as much as on the basis of the allegations in the plaint the Plaintiffs did not acquire any title or right to or in the suit bonds"
A specific issue was framed regarding cause of action qua Defendant No.2 vide Issue No.1. However, it appears that the similar issue qua Defendant Nos. 3 to 10 has not been framed but it has been argued at length and reply also has been given by the learned Senior Counsel appearing on behalf of the Plaintiffs. Hence I proceed to decide this issue.
119. In my view, Plaintiffs have established that they do have cause of action against Defendant No.2 and Defendant Nos. 3 to 10 for filing a suit against them. Plaintiffs, initially, had filed a suit against Defendant No.1. However, by way of subsequent amendment, the claim against Defendant No.1 was dropped and it is now alleged that Defendant Nos. 2 to 10 are liable to pay compensation to Plaintiffs. In the plaint, it is alleged that Plaintiffs purchased the suit bonds from Defendant No.1 and made payment of the sale consideration ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 170 to Defendant No.1. It was initially contended that the original LOA was not delivered by Defendant No.1 and only photo copy of the LOA was on record. But, subsequently, they realized their mistake after it was brought to their notice that the original LOA was, in fact, delivered by Defendant No.1 and some employee of the Plaintiffs had given original LOA to Defendant No.2, who, in turn had given it to Defendant Nos. 3 to 10. According to Plaintiffs, after the bonds were sold by them to ANZ and the original LOA was not available, they had to purchase the bonds from Defendant Nos. 3 to 10 for the purpose of delivering it to ANZ and, at that time, they did not know that they had purchased the very same bonds which they had sold to ANZ and, therefore, they had paid the consideration twice and CMF had received the sale consideration from the Plaintiffs though they did not legally own or were not entitled to the possession of the said bonds. Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 has also urged that Plaintiffs neither had title nor possession of the suit bonds after their transaction with ANZ and, in that context, has relied upon two judgments; one in ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 171 L.J. Leach and Co. Ltd. and another vs. Messrs. Jardine Skinner and Co.1 and other in in K.S. Nanji and Co. vs Jatashankar Dossa2. to show that only in cases where title and possession is established, a suit for conversion can be filed.
120. On the other hand, Mr. Jethmalani, the learned Senior Counsel for Plaintiffs has relied upon the extract from the Commentary of Winfield and Jolowicz on Torts 17th Edn.
2006 at pages 52 to 55 @ paras 2.2. and 2.3. He also relied on the book by the same author 17th Edn. 2006 at pages 760 to 765 @ paras 17-16 to 17-18.
121. In my view it would be relevant to site passages from Winfield on Torts 17th Edn. 2006 @ paras 17-16 to 17-18 which read thus :-
"17-16 E. Title of Claimant What kind of right to the goods must be claimant have in order that interference with it may amount to conversion? The answer is that he can maintain the 1 AIR 1957 SC 357 2 AIR 1961 SC 1474 ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 172 action if at the time of the defendant's ac he had (1) ownership and possession of the goods, or (2) possession of them or (3) an immediate right to possess them, but without either ownership or actual possession. This seems to be the law, but it can be elicited only from some confusion of terminology in the reports. Thus it is said in several cases that the claimant must have "a right of property in the thing and a right of possession" and that unless both these rights concur the action will not lie. If "right of property" means "ownership", this might lead one to infer that no one can sue for conversion except an owner in possession at the date of the alleged conversion. But that is not so, for a bailee has only possession and not ownership (which remains in the bailor), and yet the bailee can sue a third party for conversion. And, as we shall see, one who has mere possession at the date of the conversion can generally sue, and so can one who has no more than a right to possess."
"17-17 i) Examples of right to possess.::: Downloaded on - 09/06/2013 16:08:32 :::
This Order is modified/corrected by Speaking to Minutes Order 173 There is no need to enlarge upon (1) ownership and possession, or (2) possession, for possession was analysed in Chapter 13. But (3), the immediate right to possess must be briefly examined. A reversionary owner out of possession certainly has not got it, for example in the case of a landlord of premises let together with furniture to a tenant whose term is still unexpired: if the furniture is wrongfully seized by the sheriff, it is the tenant and not the landlord who can sue for conversion. Again, an employee in custody of his employer's goods has not possession of them, for it is constructively in the employer. But if the employer has made him a bailee of them so as to vest him with exclusive possession, then, like any other bailee of this sort, he has it; so, too, if goods are delivered to him to hand to his employer, he has possession of them until he has done some act which transfers it to his employer, for example a shop-assistant has possession of money paid to him by a customer until he puts in the till. Up to ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 174 that moment the employer has only the right to possess. These examples are tolerably plain, but it must depend to a large extent on the facts of each case whether the law will attribute to a person the immediate right to possess.
A bailor had it against a mere bailee at pleasure even if he never himself had actual possession of the goods and only acquired title by virtue of an illegal but too, completely executed contract of sale.
So, where furniture dealers transferred furniture on hire-purchase to X with an express proviso that the hiring was a terminate without any notice if the goods were taken in Execution for debt, they could sue the sheriff for conversion when he levied execution on them. The wrongful sale of goods subject to a hire-purchase agreement will constitute a repudiation and hence vest a right to immediate possession in the finance company even though the agreement does not expressly provide for this. However, in modern conditions legislation may restrict the enforcement of the creditor's rights under a hire- purchase agreement.::: Downloaded on - 09/06/2013 16:08:32 :::
This Order is modified/corrected by Speaking to Minutes Order 175 In a simple bailment, i.e. one which does not exclude the bailor from possession, an action for conversion against a third person is maintainable by either bailor or bailee: by the bailee because he is in possession, by the bailor because it is said that his title to the goods draws with it the right to possession, that the bailee is something like his servant and that the possession equivalent to that of the other.
of the one is [A buyer of goods can sue the seller or a third party for conversion if Tie has ownership of the goods even though he has not yet got possession of them, but he cannot sue the third party if ownership has passed to such third person by reason of exceptions to the rule nemo dat quod non habte, under ss. 21 to 25 of the Sale of Goods Act 1979 under the factors Act, 1889; the seller, however, is liable for conversion to the original buyer.
A person who is entitled to the temporary possession of a chattel and ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 176 who delivers it back to the owner for a special purpose may, after that purpose is satisfied and during the existence of his temporary right, sue the owner for conversion of it; a fortiori he can sue anyone else.
A person who has a merely equitable right in property and who does not have an immediate right to possession for the purposes of conversion, even though the legal owner is a mere nominee who has to transfer the property to the beneficiary on demand. Though there may be some cases be little practical difference between them, the legal distinction between bailor and bailee on the one hand and beneficiary and trustee on the other hand, is fundamental."
"17-18 F. Jus Tertii
Once a system of law accepts
possession as sufficient foundation for a claim for recovery of personal property it is faced with the question of how far ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 177 the defendant should be allowed to raise the issue that a third party has a better right to the property than the claimant-
the jus tertii. There are arguments either way. On the one hand, refusal to admit the jus tertii allows recovery by a claimant who may have himself wrongfully dispossessed the true owner and also exposes the wrongdoer to the risk of multiple liability. On the other hand, it may be argued that a person who has dispossessed another should have no right to raise such issues concerning the relationship between the dispossessed and some other party having a claim over the goods, for there is a serious risk of abuse and of the interminable prolongation of actions.
The common law compromised. If the claimant was in possession at the time of the conversion, the defendant could not set up the jus tertii, unless he was acting under the authority of the true owner. Where, however, the claimant was not in possession at the time of the conversion but relied on his right to possession, jus tertii could be pleaded by the defendant. To this rule there was ::: Downloaded on - 09/06/2013 16:08:32 ::: This Order is modified/corrected by Speaking to Minutes Order 178 an exception where the defendant was the claimant's bailee, for the defendant was regarded as being estopped from denying the claimant's title unless evicted by title paramount or depending the action on behalf of the true owner.
These rules were fundamentally changed by the Torts ((Interference with Goods) Act, 1977. Since then, in an action for "wrongful interference with goods" the defendant is entitled to show, in accordance with Rules of Court, that a third party has a better right than the claimant as respect all or any part of the interest claimed by the claimant or in right of which he sues. The Rules require the claimant to identify any other person whom he knows to have a claim on the goods. The defendant may apply for directions as to whether any third person with a competing claim should be joined and if that person fails to appear on such a successful application the court may deprive him of any right of action against the defendant."::: Downloaded on - 09/06/2013 16:08:33 :::
This Order is modified/corrected by Speaking to Minutes Order 179 From the aforesaid passages as also the passages @ paras 2.2. and 2.3, it can be seen that the author had traced the origin of the forms of action and in view of subsequent change in English Law, it did not become necessary to structure the claim on the basis of any particular forms of action. From the subsequent discussion in paras 17-16 to 17-18, it can be seen that the Plaintiff could maintain action against Defendants in three cases viz (i) if he had ownership and possession or (ii) possession or (iii) immediate right to possess but without either ownership or actual possession.
The examples of right to possession have been enumerated in para 17-17.
122. From the averments made in the plaint, therefore, it can be seen that the claim of the Plaintiffs is that it had title as well as possession of the suit bonds or, in any case, immediate right to possess them for the purpose of giving delivery to ANZ. The contention of the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10, therefore, that there was no cause of action to file the suit cannot be accepted. In the judgment in L.J. Leach and Co.
::: Downloaded on - 09/06/2013 16:08:33 :::This Order is modified/corrected by Speaking to Minutes Order 180 Ltd. and another vs. Messrs. Jardine Skinner and Co.1 on which the reliance is placed by the learned Senior Counsel for Defendant Nos. 3 to 10, the facts were that the Plaintiffs had sued the Defendants for damages for conversion of their goods. The court came to the conclusion that the Plaintiffs had not become the owners of the goods because the Defendants had imported goods on their own account and for themselves and, therefore, the case of the Plaintiffs was dismissed since it was established that the Defendants had not imported the goods as agents of the Plaintiffs. As rightly contended by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs, this case does not lay down the proposition that only full owner can sue for conversion. It also does not decide that the person whose possession or right to possession is interfered with cannot sue for possession. So far as the second judgment in K.S. Nanji & Co. vs. Jatashankar Dossa & Ors2 on which reliance is placed by the Counsel for Defendant Nos. 3 to 10 is concerned, the said case was decided on interpretation of Article 48 of the old Limitation Act. This case also, in my view, is not based on the definition of conversion or the 1 AIR 1957 SC 357 2 AIR 1961 SC 1474 ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 181 person or persons who can be sued for conversion. In this view of the matter, in my view, it is not necessary to go into the question as to whether the Plaintiffs were bailee on behalf of ANZ as argued by the Plaintiffs alternatively.
123. Issue No.1 between Plaintiffs and Defendant No.2 - HPD and Plaintiffs and CMF on the cause of action therefore, answered in the affirmative.
ISSUE NOS. 6, 7 & 9 BETWEEN PLAINTIFFS & CMF:
6. Whether the Plaintiffs prove that on 9-4-1992 there was a "hole" pertaining to the transactions of 26-2-1992 between the Plaintiffs and the 1st Defendant as alleged in para 7H of the Plaint?
7 Whether the Plaintiffs prove that the then Dealers of the Plaintiffs entered into a dummy transaction dated 10-4-1992 with the 1st Defendant to cover-up the said "hole" as alleged in para 7 I of the Plaint?"
9 Whether the Suit transaction and the ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 182 transactions referred to in para 7(a), 7(f) and 7(g) of the Plaint reflect that the same were fictitious transactions for funding and/or they were transactions at structured price and/or they were transactions involving difference between the actual rate (as transacted) and the derived rate as alleged in para 25 and 27 of the further Written Statement?
124. Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs submitted that Issue Nos. 3, 6, 7 and 12 are entirely irrelevant and do not survive.
He submitted that Issue Nos. 3, 6 and 7 are pertaining to transactions entered into by SCB with third parties which transactions were either "genuine" transactions or were "dummy" transactions and that, in either event, such subsequent dealings would not absolve the CMF or HPD of their liability for converting SCB's property and, therefore, it is submitted that they are irrelevant for the purpose of determining the main issue in controversy. It is contended that, in any case, an averment was made that there was an unilateral entry effected in SCB's books which showed that there was an alleged sale of 17% NPCL bonds to ABFSL and ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 183 this was done to cover up the hole/loss arising out of the purchase on 26/02/1992 by the SCB from ABFSL which had arisen since SCB was holding only a photocopy of the said LOA. It is contended that this entry was made by SCB's then employee since there was no real transaction and this was done to conceal the loss arising out of the transaction dated 26/02/1992. It is contended that this case of the Plaintiffs is supported by the ex-employee of Defendant No. 1 - ABFSL Mr. Kalyanraman who, in his evidence, has stated that there was no transaction between ABFSL and Plaintiffs on 10/04/1992 in respect of the said 17% NPCL bonds. It is contended that since SCB have established that the bonds were diverted on 27/2/1992 by HPD to CMF, as a natural consequence and conclusion, it has to be held that on 10/04/1992 there was a hole in SCB's records in connection with NPCL bonds. HPD has filed an additional Written Statement in which he has alleged that the entitlement of Plaintiffs to 17% NPCL bonds under the transaction dated 26/02/1992 with ABFSL was adjusted against delivery by HPD of certain Cantriple units on 09/05/1992 and an averment was made in HPD's additional Written Statement in para ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 184 11(f) read with para 4 of his first Written Statement.
125. CMF also in the Written Statement at paras 26 and 27 has dealt with averments of SCB at paras 7(H) to 7(I) in which it is alleged that in the event the transaction dated 10/04/1992 was a bogus transaction then, in that case, initial transaction dated 26/02/1992 was also a bogus transaction and, therefore, it established 15% arrangement with HPD which was, therefore, illegal and opposed to public policy.
126. It is urged by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs that in view of evidence of Kalyanraman(PW1), fictitious entry dated 10/04/1992 is established and it is further fortified in view of similar allegations made by CMF in respect of Suit No.11 of 1996. He relied upon para 76 of the Judgment of the Apex Court in appeal from judgment in Suit No.11 of 1996 at page 134 which reads as under:-
"76........ Further, there is evidence of M.Q. Aksari (PW3), an officer of AB in terms denying that there was any sale ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 185 of purchase transaction between SCB and AB during the period 1-5-1992 to 10-5-1992. In fact Askari produced the purchase register of AB in which there was no entry showing purchase of the suit bonds by AB from SCB on 9-5-1992. Mr. Jethmalani contended rightly that the evidence of Askari had remained totally unchallenged, particularly with reference to the absence of any purchase of the suit bonds b AB. Mr. Jethmalani criticized the impugned judgment of the Special Court as having singularly failed to consider any part of the crucial evidence of the officer of AB. We think that this criticism is justified. While the Special Court's inferences are based upon its understanding of what the 15% arrangement was and its analysis of Exhibit 11, it totally fails to give any reason as to why the evidence of a witness from AB about there being no such transaction on 9-5-1992, backed by the purchase register of AB, should be rejected. In our view, in the face of the positive evidence of AB that no such transactions were there, there ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 186 was no justification for not accepting the stand of SCB that entry dated 9-5-1992 pertaining to the suit bonds was a sham entry intended to introduce the money into the books of SCB to cover a wide gap."
127. On the other hand, Mr. Kapadia, the learned Senior Counsel appearing on behalf of CMF and Mr. M.P.S. Rao the learned Counsel appearing on behalf of Defendant No. 2 -
HPD have submitted that the alleged hole in SCB's record was adjusted by receipt of certain IRFC bonds on 10/04/1992 and, therefore, the Plaintiffs are entitled to recover damages as sought by them. In this connection, it is urged by the learned Counsel appearing on behalf of Plaintiffs that Defendants could not raise this defence because, firstly, no such case had been raised by the Defendants in their pleadings. No issue in connection therewith had been raised and squaring off the transaction by delivering IRFC bonds was directly contrary to the case pleaded by HPD and lastly CMF was bound by admissions of HPD; he being the predecessor in title of CMF. Reliance was placed by the Plaintiffs on the following judgments:-
::: Downloaded on - 09/06/2013 16:08:33 :::This Order is modified/corrected by Speaking to Minutes Order 187 (1)AIR 1966 SC 735 @ paras 8,9 and 10 [Bhagwati Prasad vs. Chadramaul] (2) AIR 1958 SC 255 @ 14.
[Shi Venkataramana Devaru & Ors vs. State of Mysore & Ors] (3) AIR 1956 SC 231 @ para 24 [J.K. Iron & Steel Co. Ltd. vs. The Iron & Steel Mazdoor Union, Kanpur] (4) 1956 PC 218 (House of Lords) [Esso Petroleum Co. Ltd. vs. Southport Corporation] (5) AIR 1953 Nagpur 154 @ para 52 [The Bombay Agarwal Co., Akola vs. Ramchand Diwanchand & Anr] Mr. Kapadia, the learned Senior Counsel appearing on behalf of CMF relied upon Exhibit D-2(2) which is a letter addressed by David Loveless(PW4) to CBI dated 3/5/1994 along with a note given by Mr. Ganapathi to the police (hereinafter referred to as "Ganapathi Report").
::: Downloaded on - 09/06/2013 16:08:33 :::This Order is modified/corrected by Speaking to Minutes Order 188
128. In reply, it is contended by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs that Ganapathi Report could not be relied upon on number of grounds. It is submitted that the Report being given by Ganapathi on explanation asked by the police, could not be treated as admission by Plaintiffs since it was a report given in the course of investigation. Secondly, it is submitted that this Report was annexed to the covering letter of Mr. David Loveless(PW4). Thirdly, it is submitted that no averment was made in respect of the said Report in their Written Statement and, lastly, it is submitted that no cross-examination was made on the said question of squaring off the said transaction. Reliance was placed by Plaintiffs on the following judgments:-
(1)AIR 2002 SC 3652 [Sarwan Singh vs. State of Punjab] (2) AIR 1961 Cal 359 [AEG Carapiet vs. A.Y. Derderian[ (3) AIR 1953 Nagpur 154 ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 189 [The Bombay Agarwal Co. Akola vs. Ramchand Diwanchand & Anr] (4) AIR 1973 Gujarat 57 [Sajjanraj Swarupchand vs. Mehta Commercial Co.] (5) AIR 1967 SC 1058 [Chandradhar Goswami & Ors vs. Gauhati Bank Ltd.]
129. So far as the evidence in respect of this issue is concerned, Plaintiffs have examined Mr. Kalyanraman (PW1), an ex-employee of ABFSL. He has in clear terms stated that there was no transaction between ABFSL and Plaintiffs on 10/04/1992 in respect of 17% NPCL bonds. There is no material on record to show either there was delivery of any security or receipt of consideration. The averments made in the Plaint in para 7(H) and 7(I) are as under:-
"7-H. Accordingly, on 9 April 1992, there was a "hole", i.e shortfall in the Securities Account reflected in Plaintiff's books pertaining to the transaction of ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 190 26 February 1992 between Plaintiffs and 1st Defendant in view of Plaintiff's then belief that the said bonds under the said transaction had not been received from 1st Defendant."
"7-I. It appears that in order to cover the said hole, the then dealers of Plaintiffs entered into a dummy transaction dated 10 April 1992 purportedly with 1st Defendant. In fact, the said purported transaction was a mere unilateral set of entries effected in Plaintiff's books. No such transaction, in fact, took place."
Neither the CMF nor HPD have led any evidence though at the time of final arguments, very elaborate submissions have been made by the learned Senior Counsel appearing on behalf CMF that Plaintiffs, firstly, have not produced best evidence for the purpose of proving the alleged hole.
Secondly it is submitted that relevant books of accounts have not been produced either by Plaintiffs or by ABFSL and thirdly it is contended that if the last transaction was a fictitious or dummy transaction then the first transaction ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 191 dated 26/02/1992 was also a bogus or fictitious transaction.
For that purpose, elaborate submissions have been made pointing out the flow chart of the suit LOA and the chart of transaction with price rate. So far as the evidence of Mr. Kalyanraman (PW1) is concerned, he has made a categorical statement that there was no transaction between Plaintiffs -
SCB and ABFSL on 10/04/1992. In view of this evidence, therefore, in my view, Plaintiffs have established that there was a hole/loss which had resulted in making of fictitious entry dated 10/04/1992. On the other hand, in my view, Defendants - CMF and HPD have not established that the alleged borrowing of the original LOA by HPD from SCB was squaring off as a result of receipt of 9% IRFC bonds.
130. Mr. Kapadia, the learned Senior Counsel for CMF has relied on Ganapathi Report as also the observations made in Janakiraman Committee Report. First of all, it would be necessary to see the probative value of Ganapathi Report which is annexed to the covering letter addressed by David Loveless(PW4) to CBI at Exhibit D-2(2). In the covering letter which is at Exhibit-D-2(2), Mr. Loveless has stated as under:-
::: Downloaded on - 09/06/2013 16:08:33 :::This Order is modified/corrected by Speaking to Minutes Order 192 "Bhupinder Kumar, 3-5-94 Deputy Superintendent of Police, Central Bureau of Investigations, White House, Walkeshwar Road, Bombay Dear Sir, Re: Investigation of Case RC U (9)//92/CBI/SCB/BOM
i) and your letter of 14th February, 1994 re transactions between SCB & Andhra Bank and
ii) your letter of 21st February, 1994, re transactions between SCB and Bank of Karad.
_____________ I write with reference to your above mentioned letters and the attached schedules. First of all, let me thank you for the extension of time you granted the Bank to prepare our response.
Secondly, please find attached a note, which has been prepared in the format you have requested, by Mr. R. Ganapathy, Senior Manager of the Forensic Banking team. This note has been prepared following an extensive review of our existing records; where possible, the note has been cross referenced to the specific underlying documents. Where it has not been possible to trace and support by way of documents, every element of each and every transaction, Mr. Ganapathy has expressed his personal opinion, which is based upon his extensive banking experience per se and upon his detailed knowledge of this case gained over the past two years.
I am mindful of the fact that a considerable period of time has elapsed since the Bank first discovered that it had been defrauded and filed its First Information ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 193 Report, which included schedules of transactions in support of the Bank's claims. During the intervening two years, a firm of independent chartered accountants has been continuously reviewing the Bank's position. Given the complexity of the case and the importance of accuracy, I have asked for an independent validation of Mr. Ganpathy's note by that same firm to be undertaken immediately. In any event, this validation has always been viewed by the Bank as essential for any forthcoming trial, where the need for impartial and totally independent experts of the highest caliber is a perquisite. Mr. Westall will keep you fully informed of the progress in this area.
In the meanwhile, may I thank you once again for your patience and assure you that Standard Chartered Bank wishes to extend to you every assistance and cooperation in this matter. If you have any queries, please do not hesitate to contact either me or Mr. Talwar.
Yours faithfully, Sd/-
D. A. Loveless Head, OSRI"
The letter obviously has been written because of the query raised by CBI and the first part of the reply is to the copy of the report given by Mr. Ganapathi. Ganapathi Report also has been tendered by Ganapathi during his interrogation by police and as an answer to the question asked by CBI.
Reliance has been placed by CMF on the said Report as, according to them, the said Report shows that SCB received consideration in the form of IRFC bonds on 10/04/1992 against its sale of NPCL bonds to ABFSL on 10/04/1992. In ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 194 my view, no reliance can be placed by CMF on the said Report and it cannot be treated as an admission on the part of Ganapathi which would bind the Plaintiffs - SCB. It cannot be forgotten that this Report was given during the course of investigation of Ganapathi by CBI and, therefore, hardly any reliance could be placed on such statement made to the police, as, even otherwise, it would be hit by section 162 of the Criminal Procedure Code.
ig Secondly, there is no cross-
examination by CMF on this aspect of squaring off when the Plaintiffs witnesses were examined. Hence, it is not now open for CMF to rely on Ganapathi Report without making suggestion to that effect to David Loveless (PW4) since otherwise he would have been in a position to offer an explanation and, lastly, there is no plea to that effect in the Written Statement on the aspect of squaring off of the transaction in view of Ganapathi Report. In this context ratio of the judgment in Sarwan Singh vs. State of Punjab 1 - para 8 would squarely apply wherein it has been held that if the opponent has not put his case in cross-examination, the evidence tendered on that issue ought to be accepted. The Calcutta High Court in para 10 of its judgment in A.E.G. 1 AIR 2002 SC 3652 ::: Downloaded on - 09/06/2013 16:08:33 ::: This Order is modified/corrected by Speaking to Minutes Order 195 Carapiet v. A.Y. Derderian1 has observed as under:-
"(10) The law is clear on the subject.
Wherever the opponent has declined to avail himself of the opportunity to put his essential and material case in cross-examination, it must follow that he believed that the testimony given could not be disputed at all. It is wrong to think that this is merely a technical rule of evidence. It is a rule of essential justice. It serves to prevent surprise at trial and miscarriage of justice, because it gives notice to other side of the actual case that is going to be made when the turn of the party on whose behalf the cross-
examination is being made comes to give and lead evidence by producing witnesses. It has been sated on high authority of the House of Lords that this much a counsel is bound to do when cross-examining that he must put to each of his opponent's witnesses in turn, so much of his own case as concerns that particular witness or in which that witness had 1 AIR 1961 Calcutta 359 ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 196 any share. If he asks no question with regard to this, then he must be taken to accept the plaintiff's account in its entirety. Such failure leads to miscarriage of justice, first by springing surprise upon the party when he has finished the evidence of his witnesses and when he has no further chance to meet the new case made which was never put and secondly because such subsequent testimony has no chance of being tested and corroborated."
Apart from that, admittedly, Ganapathi Report cannot be equated with entries in the Books of Account which are maintained in the regular course of business and, therefore, provisions of section 34 would not apply in the present case.
In view of this, issue Nos. 6, 7 are answered in the affirmative and issue No.9 is answered in the negative.
ISSUE NOS.14 & 18 BETWEEN PLAINTIFFS AND CMF:
14 Whether the Defendant No.3 proves that it had on 27th February, 1992 purchased the said 17% NPCL bonds ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 197 through the Defendant No.2 who was allegedly acting as a mercantile agent of the Plaintiff and/or Defendant No.1 for consideration in good faith and without notice as alleged in paragraph 11 of the Written Statement of the said Defendant?
"18 Whether the issue of payment of consideration by the 3rd Defendant for acquisition of Bond on 27-2-1992 is barred by virtue of the principles of res-judicata as alleged in para 11(e) of the Plaint?"
131. Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs submitted that CMF had not led any evidence to prove their case on payment of consideration and, therefore, on this ground alone the said question has to be answered in the negative. It is, however, submitted that an affidavit of S.R. Ramraj is on record at Exh-P-15 in which it is alleged that the consideration was paid by CMF to ABFSL for the purchase of the suit bonds. So far as this affidavit is concerned, it is submitted by Mr. Jethmalani, learned Senior Counsel for Plaintiffs that ABFSL had denied the receipt of any consideration from CMF in paragraphs 3 to 7 of their Written Statement in Misc. Petition No.81 of 1985 which is at ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 198 Exh-P-21 and similarly R. Kalyanraman (PW1) also had denied the receipt of consideration on page 10 of his affidavit of evidence at Exh-P (colly). Thirdly, it is submitted that the plea of payment of consideration by CMF to ABFSL is barred by res judicata. It is submitted that in Suit No.11 of 1996 the CMF had asserted that payment for 9% NPCL Bonds and 17% NPCL Bonds had been made by CMF as per affidavit of S.R. Ramraj dated 13th July 1993. It is further submitted that the issue was framed in respect of payment by CMF of 9% NPCL bonds. It is submitted that, however, Supreme Court while dealing with the issue of CMF being bonafide purchaser for value has negatived the said contention in paragraphs 87 to 96 of its judgment dated 5th May 2006 in appeal from judgment in Suit No.11 of 1996. He invited my attention to the said observations of the Apex Court in the said judgment.
132. On the other hand, Mr. Kapadia, the learned Senior Counsel appearing on behalf of Defendant Nos. 3 to 10 has firstly submitted that since the claim of the Plaintiffs was based on tort, title of CMF was not relevant since the Plaintiffs could only succeed by proving their claim in respect ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 199 of title of the bonds on the date of the suit and could not rely on the weakness, if any, in the title of the CMF. It is then submitted that the CMF had purchased the suit bonds from Defendant No.2 on 27/2/1992 and they had also purchased 9% NPCL bonds from Defendant No.2 and the said consideration was adjusted against the sale of two other PSU bonds of the aggregate FV Rs 100 crores by CMF after netting of the purchase and sale consideration and the net sum of Rs 3,87,46,575.35 was payable by Defendant No.2 to CMF which was paid by him by the cheque on the same day.
It is then submitted that in the affidavit of S.R. Ramraj (Exh-
P-15, he had explained how the consideration was adjusted by Defendant No.2 and the adjusted amount was paid by Defendant No.2 to CMF. It is submitted that, therefore, payment of consideration was proved by Exh-P-15. Reliance was placed on the observations of the Supreme Court in para 94 of its judgment in appeal from judgment in Suit No. 11 of 1996. It is submitted that, therefore, the said findings of the Supreme Court do not constitute res judicata and, in the event, it was held to be so, it would operate in favour of CMF and against the Plaintiffs. It is then submitted that ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 200 assuming without admitting that the Plaintiffs had proved purchase of suit bonds on 26/02/1992, the transaction was settled by Plaintiffs with Defendant No.2 on 10/04/1992 on which the Defendant No.2 became absolute owner and the title passed from Defendant No.2 to CMF on 27/02/1992 became perfect.
133. After having heard both the learned Senior Counsel on this point, in my view, CMF has failed to prove that it is a bonafide purchase of the suit bonds without notice from ABFSL on 27/2/1992 for the following reasons.
134. Firstly, the CMF has not led any evidence in support of the said contention. Secondly, one of their stands during the course of arguments was that burden of establishing title of the Plaintiffs was on them and not on CMF. Thirdly, reliance has been placed on the affidavit of S.R. Ramraj which is at Exh-P-15 in which he has stated that an amount of Rs 3,87,46,575.35 was paid by Defendant No.2 after adjusting the other amount to CMF. A reliance was placed on para 94 of the judgment of the Supreme Court in ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 201 appeal from judgment in Suit No.11 of 1996. This submission cannot be accepted. It has to be noted that the Apex Court in para 94 has not given a finding as alleged by S.R. Ramraj in his affidavit. On the contrary, what is observed by the Apex Court in para 94 of its judgment is as under:-
"94. .....In the first place, the transactions of 20-11-1991 and the transactions of 27-2-1992 appear to be between CMF and HPD. Assuming they are proved, as held by the Special Court, and the netted amount of Rs 3,87,46, 575.35 was paid by HPD to CMF, it does not prove that the consideration of the Suit bonds was paid to Defendant No.1/the Plaintiff, who alone could have been the antecedent owner of the suit bonds."
The said observations, therefore, clearly proceeded on the footing of assumption of proof by CMF and the contention of Mr. Kapadia, learned Senior Counsel, that affidavit of Ramraj had proved the payment of consideration by CMF to Defendant No.2 has been accepted by the Apex Court, ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 202 therefore cannot be accepted. On the other hand, the Apex Court has observed to the contrary in paragraphs 89, 90, 91, 92, 96 and 99 of its judgment. The observation of the Supreme Court in said paragraphs therefore are very relevant. The said paragraphs read as under:-
"89 ......... The crucial question in the present case is : Did CMF purchase the suit bond for value from the antecedent title-holder?"
"90. This brings us to the last limb of the argument of Mr. Jethmalani that CMF can never be said to be a purchaser for value, as there is no evidence to show that any consideration was paid by CMF for acquisition of the suit bonds."
"91. When the matter was first tried by Variava, J., as the Special Court, the learned counsel appearing for CMF categorically admitted that there was no evidence by which it could be established that CMF had paid consideration for acquisition of the bonds. It is true that this judgment was subsequently set aside ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 203 by this Court and the matter was remanded for trial along with the miscellaneous petition. But this is a significant fact which the Special Court could not have overlooked in appreciation of evidence."
"92. The stand taken by CMF is that on 27-2-1992 it purchased the suit bonds and the 17% NPCL bonds for a total sum of Rs 46,01,23,287.67, of which, Rs 46 crores was the purchase price and Rs 1,23,287.67 was the accrued interest on the bonds for one day i.e. from 26-2-1992 to 27-2-1992. CMF claimed that the consideration for acquisition of the suit bonds and 17% NPCL bonds was paid by two sales of 13% NLC bonds and 13% MTNL bonds. In other words, according to CMF, there were two purchase and two sales on 27-2-1992. CMF alleged that on 20-11-1991 there were nineteen sales and four purchases. The four purchases included the 13% NLC bonds and 13% MTNL bonds, which formed part of the consideration for purchase of the suit bonds on 27/2/1992. The evidence in support of its alleged purchase of 13% ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 204 NLC bonds and 13% MTNL bonds is again somewhat convoluted......"
"96 ......The pleadings of CMF on the issue of consideration appear to be most confusing and shifty. The exercise carried out by the Special Court of analysing several transactions and discharge of BRs, shows transactions of payment back and forth between CMF and HPD.
ig The ledger folio produced by CMF in support of its stand is also hardly reliable............ Considering the evidence as a whole, it appears that the initial stand taken by the learned counsel of CMF in the first round of the litigation, that there was no credible evidence on which payment of consideration by CMF could be proved, was fully justified. The attempt of CMF in picking up and putting forward some of the documents, out of the several transactions entered into by them to patch up the story of consideration, in our opinion, has miserably failed. There was no cause for being charitable to CMF by saying that they could prove only a part of the consideration, ergo, rest of the ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 205 transactions must be deemed to have been proved. We are of the view that every one of the arguments put forward by SCB to impugn the story of CMF that it had paid consideration is justified and the Special Court was wrong in rejecting the arguments of SCB on this count. We, therefore, hold that CMF has utterly failed to prove its story that it had paid consideration for purchase of the suit bonds on 27-2-1992."
"99. In these circumstances, we are not satisfied that the evidence on record proves that HPD became the owner of the suit bonds or that CMF legitimately acquired the suit bonds from HPD or any other person by paying bona fide purchase value for them. Consequently, we must hold that CMF acquired no right, whatsoever, to the suit bonds. The suit bonds always remained the property of SCB irrespective of how they found their way into the hands of CMF."
The CMF in their affidavit at Exh-P-14 in response to interrogatories by Plaintiffs have admitted that the ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 206 consideration paid by them to ABFSL for purchase of the suit bonds was the same as spelt out by it for the purchase of 9% NPCL bonds in its affidavit dated 13/7/1993 filed by S.R. Ramraj. This being the position, it is not now open for CMF to rely on the said affidavit of S.R. Ramraj for the purpose of proving payment of consideration to ABFSL.
135. So far as issue of res judicata is concerned, it is submitted by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of Plaintiffs that SCB had administered interrogatories to CMF vide their application dated 21/07/1997 being Chamber Summons No.15 of 1997 which is at Exh-P-13 and the said Chamber Summons was allowed by the Special Court by its order dated 22/09/1997 and pursuant thereto, CMF filed its affidavit of September, 1998 which is at Exh-P-14. CMF admitted that the consideration allegedly paid by it to ABFSL for purchase of suit bonds was the same as spelt out by it for purchase of 9% NPCL bonds in its affidavit dated 13/07/1993 filed by S.R. Ramraj. In the Chamber Summons which is at Exh-P-13, following interrogatory was asked in the schedule annexed to the ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 207 Chamber Summons in para 2(iii) which reads as under:-
"2] In paragraph 11 of the Written Statement, you have alleged that on February 27, 1992 you purchased, through Hiten Dalal, from Andhra Bank Financial Services Ltd., the 17% NPCL Bonds for consideration and you have denied that the alleged purchase of February 27, 1992 were fictitious transactions.
ig Further, in paragraph 14(ii) you have alleged that you purchased the Letter of Allotment and received delivery thereof. You are requested to state :-
(iii) whether the payment of consideration for the alleged purchase by you of 17% NPCL Bonds was the same as set out in the affidavit of one S. Ramraj, affirmed on July 13, 1993 in the proceedings before the Hon'ble Company Law Board; which was subsequently transferred to the Hon'ble the Special Court and numbered as Miscellaneous Petition No.81 of 1995?"
136. In para 5(a) of the affidavit of Ramesh Nayak which is at Exh-P-14, while giving reply to interrogatory at item No. 2(iii), it is stated as under:-
::: Downloaded on - 09/06/2013 16:08:34 :::This Order is modified/corrected by Speaking to Minutes Order 208 "5(a) Interrogatory at item No.2(iii) With reference to para 2(iii), the payment of consideration for purchase of 17 percent NPCL Bonds was by way of netting off in respect of four transactions as set out in the affidavit dated 13th July, 1993 of Shri S. Ramaj. As a result of the netting off, following the practice no separate cheques were issued for any of the four transactions including the transaction for purchase of 17 percent NPCL Bonds but only a cheque for the net amount of Rs 3.87 crores was received by CMF............"
Thereafter, a detailed explanation has been given as to how Defendant No.1 was acting through HPD and later on it turned out that HPD was acting on his own or that the Plaintiffs had a tacit understanding with HPD who was acting on their behalf. Further particulars have been thereafter mentioned and, therefore, the answer to the said interrogatory is given with the following rider in the said affidavit at page 5:-
::: Downloaded on - 09/06/2013 16:08:34 :::This Order is modified/corrected by Speaking to Minutes Order 209 "(b) The explanation set out in the affidavit dated 13th July, 1993 of S. Ramraj indicating how as per the records of the CMF consideration for purchase of 17 percent NPCL Bonds was paid is incomplete unless the above facts are taken into consideration and it has to be read in the context and in the manner set out hereinabove."
The fact remains that in spite of the said explanation given in the affidavit of S.R. Ramraj, the same has not been accepted by the Apex Court in its judgment in appeal from judgment in Suit No.11 of 1996 in paragraphs 87 to 96, some of which have been reproduced hereinabove. In view of the clear finding given by the Apex Court on the theory set forth by CMF in their affidavit of S.R. Ramraj, the said issue, therefore, is clearly barred by principles of res judicata.
137. It has been vehemently urged by Mr. Kapadia, the learned Senior Counsel appearing on behalf of CMF that the issue which was determined by the Apex Court in appeal from judgment in Suit No.11 of 1996 related to purchase of 9% NPCL bonds and that consideration of 17% NPCL bonds ::: Downloaded on - 09/06/2013 16:08:34 ::: This Order is modified/corrected by Speaking to Minutes Order 210 was not the subject matter of the said suit and, therefore, doctrine of res judicata would not apply as a result of the said finding. It would be relevant to note that issue No.1 in Misc. Petition No.81 of 1995 was as under:-
"Whether the Petitioners are bonafide purchasers of value without notice of 9% NPCL Bonds from Respondent No.3 for consideration paid to Respondent No.3 as set out in the affidavit of S. Ramraj dated 13 July, 1993."
The CMF, in reply to the interrogatories has admitted that the consideration for 17% NPCL bonds was paid as a result of netting off of the transactions as mentioned in the affidavit of S.R. Ramraj. In my view, it is rightly submitted by Mr. Jethmalani, the learned Senior Counsel appearing on behalf of the Plaintiffs that the said affidavit of S.R. Ramraj has been disbelieved and negatived by the Supreme Court and the story of netting off is also disbelieved and, therefore, the same question cannot be re-agitated by the CMF since the issue of netting of fell for consideration before the Apex Court in the appeal from earlier suit and the said story was ::: Downloaded on - 09/06/2013 16:08:35 ::: This Order is modified/corrected by Speaking to Minutes Order 211 not accepted by the Apex Court. The CMF, therefore, cannot re-agitate the said story in this suit in respect of 17% NPCL bonds.
138. The issue No.14 is therefore answered in the negative and the issue No.18 is answered in the affirmative.
ISSUE NO.8 BETWEEN PLAINTIFFS & CMF:
8. Whether the Defendant No.3 have converted the Bonds/LOA as alleged in para 6A & 7(k) of the Plaint?
139. In view of the finding given on Issue No.4 between Plaintiffs & CMF & issue No.14, Issue No.8, therefore, will have to be answered in the affirmative. Plaintiffs have proved that they had purchased 17% taxable NPCL bonds in view of the reasons given on the said issue. Similarly, Issue No.14 has been answered in the negative and Defendant No. 3, therefore, has not proved that it had purchased the suit bonds through Defendant No.2 on 27/02/1992. Defendant No.2 - HPD also has not established that he had become ::: Downloaded on - 09/06/2013 16:08:35 ::: This Order is modified/corrected by Speaking to Minutes Order 212 owner of the suit bonds since his contention is that if he had borrowed the LOA in respect of the suit bonds from Plaintiffs, he had squared off the transaction by selling 9% IRFC bonds.
It has also been held while deciding about the Plaintiffs' cause of action to file the suit that Plaintiffs are entitled to file the suit for conversion against Defendant No.2 and Defendant Nos. 3 to 10 for the elaborate reasons given on the said issue No.1 raised between Plaintiffs and HPD and Plaintiffs and CMF and, therefore, for the aforesaid reasons, Issue No.8 is answered in the affirmative.
ISSUES NO. 4 AND 5 BETWEEN PLAINTIFFS AND DEFENDANT NO.2 -
HPD:
4. Whether the Defendant No.2 is jointly and severally liable along with the Defendant Nos 3 to 10 to pay to the Plaintiffs the sum of Rs 55,26,16,438.36 as per the particulars of claim together with further interest on principal sum of Rs 48,02,50,000.00 @ 20% p.a. from 28th November, 1992 till payment and/or realisation?
5. Whether the Plaintiffs are entitled to ::: Downloaded on - 09/06/2013 16:08:35 ::: This Order is modified/corrected by Speaking to Minutes Order 213 any relief and if, what?
ISSUE NO. 19 & 20 BETWEEN
PLAINTIFFS AND CMF:
19 Whether the Defendant Nos. 3 to 10
are jointly and severally liable to pay to the Plaintiffs the sum of Rs 55,26,16,438.36 as per the Particulars of Claim together with further interest on principal sum of Rs 48,02,50,000.00 @ 20% per annum from 28th November, 1992 till payment and/or realizations?
20 What relief?
140 In view of the finding given to issue No.1 between SCB and CMF and Issue No.2 between SCB and HPD, the issue Nos.4 & 5 between Plaintiffs and Defendant No. 2-HPD & issue No.19 between Plaintiffs and CMF are answered in the negative since it has been held that the suit is barred by limitation. Issue No.20, therefore, is answered as per final order.
::: Downloaded on - 09/06/2013 16:08:35 :::This Order is modified/corrected by Speaking to Minutes Order 214
141. Accordingly issues between Plaintiffs and CMF and issues between Plaintiffs and Defendant No.2 - HPD are answered as under:-
ISSUES BETWEEN PLAINTIFFS AND CMF ISSUES FINDINGS Issue No.1 ig In the affirmative Issue No.2 In the negative Issue No.3 In the negative Issue No.4 In the affirmative Issue No.5 In the negative Issue No.6 In the affirmative Issue No.7 In the affirmative Issue No.8 In the affirmative Issue No.9 In the negative Issue No.10 In the negative Issue No.11 In the affirmative Issue No.12 Does not arise Issue No.13 In the affirmative Issue No.14 In the negative Issue No.15 In the negative Issue No.16 In the affirmative Issue No.17 In the affirmative Issue No.18 In the affirmative Issue No.19 In the negative Issue No.20 As per final order ::: Downloaded on - 09/06/2013 16:08:35 ::: This Order is modified/corrected by Speaking to Minutes Order 215 ISSUES BETWEEN PLAINTIFFS AND DEFENDANT NO.2 - HPD:
ISSUES FINDINGS
Issue No.1 In the affirmative
Issue No.2 In the affirmative
Issue No.3 In the affirmative
Issue No.4 In the negative
Issue No.5 igIn the negative
142. In the result, the following order is passed:-
ORDER Suit is dismissed with costs.
(V.M. KANADE, J.) ::: Downloaded on - 09/06/2013 16:08:35 ::: This Order is modified/corrected by Speaking to Minutes Order 216 ::: Downloaded on - 09/06/2013 16:08:35 :::