Bombay High Court
S. Ramaswamy vs H. K. Dalal on 12 July, 2019
Author: A.K. Menon
Bench: A.K. Menon
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rrpillai IN THE SPECIAL COURT
[TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES]
ACT 1992
SUIT NO. 1 OF 2014
S. Ramaswamy ... Plaintiff
Teekay Shop nos. 20 & 22
Readymoney Mansion
Veer Nariman Road, Mumbai-400 001
vs.
1. Mr. H. K. Dalal ... Defendants
3rd Floor, Sangli Bank Building
Perin Nariman Road, Mumbai
2. The Custodian
10th Floor, Nariman Bhavan,
227 Vinay K. Shah Marg, Nariman Point
Mumbai-400 021
3. Excel & Company
Teekay Shop nos. 20 & 22
Readymoney Mansion
Veer Nariman Road, Mumbai-400 001
4. Commissioner of Income Tax
Central II, Aayakar Bhavan
M. K. Road, Mumbai-400 020
Mr. Ramesh Ramamurthy for the Plaintiff.
Mr. Dhiraj Mirajkar a/w. Ms. Vijaya Bhat i/b. Mulla & Mulla for Defendant
no.1.
Mr. J. Chandran a/w. Ms. Shilpa Bhate i/b. Leena Adhvaryu & Associates for
the Custodian.
1/48
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CORAM : A.K. MENON, J.
(JUDGE, SPECIAL COURT)
RESERVED ON : 14 th SEPTEMBER, 2018
PRONOUNCED ON : 12 th JULY, 2019
JUDGMENT
1. This suit was originally filed as Miscellaneous Application no.88 of 2009 where the Custodian was the applicant. However, the present plaintiff who was respondent no. 2 in his capacity as sole proprietor of Excel & Co- respondent no. 3 was later transposed as plaintiff. This occasioned by virtue of order dated 14 th June, 2013. On 3 rd January, 2013 Miscellaneous Application no. 88 of 2009 and Suit No. 1 of 2008 filed by defendant no. 1 against one Bharti Manubhai Sheth was also listed when the defendant no. 1 raised a preliminary objection that Suit No. 1 of 2008 should be heard along with the present suit. The Special Court directed that the suit should be heard one after the other and necessary orders could be passed thereafter. I may clarify here that the proceedings are interchangeably described as " Suit" and "Miscellaneous Application" owing to the fact that several affidavits were filed before Miscellaneous Application was converted to a Suit.
2. On 11th July, 2014 when the Miscellaneous Application came to be taken up for hearing the Court found that in view of the averments made by the Custodian and the relief claimed, the application would have to be 2/48 s-1-2014.odt converted to a suit. The name of the present plaintiff was then substituted for that of the Custodian. After the amendment was carried out on or about 25th April, 2014 and pleadings were completed, the plaintiff led evidence. On 16th August, 2018 Mr. Mirajkar on behalf of defendant no.1 submitted on instructions of defendant no. 1 that he does not intend to lead evidence. On behalf of the Custodian also Mr. Chandran has made a statement that the Custodian has no intention to lead evidence. Accordingly evidence came to be closed.
3. On 7th September, 2018 when the matter was listed for arguments Mr. Mirajkar on instructions of defendant no. 1 submitted that issue nos. 1 and 2 need not be answered since they were withdrawing their objection regarding maintainability of this suit in view of the pendency of Suit no. 1 of 2008 and therefore the defence taken up in affidavit in reply dated 18 th September, 2009 to the effect that amount shown outstanding in the books of account of defendant no. 1 is payable to the plaintiff is the liability of one Manubhai Maneklal ["Maneklal"] who was party to Suit no. 1 of 2008. Suit no. 1 of 2008 has since been withdrawn by defendant no. 1 on 18 th January, 2019. Thus this plank of defence in the present suit has been expressly given up.
The facts are as follows :
4. The plaintiff and defendant no. 1 are notified parties under the Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992. The 3/48 s-1-2014.odt plaintiff seeks a decree in a sum of Rs.29,43,18,555.79 against defendant no.1. The claim against defendant no. 1 is made by the plaintiff on his own account and as sole proprietor of Excel & Company on the basis that defendant no.1 had admitted his liability. He also seeks interest on the aforesaid amount from the date of receipt of the principal sum. It is the plaintiff case that he is entitled to recover the suit claim from defendant no. 1 who is a notified party. The claim proceeds on the basis that in MA/276/2008 certain directions were sought against the Custodian in relation to taking steps to recover the amount due from defendant no. 1 to the extent of the admission of liability and as recorded in the finding of the Income Tax department. According to the plaintiff the liability has arisen on account of various transactions between defendant no. 1 on the one hand and the plaintiff. The claim is based on transactions in shares and in the process of recording statements under section 131 of the Income Tax Act, 1961.
5. On or about 20th March, 2007 the defendant no. 1 admitted his liability to pay a sum of Rs.26,04,76,724.37 during assessment year 1993-94. The plaintiff has contended that a statutory audit was conducted of records of the defendant no.1 which revealed that the aforesaid sum of Rs.26,04,76,724.37 was due and payable by defendant no.1. A public notice was issued on 28th October, 2005 by the Custodian and in response thereto the plaintiff had filed a claim. The liability is said to have arisen during 4/48 s-1-2014.odt assessment year 1993-94. The Income Tax Department had vide notice issued by the Assistant Commissioner of Income Tax, Central Circle VII, Mumbai dated 21st July, 1995 addressed to defendant no.1 calling upon him to discharge the liability to the plaintiff to the extent of Rs.10.91 crores. This notice has been relied upon by the plaintiff in MA/276/2009. According to the plaintiff the amount of Rs.10.91 crores has accrued interest and as on date of the suit the amount was Rs.29.43 crores. In view of the fact that liability is admitted the plaintiff has left the rate of interest to the discretion of this Court. The suit is thus a claim by one notified party against the other.
6. In the plaint reliance is placed on MA/276/2008 which was filed by the plaintiff against Custodian and Commissioner of Income Tax in which the plaintiff sought directions against the Custodian to disclose all investments made with banks in term deposits, to recall these deposits and make payment to the plaintiff after keeping aside a sum of Rs.10 lakhs in the attached account as was the practice. The plaintiff also sought directions against the Custodian and Commissioner of Income Tax to recover amounts due from defendant no. 1 in terms of findings of the Income Tax Department. Reliance is placed on a statement made by the defendant no. 1 on 20 th March, 2007 under section 131 of the Income Tax Act in which defendant no. 1 admits that he owed a sum of Rs.26,04,76,724.37 towards principal sum and sum of Rs.3,38,41,831.42 towards interest as on 30 th June, 1992. 5/48
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7. A number of affidavits/pleadings have been filed in the instant case by different persons as set out in the table below :
Sr Date Details
No
1 9th June, 2009 Plaint was filed
2 18th November, 2009 Affidavit in reply of H K Dalal
3 29th January, 2010 Affidavit in rejoinder of Custodian
4 2nd March, 2010 Affidavit in reply of current plaintiff S Ramaswamy
5 4th March, 2010 Affidavit of defendant no. 1 in sur-rejoinder
6 15th July, 2010 Affidavit of S. Ramaswamy
7 18th November, 2010 Affidavit in rejoinder of K K Johnson on behalf of the
Custodian
8 25th August, 2011 Affidavit in reply from Ramaswamy
9 15th September, 2011 Affidavit in rejoinder to affidavit in reply dated
25th August, 2011 of Mr. H. K Dalal
10 22nd August, 2014 Additional written statement of defendant no. 1
11 30th July, 2015 Rejoinder on behalf of plaintiff S. Ramaswamy
12 7th December, 2017 Affidavit under XVIII CPC of the plaintiff of
evidence in examination in chief.
13 21st February, 2018 Affidavit of documents filed by plaintiff disclosing 7
documents
It will be useful to briefly analyse the various contentions in these affidavits which constitute the pleading.
8. In the Miscellaneous Application a reply came to be filed on 18th November, 2009 by defendant no.1 in which he denied admitting 6/48 s-1-2014.odt liability and contended that the transactions which resulted in entries in the books of accounts of defendant no. 1 and which forms subject matter of the claim are actually transactions of Maneklal and not that of defendant no.1. Maneklal allegedly used account of defendant no. 1 as conduit to divert funds and therefore defendant no. 1 had no liability to the plaintiff. Defendant no. 1 also contended that the Custodian who was then the applicant was guilty of suppressing material facts. The affidavit in reply contains a statement that defendant no. 1 had filed Suit no. 4217 of 1995 against the said Maneklal on the original side of the Bombay High Court for recovery of diverse sums of money due from Maneklal. This defence that the amount is due and shown in the books are amounts due to the said Maneklal. The issues in that suit would be part of this suit. That suit had meanwhile been transferred and numbered as Miscellaneous Petition no. 1 of 2008, to be later renumbered as Suit no. 1 of 2008. It was then contended that Suit no. 1 of 2008 should be heard along with the present Suit.
9. In the affidavit defendant no. 1 deposed that he became a member of the Bombay Stock Exchange in 1985 and sometime in 1987 he obtained a brokers card from the Bombay Stock Exchange. The BSE Card at that time was stated to be valuable but defendant no. 1's annual income being not more than Rs.1,00,000/- he could not make payment for the card. The BSE is said to have permitted payment of consideration for broker's cards in 7/48 s-1-2014.odt installments. Defendant no.1 paid a sum of Rs.3,75,000/- initially and subsequently the balance was paid in two further installments. Such installments were paid on 1 st November, 1988 and 3 rd February, 1989 apparently with the financial assistance of said Maneklal. Defendant no. 1 claims he acted on instructions of Maneklal and worked as representative broker. He was apparently introduced to the said Maneklal through his brother a practicing doctor. The said Maneklal was said to be one of the well known brokers of that time and was known as the "uncrowned king" of the Stock exchange.
10. Defendant no.1 claims that Maneklal had full control over the transactions carried out through the card of of defendant no.1. He is stated to have held Custody of the cheques signed by defendant no.1, account book, valans and other records. Maneklal is said to have utilised these without informing defendant no.1 and all accounts in this respect were written and maintained in the name of defendant no.1 by the accountants of Maneklal. All cheques from all bank accounts were said to be issued by Maneklal and on his instructions even Income Tax returns of the defendant no. 1 were filed by Maneklal through his accountants. By virtue of the defendant no. 1's card being utilised his income increased manifold and it was during this period that defendant no. 1. acquired prominence as one of the leading brokers on the Stock exchange and in the later years numerous clients of defendant no. 8/48
s-1-2014.odt 1 or defendant no. 1 stopped dealing with Maneklal which is said to be evidence of the fact that the transactions were all carried out by the said Maneklal and not by defendant no.1. Liabilities however remained to be that of defendant no.1 on paper.
11. The defence in the affidavit in reply dated 18 th November, 2009 is premised on the footing that all transactions were that of Maneklal who had carried out these transactions in the name of defendant no.1 and therefore details not available to him today. Although it is contended that the applicant and therefore the plaintiff who stepped into the shoes of the Custodian, the report prepared by M/s. K.S. Aiyer and Co., Chartered Accountants at the instance of the Custodian does not conclude that the defendant no.1 owed the aforesaid sum of Rs.26,04,76,724.37 to the plaintiff. It is contended that entry in the books of accounts on the basis of which admission of liability is claimed must be read along with the finding in the report that the whole transaction appears to be an accommodation entry and that the bank account of defendant no.1 has been used as a conduit to transfer funds. This is the only other defence that has been taken up.
12. The Custodian in his affidavit dated 29 th January, 2010 submits that the defendant no. 1 has admitted transactions between him and Excel and Company and read with the finding of the Chartered Accountant in the Statutory Audit conducted at the instance of the Custodian the application is 9/48 s-1-2014.odt required to be allowed and the suit decreed. The main defence is that the defendant no. 1 is entitled to a set off as against the transactions with Maneklal. Thus the contention of the Custodian in this affidavit which was filed at the stage when the Custodian was the applicant seeks a decree on admission on the basis that the version of the defendant that all transactions were being carried out by Maneklal using Stock exchange card and bank accounts of defendant no. 1 cannot be believed.
13. On or about 2nd March, 2010 the plaintiff has filed his affidavit in reply dealing with the defendant's affidavit dated 18 th November, 2009 interalia contending that certain records had been destroyed by fire in his office and seeking time. It was further contended that the application being based on findings of the Chartered Accountants in its statutory report he was yet to receive a response to certain queries that he had raised. The plaintiff therefore sought to distance himself from the audit report. The plaintiff has denied that he was aware of the alleged transactions between defendant no. 1 and Maneklal. It is also contended that any claim that defendant no. 1 may have pertaining to the shares of Reliance Industries Limited and Tata Tea and the Custodian has no connection with the plaintiff's claim against defendant no.1. He has denied of knowledge of alleged dealings of defendant no. 1 with Maneklal and M/s. Dhanraj Mills Pvt. Ltd. (DMPL) and denied that there is any closing credit balance in the plaintiffs account with defendant no.1. 10/48
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14. Defendant no. 1 has since filed affidavit in sur-rejoinder dated 4th March, 2010 dealing with reply filed by the Custodian and adverting to the various claims in Suit No. 1 of 2008 filed against Mankelal which sought to recover sum of Rs.34,55,18,652.25. It was contended that after the suit was transferred to this Court it was duty of the Custodian to take up the matter which he had failed to pursue. While denying that the present suit is liable to be decreed, defendant no. 1 has contended that the Custodian had informed him that even if amounts are to be received by defendant no. 1 the same would constitute attached assets and could be utilised for meeting liabilities. It was further contended that the Custodian took no steps in the matter for recovery. Whereas in Suit no. 1 of 2008 defendant no.1's case in relation to transactions would ensure that defendant no. 1 would benefit from recoveries met and that the amounts recovered could be utilised to meet the defendant no.1's liability.
15. Defendant no. 1 further contended that the Custodian was at all times aware of the transactions put through by Maneklal and has falsely denied knowledge of the same. The Chartered Accountant appointed by the Custodian has in his report recorded that sums of Rs.77,50,000/- and Rs. 3,06,00,000/- have been received on account of Maneklal and had been passed on to defendant no.1. It was then contended that the above suit should be heard along with Suit no. 1 of 2008. This however would not now be 11/48 s-1-2014.odt relevant in view of the fact that the said suit has been withdrawn by the plaintiff unconditionally.
16. In his affidavit dated 15 th July, 2010 the plaintiff has dealt with the Chartered Accountant's report interalia contending that the Chartered Accountant did not exercise due diligence and has utilised a disputed statement of account which was attached to Miscellaneous Application no. 88 of 2009. That the entire report is based on a unilateral representation by defendant no. 1 without cross verification. It makes reference to various entries in the Chartered Accountant's report and it is contended that Custodian is relying only on selected portions of the report of the Chartered Accountant while suppressing other portions. He had no opportunity of placing the true state of affairs before the Chartered Accountants before they finalised their report. He has contended that upon his being notified on 17 th June, 1997 he had filed Miscellaneous Application objecting to his notification. He was directed to write to the Custodian to enable him to take action to recover the amounts due to his proprietary concern Excel & Co. i.e.defendant no. 2 which was originally respondent no.1 in the Miscellaneous Application. He pleaded inability in filing the requisite documents which were destroyed in fire on 4 th January, 2010.
17. The plaintiff has also made reference to correspondence with the Income Tax Department which had passed an ex-parte order dated 19 th June, 12/48 s-1-2014.odt 2008 withdrawing the restraint against demanding its dues for the prior two years. That the Custodian had then placed the aggregate asset value of the plaintiff at Rs.1.81 crores as against liability of Rs.1164.34 crores. Although the Custodian was well aware that huge amounts were recoverable from defendant no.1, this fact was not pointed out to the Court. If this fact had been pointed out at the material time the sale of residential flat could have been prevented. The residential flat was his only asset. He blames the Custodians failure to recover the amount due from defendant no.1. He has alleged bias and prejudice against him and alleges that a sum of Rs.70,86,038.22 owing from late Harshad S Mehta was not shown by the Custodian in his list of assets and it is only after the plaintiff followed up this claim that the particulars have since been disclosed.
18. The plaintiff has thus sought to lay the blame for sale of his flat and non recovery of the aforesaid sum of money from late Harshad S Mehta at the door of the Custodian. It is contended that in the case of one Mr. G. M. Hegde a sum of Rs. 2,00,000/- was owing to the plaintiffs' firm Excel and Co., but the Custodian had not taken action at the relevant time to collect these amounts which have not been shown as outstanding in later years. Although the said amount is said to have been repaid the Custodian has not received the amount. Similar instances are referred to, highlighting the fact that the Custodian has not being taking care of the interests of the notified party, The plaintiff has alleged that these acts of omission and commission have resulted 13/48 s-1-2014.odt in betrayal of the trust reposed in the office of the Custodian who is expected to remain neutral and assist this Court. However, they have behaved in a partisan manner resulting in severe hardship to the plaintiff.
19. The plaintiff submitted that he was not even entitled to legal assistance. Since he could not afford legal assistance, he claims to be victimized. He has further alleged malafides on the part of the Custodian in not having the suit filed by defendant no.1 being Suit no. 1 of 2014 transferred to this Court in an attempt to help the said Maneklal. The liability owing from defendant no. 1 is not shown in the list of assets and there is no reason for not doing so. The plaintiff has relied upon correspondence between him and the Custodian and other documents disclosed in the affidavit of documents dated 21 st February, 2018. Amongst those documents he has relied upon correspondence which includes letter dated 28th October, 1999 said to have been issued by defendant no. 1 to the Custodian contending that the claim of the Custodian on account of the plaintiff in a sum of Rs.36,07,88,885.63 and interest thereon are time barred. Correspondence between the Office of the Assistant Commissioner of Income Tax and the plaintiff is also been enclosed along with the affidavit. One of the enclosures relied upon by the plaintiff is letter dated 15 th April, 2010 addressed by the Advocate for the Custodian to the plaintiff in response to the plaintiff letter dated 18 th March, 2010 complaining that the liability of the 14/48 s-1-2014.odt defendant no. 1 to the plaintiff proprietary concern has not been brought to the notice of the Special Court.
20. The Custodian has contended that as per distribution report dated 16th July, 2009 the asset and liability position brings out clearly that the amount receivable from defendant no. 1 was included and that the amount shown in the H. K. Dalal Asset and liability Report is only the principal sum. As regards amount of Rs.70,86,038.22 it is the Custodians' contention that they have not found any entry in the books of accounts of late Harshad S Mehta or M/s. Harshad S Mehta. Likewise vide letter dated 25 th January, 2010 the Custodian has informed the plaintiff is whether the amount of Rs.2,00,000/- was owing from one G.N. Hegde. According to the Custodian the amount had already been repaid prior to 31 st March 2001 and was not due and outstanding as on 20 th November, 2001 being date of notification of the said G. N. Hegde. As far as claim against DMPL is concerned, the Custodian has contended vide letter dated 23 rd March, 2010 that books of accounts of DMPL for the relevant period had not been made available as on date of the letter and in my view therefore the outstanding could not be confirmed.
21. In an affidavit in rejoinder dated 18th November, 2010 of one Mr. K. K. Johnson, Under Secretary in the office of the Custodian, the deponent has considered the affidavits filed by the plaintiff and stated that the claim against 15/48 s-1-2014.odt the defendant no. 1 arises out of transactions all between defendant nos. 1, 2 and 3 as recorded in the statement of defendant no.1 under section 131 of the Income Tax Act. On 20th March, 2007 the deponent states that Statutory Auditor / Chartered Accountant appointed on behalf of the Custodian has reported that a sum of Rs.26.04 crores is due and payable from the defendant no. 1 [original respondent no. 3] i.e. to the plaintiff. The deponent further states that the contentions of the defendant nos. 2 and 3 making allegation against the Custodian are baseless and irrelevant and made deliberately with intention to interfere with due process. The deponent has reiterated that the Custodian is not an agent of the notified party as sought to be contended by the plaintiff. That the amount of Rs.26.04 crores is clearly due and payable by defendant no. 1 to the plaintiff / original respondent no.3. In the affidavit the deponent seeks to distance himself and Office of the Custodian from the allegations made by the plaintiff and goes on to deny all allegations against the Custodian.
22. The plaintiff has filed yet another affidavit dated 25 th August, 2011 which seeks to deal with the affidavit dated 18 th November, 2010 filed by the Office of the Custodian. In this affidavit he reproduces the relevant extracts of the statement made by defendant no.1 before the Income Tax Authority in particular the admission that he owed Rs.26,04,76,724.37 to the plaintiff. This is stated in answer to question no.3 and 4. The Auditor confirmed that 16/48 s-1-2014.odt there is a credit balance of Rs.26,04,76,724.37 representing the liability of the defendant no. 1. The plaintiff further reiterates the fact that in his affidavit dated 18th November, 2009 the defendant no. 1 has in paragraph 13 admitted that an amount of Rs.26,04,76,724/- owed to original respondent no. 2 / plaintiff. He also makes a grievance that there are certain debits in the account under certain headings which are unexplained.
23. The defendant no. 1 has also filed additional affidavit in rejoinder dated 15th September, 2011 in which he reiterates that the statement made by him before the Income Tax authority is correct but qualifies statement by clarifying that interest in a sum of Rs.3,38,41,831.42 is calculated only upto 31st March, 1992 and the cheque of Rs.27,39,37,652.37 has been handed over to the CBI on 17 th June, 1992 which included amount of interest as aforesaid on the principal sum of Rs.24,00,95,820.95. Defendant no. 1 states the sum of Rs.26,04,76,724.37 is the amount due as on 31 st March, 1993. He contended that his answer to question 4 has been quoted out of context and that no provision was made in his books for interest payable to the plaintiff. The deponent further states that he had co-operated with the Chartered Accountant fully and all documents have been provided and that same is borne out by the statement of the auditors. It is further contended that he was maintaining two accounts of Excel and Company, the proprietary concern of the plaintiff one was in connection with transactions in shares, 17/48 s-1-2014.odt The sum of Rs.8,56,50,433.70 was said to be the balance in the share transaction account and was debit balance which is allegedly confirmed by the plaintiff. That this amount was transferred to Account no. E006 by way of Journal entry and which explains the narration "Jur".
24. After Miscellaneous Application was converted to a suit and the defendant no. 2 was transposed as plaintiff, the defendant no. 1 has filed an additional written statement dated 22 nd August, 2014. He admits that the suit is based on entry in the ledger account of Excel and Co and partly on the admission made by him to the Income Tax authorities. He reiterates the contention apropos transaction with Maneklal who allegedly controlled the affairs of defendant no. 1. He states that he was led to believe by existence of contract notes said to be issued by the purchase of securities through Excel and Co. for the purpose of Bhupen Champaklal Devidas and from certain amounts deposited in the deponent bank account that he was liable to make payment to Excel and Co. He refers to the suo moto investigation launched into the transaction between Bombay Mercantile Co-operative Bank Ltd. and Bank of India which resulted in the CBI filing Special Case no. 2 of 1995 against Bhupen Champaklal Dalal (B.C.Dalal). In the meanwhile the defendant was notified. The transactions between defendant and plaintiff were examined by the auditor who has apparently concluded in his report dated 19th July, 2004 that there were no genuine transactions of purchase by 18/48 s-1-2014.odt the plaintiff from B C Dalal and there was no delivery of securities. He has also confirmed in Special case no. 2 of 1995 the plaintiff during his examination under section 313 of Cr.PC is believed to have admitted that he had not entered into any transactions with the defendants and not received payments in that behalf. In the result he says that there is no consideration as above from the plaintiff and there is no genuine transaction between defendant no. 1 and plaintiff and therefore there is nothing lawfully due to the plaintiff.
25. Attention is invited to the report on verification of accounts of old records of defendant no. 1 which concludes that the defendant no. 1 has produced bank reconciliation statement of the relevant banks. The reason being that the documents on evidence delivered were not available for verification since said arrangement were to be made between Excel and Co and B. C. Dalal. The report further observed that Excel and Co and B. C Dalal were approved brokers of Government securities and the intention of appointing defendant no. 1 as broker for transactions between them was not ascertained as the suit requires further investigation by the agencies. That defendant no. 1 has received consideration from B. C. Dalal for securities sold by Excel and Co but there is no evidence of sale of securities except the contract. The Accountant first concluded that the transactions appear to be an accommodation entries and that the bank account of defendant no. 1 has 19/48 s-1-2014.odt been used as conduit for transfer of funds. That having been said, there was a certain balance stated to be remaining in the account of defendant no. 1 which he explained was margin money against share trading conducted by Excel and Co. Defendant no. 1 seeks to rely upon the evidence recorded by the Special Court in Special Case no. 2 of 1995 on 2 nd April, 2013. Reliance is also placed by defendant no. 1 on certain written submissions said to have been filed on 22nd August, 2014.
26. The plaintiff has since filed rejoinder dated 30 th July, 2015 in which he reiterates the contention on the earlier pleadings in the suit and contends that the defendant no. 1 has taken a stand that is contrary to what the defendant no. 1 has stated on the earlier occasions in pleading. The plaintiff has contended that defendant no. 1 is seeking to rely on judgment in Special Case no. 2 of 1995, but that judgment found defendant no. 1 guilty and has sentenced defendant no. 1. Defendant no. 1 was also been ordered to pay compensation to the State under section 357(3) of the Cr.P.C. The plaintiff has been acquitted. Defendant no. 1 seeks to rely on the statement made by the plaintiff that there was no genuine transaction for purchase of securities by Bhupen Champaklal Devidas. Although defendant no. 1 has sought to rely upon the plaintiffs' statement under section 313 of the Cr.P.C it is submitted that the said statements are of no assistance to defendant no.1. 20/48
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27. In this suit the plaintiff states that the total claim of the plaintiff was Rs. 42 crores but only Rs.26 crores has been admitted and he reserved his right to claim the balance amount from defendant no.1. The plaintiff reiterates that the claim has arisen on account of dealings of H.K.Dalal defendant no. 1 with M/s. B. C. Devidas & Ors. and with Bombay Mercantile Cooperative Bank Limited and Bank of India in certain ready forward security transactions during the statutory period of 1 st April, 1991 to 6th June, 1992 in which defendant no. 1 was direct recipient of monies from Bombay Mercantile Co-operative Bank Limited and these funds of the said bank were said to be illegally diverted from the defendant no. 1 to his personal bank accounts by using the plaintiff bank account illegally by forging documents. This has since been proved as factual and defendant no. 1 is found guilty and was convicted. The total sum of Rs.122 crores has been routed through the account of Excel and Co and after reconciliation of accounts a sum of Rs.42,10,97,932/- was clearly due and payable by defendant no. 1 to Excel and Co. That the additional written statement is an after thought and an attempt to resile from the admissions made thus far and to the extent of the admission made in the pleading. It is therefore contended that the suit is therefore liable to be decreed.
28. The plaintiff relies upon copy of the judgment in the Special Case 2 of 1995 in support of his contention that a sum of Rs.42 crores is due to Excel 21/48 s-1-2014.odt and Co. from the defendant no. 1. Plaintiff has relied upon letter dated 19 th December, 2005 addressed to the Custodian in which letter the plaintiff has set out details of how sum of Rs.42,10,97,932.48 is due from defendant no.1. The contention being that the plaintiff is now seeking a decree only to the extent of amount admitted by defendant no.1. At the request of counsel for the Income Tax department time was granted for filing written statement. However no such written statement has been filed. Based on the pleadings the following issues were framed vide order dated 3 rd November, 2017:
ISSUES
1. Whether the plaintiff is entitled to proceed with the above suit in view of the pendency of Suit no. 1 of 2008 in this Court between defendant no. 1 and the heirs of late Manubhai Maneklal ?
2. Whether the amounts shown to be outstanding in the books of accounts of defendant no. 1 as payable to the plaintiff is the liability of one Manubhai Maneklal as contended in the written statement ? [Affidavit in reply filed on behalf of defendant no. 1 dated 18th November, 2009]
3. Whether the defendant no. 1 has admitted liabilities to the plaintiff in a sum of Rs.29,43,18,555.79 as claimed in paragraphs 3 and 4 of the suit ? [Originally Miscellaneous Application no. 88 of 2009 ].
4. Whether the plaintiff is entitled to claim interest ? If so, at what rate ?
5. What Order ?
6. What relief ?
22/48
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29. The plaintiff has led evidence. Initially an affidavit dated 7th December, 2017 in lieu of examination in chief was tendered however not being in proper form the plaintiff was permitted and has filed an affidavit dated 21st February, 2018 under Order XVIII Rule 4 of the CPC in lieu of examination in chief. He has been examined on oath as to contents of this affidavit and the same is marked P-1/1. Along with affidavit the plaintiff filed compilation of documents dated 23 rd February, 2018. 11. On behalf of the plaintiff an affidavit of documents dated 21 st February, 2018 has been filed. The affidavit discloses seven documents which are as under. These were later marked as Exhibits to be read in evidence.
(1) Copy of Audit Report of M/s. K. S. Aiyer and Company dated 19/07/2004.(Exhibit P-2) (2) Copy of statement dated 20/3/2007 of Defendant no. 1 made to Income Tax Department.(Exhibit P-3) (3) Copy of letter dated 21/12/2006 of Defendant no. 1 to Deputy CIT (OSD-II) Central Range Income Tax,(Exhibit P-4) (4) Copy of letter dated 4/1/1996 of Bombay Mercantile Co-operative Bank Asst. of Commissioner of Income Tax Centre Circle Range-7. (Exhibit P- 5) (5) Copy of Pass Book / Account entries in current Account No.2771 of the Plaintiff with Bank of Karad, Main Branch.(Exhibit P -6) (6) Copy of Judgment dated 18/1/2014 in Special Case No. 2 of 1995 by Special Court (TORTS).(Exhibit P-7) (7) Copy of letter dated 19/12/2005 of the Plaintiff to the Custodian Special Court.(Exhibit P- 8) 23/48 s-1-2014.odt
30. The defendant no. 1 admitted Exhibit P-2, P-3, P-4 and P-5 for reasons recorded in that order. Exhibit P-6 is the certified copy of the manually maintained bank statement of account in Bank of Karad issued to the plaintiff by the Liquidator. There is no dispute about the bank statement. Exhibit P-7 is a certified copy of the judgment in Special Case No. 2 of 1995. On 16 th August, 2018 the plaintiff was examined further by counsel and the letter dated 19th December, 2005 addressed by plaintiff to the Custodian was proved and the letter was marked Exhibit P-8. Thus all documents filed on behalf of the plaintiff were marked to be read in evidence.
31. On 16th August, 2018 the witness was also cross examined on behalf of the defendant no.1. In the course of cross examination a statement dated 19 th January, 1995 recorded before the Assistant Commissioner of Income Tax OSD (II) was also introduced in evidence and came to be marked Exhibit P-9. There was no re-examination. Thereafter the plaintiff's closed his case. Mr Mirajkar learned counsel for defendant no.1 submitted that the defendant no.1 did not intend to lead any evidence. None of the other parties also applied for leading evidence. Indeed apart from defendant no. 1 and Custodian no other party was represented. Income Tax department was not represented.
24/48
s-1-2014.odt SUBMISSIONS OF COUNSEL
32. On behalf of the plaintiff Mr. Ramamurthy submitted that issue nos. 1 and 2 will not now arise since Suit no. 1 of 2008 had been withdrawn. In view of the fact that the suit had been withdrawn he submitted that the defence set up in the affidavit in reply in paragraph 1 to 18 would not survive so also paragraph 21 . My attention was invited to the averment in Custodian rejoinder dated 29 th January, 2010, the affidavit of the plaintiff dated 2nd March, 2010, sur-rejoinder filed by defendant no. 1 dated 4 th March, 2010, the plaintiffs' affidavit dated 15 th July, 2010, the Custodian affidavit dated 18th November, 2010 and the plaintiffs' reply dated 25 th August, 2011. It was submitted all these were now irrelevant and to be disregarded in view of the Suit no. 1 of 2008 been withdrawn and the entire defence premised on the alleged transactions between the plaintiff and the said Maneklal has been abandoned.
33. Mr. Ramamurthy submitted what is relevant is the additional written statement and the rejoinder read with the order of conviction of defendant no.1 in Special case no. 2 of 1995. Mr. Ramamurthy submitted that only issue nos. 3 and 4 are now relevant since the defendant had given up the claim in the Suit no. 1 of 2008. Issue nos. 3 and 4 are only whether the claim is barred in view of the Miscellaneous Application no. 88 of 2009 since converted to Suit no. 1 of 2008 being pending in the Court. Only issue nos. 3 25/48 s-1-2014.odt and 4 are relevant namely whether the defendant no.1 has admitted liability in a sum of Rs.29,43,18,555.79 and whether the plaintiff is entitled to claim interest and if so, at what rate? In this behalf my attention was invited to paragraph 3 of the plaint in which plaintiff has specified his claim and he submitted that answer to issue no. 3 would depend on the response of defendant no.1 to the averment in the plaint. In this respect he submitted that paragraph 3 and 4 of the plaint to be read with Exhibit A and B and the order dated 1st February, 1993.
34. Mr. Ramamurthy invited my attention to Exhibit P-4 being letter dated 21st December, 2006 addressed by defendant no. 1 to the Deputy Commissioner of Income Tax in which the defendant no. 1 has enclosed balance sheet of the plaintiff in his books and that balance sheet reflects the amount of Rs.26,04,76,724.37. Enclosure to this letter I find is an extract of the sundry creditors in the books of defendant no. 1 as on 31 st March, 2004 which reflects that Excel and Co. is a sundry creditor to the extent of Rs.26,04,76,724.37. This extract is seen to be certified by Mr. Rajendra R., Chartered Accountant of defendant no. 1 and countersigned by the defendant no.1 himself. It also includes ledger from 1 st April, 2003 to 31st March, 2004 printed out as on 15th July, 2004. The fourth Item in the ledger shows the name of Excel and Co and balance brought forward in the sum of Rs.26,04,76,724.37 It is an admitted document. In view there of there can be 26/48 s-1-2014.odt no doubt that defendant no. 1 has admitted the claim to the extent of Rs.26,04,76,724.37.
35. Mr. Ramamurthy submitted that this statement submitted by the defendant in paragraph 4 is a voluntary statement and it reiterates the statements of defendant no. 1 made to the Income Tax Authorities under section 131 of the Income Tax Act. He further submitted that having given up defence of the transaction pertaining to that of said Maneklal, it was not now open for the defendant no. 1 to set up any other defence. Mr. Ramamurthy thus referred to Exhibit P-8 being copy of letter dated 19 th December, 2005 written by the plaintiff to the Custodian in response to the public notice dated 28th October, 2005. Later the Custodian was called upon to produce copy received by his office which was accordingly complied. He submitted that in the said letter response to the Public notice inviting the claims the plaintiff had clearly stated that as of May 1992 there was a sum of 42,52,36,780.80. That the amount due to Excel and Co was Rs.42,10,97,932.48 as detailed in the statement of account annexed to Exhibit P-8 since copy of Exhibit P-8 was incomplete the Custodian produced a complete copy from its records and the same has been marked Exhibit P- 8(1) and proved.
36. Mr. Ramamurthy submitted that in paragraph 7 of the said response the plaintiff had made reference to the account of M/s. B. C. Devidas and 27/48 s-1-2014.odt Excel and Company in the books of accounts of defendant no.1 which has been reproduced in the assessment order and as shown in the annexures. He further submitted that the defendant no. 1 had written to the CBI on 7th September 1992 admitting that he was ready to pay outstanding amount due to Excel and Co. and that since he was not having funds he had issued post dated cheques. That in view of the tight position in the money market and abnormal condition in the stock exchange he could not release funds to make payment to the CBI to the account of the plaintiff. It is in these circumstances that the aforesaid cheques came to be issued to CBI.
37. Mr. Ramamurthy stressed upon the fact that defendant no. 1 had chosen not to lead any evidence and had given up their defence as regards the involvement of Mankelal. He then invited my attention to Exhibit P-7 which is a certified copy of the order dated 18 th January, 2014 passed by the Special Court. He submitted that cross examination of the plaintiff by defendant no. 1 had not brought out any inconsistency in the case of the plaintiff. That the entire claim has arisen because of diversion of the fund from Bombay Mercantile Co-operative Bank Ltd. and thereafter effectively siphoned of. Although the claim was to the extent of Rs.42 crores approximately defendant no. 1 had admitted about Rs. 29 crores comprising Rs. 26 crores through principal sum and over Rs.3 crores as interest. It was Mr. Ramamurthy's contention that the plaintiff's case stands proved. He submitted that if issue 28/48 s-1-2014.odt no. 3 is answered in favour of the plaintiff the only issue survives is that pertaining to interest. He submitted that actually the Custodian has not specified rate of interest. Once cheques were issued and same were held up by bank entry interest should be paid from August 1992 itself at a reasonable rate. In this behalf my attention was invited to the judgment of the Supreme Court in case of Seth Ramdayal Jat v/s. Laxmi Prasad. 1 It was submitted that the defence had no merit.
38. On behalf of the defendant no. 1 Mr. Mirajkar submitted that the plaintiff claim is based on certain share transactions as can be seen from paragraph 4 of the plaint which states that liability of payment of Rs.29.43 crores has arisen pursuant to various transactions between defendant no.1 and plaintiff and Excel and Co inter alia pertaining to share transaction. Mr.Mirajkar submitted that the plaintiff then proceeds on the basis of admission made to the Income Tax department and the report of M/s. K. S. Aiyer and Co. averment in paragraph 5 of the plaint. He invited my attention to the answers of the plaintiff in cross examination wherein the plaintiff had replied Question no. 2 and Question no. 8 in the negative, inter alia contended that the plaintiff had no transactions in shares or securities. He submitted that in view of these answers the plaintiff has no case. There exists no liability and in view of this admission the basis of the claim in the suit disappears. He submitted that Exhibit P-8 should be read with paragraph 7 1 (2009) 11 SCC 545 29/48 s-1-2014.odt of the affidavit of examination in chief and that would reveal that there are no allegation to diversion of funds. According to Mr. Mirajkar the three persons named in paragraph 8 i.e. in Exhibit P-8(1) namely Mr. J. P. Gandhi Mr. A D. Narottam and M/s. Dhanraj Mills Pvt. Ltd. acting through Mr. T. B. Ruia were said to be responsible who are closely associated with defendant no. 1 were said to be involved in providing funds.
39. Mr. Mirajkar further submitted that the statements in the said letter P- 8(1) were at variance with the contents of the affidavit of evidence. Furthermore no claim has been filed against the said Mr. J. P. Gandhi, Mr. A. D. Narottam and M/s.Dhanraj Mills Pvt. Ltd. (acting through Mr. T. B. Ruia) Mr. Mirajkar then invited my attention to the plaintiff's answer to Question no. 9 in which the witness has admitted to knowledge of the securities scam in the year 1992. Details became known to him only in 1995 and he submitted that there is no explanation whatsoever for which plaintiff had to take any steps or make any complaint till the year 1999. In this context my attention is invited to question no. 11, 17, 18 and 25 and their answers thereto and submitted that the answers to these questions would satisfy this Court that no claim could lie against defendant no.1. Mr. Mirajkar then made reference to Annexure 7 to Exhibit P-2 report dated 19 th July, 2004.
40. My attention was also invited to Exhibit B enclosure to affidavit in reply of defendant no. 1. Exhibit P-9 copy of which is to be found at Exhibit 30/48 s-1-2014.odt 13 to the affidavit of defendant no. 1 dated 18 th November, 2009 which contains a statement of the petitioner recorded by the Assistant Commissioner of Income Tax (O.S.D.-II) C.C. of the plaintiff during assessment of income of defendant no. 1. In particular my reference is being notified to question nos. 2 3, 4, 6, 8 9, 11, 12 and 15 in support of his contention that the plaintiff had not carried on any business of securities with defendant no.1. He submitted that in view of the statements in Exhibit P-9 the suit claim is not sustainable. That all of this is at the instance of late J. P. Gandhi who has since expired. It was submitted that there is no fraudulent element at all and no liability can arise on these admissions which are shown to be incorrect. In this behalf I may observe that the statement of defendant no. 1 was recorded on 1st December, 2017 whereas the affidavit in reply to the present application is filed on 18th November, 2009. In my view there is no explanation why an unqualified admission was made in the affidavit in reply dated 18th November, 2009.
41. Mr. Mirajkar submitted that as against charge of forgery defendant no. 1 has been acquitted. He submitted that the admissions apparently made only on the basis of audit report. At that stage I had queried Mr. Mirajkar as to why, if no amounts were due, the cheques were issued to the CBI. The answer Mr. Mirajkar submitted was that CBI was desirous of showing the same as recovered and accordingly cheques came to be issued. In the course of submissions I also asked Mr. Mirajkar the effect of the pleadings to which 31/48 s-1-2014.odt Mr. Mirajkar stated that the written statement is to be ignored to the extent it concerns reference to Maneklal. I am of the view that the case now sought to be argued is not supported by the pleadings. He therefore submitted that the plaintiff had failed to withdraw the case and plaint is liable to be rejected and the suit dismissed.
42. On behalf of defendant no.1 Mr. Mirajkar relied on the following decisions;
(1) Narayan Bhagwantrao Gosavi Balajiwale v/s. Gopal Vinayak Gosavi and others2 (2) Avadh Kishore Das v/s. Ram Gopal and others 3 (3) K.G. Premshanker v/s. Inspector of Police and another 4
43. On behalf of the Custodian Mr. Chandran submitted that the suit as originally filed as Miscellaneous Application no. 88 of 2009 and was so filed only on the basis of the statement of defendant no. 1 made on 20 th March, 2007 to the Income Tax officer and the statutory report of the Court appointed auditor M/s.K S Aiyer and Co. He submitted that only later that it was converted to suit. He relies upon admission made on behalf of the defendant no. 1 and supports the plaintiff case.
44. Mr. Ramamurthy in rejoinder submitted that all the submissions at the bar by Mr Mirajkar were beyond pleadings and Exhibit P-2 and P-3 are not 2 (1960) 1 SCR 773 3 (1979) 4 SCC 790 4 (2002) 8 SCC 87 32/48 s-1-2014.odt in dispute and notwithstanding whatever has been argued. Even as on and September, 2011 the defendant no. 1 admitted that the amount was due and payable. In the affidavit in rejoinder that amount of Rs. 26,04, 76,724.37p was owing as on 31st March, 1993. He submitted that the fact of having issued cheques to the CBI has not been denied and is in fact admitted and there is no retraction of this statement. As far as CBI case is concerned he made reference to transaction nos. 5 to 17 which formed subject matter of Special Case no 2 of 1995 in support of his contention.
45. The plaintiff has placed reliance on the audit report furnished by Mr. K.S. Aiyar & Co. appointed for auditing the accounts of M/s. Excel and Company-the proprietary concern of the plaintiff and which finds the reference in the various orders passed by this court in Misc. Petition which was filed by the plaintiff, he sought appointment of a Chartered Accountant for examining and auditing his books of account and preparing income tax returns since he had been served with a notice from the income tax department. By order dated 21 st November, 2002 the appointment was confirmed. The report contains an observation that there is no confirmation of an unrecoverable amount of Rs.20,28,448/- from H.K. Dalal since the transaction was not supported by documentary evidence due to unavailability of the plaintiff during the CBI enquiry.
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46. In Suit no.1 of 2008 which was originally filed against Manubhai Maneklal, on the demise of the original defendant his heirs were brought on record. The defendant's case against the said Maneklal proceeds on the basis that the defendant no.1 was unable to utilize his membership card of the Bombay Stock Exchange. Meanwhile he was introduced to the said Maneklal. The defendant no.1 had started functioning as a broker in about April 1990 and between April 1991 to January 1993 several Vyaj Badla transactions were undertaken and that his transfers were entered into books of account through the plaintiff's and entries were made in this books of account. These accounts were forwarded to the said Maneklal. In the meantime, defendant no.1 also had dealings with Excel & Co. whose proprietor S. Ramaswamy was the member of the Madras Stock Exchange regarding sale of share of government securities He had met the plaintiff through said Maneklal and the plaint in that suit in paragraph 6 the defendant no.1 admits that in June 1992 a sum of Rs.24,00,95,820.95 and interest of Rs. 3,38,41,831.42 aggregating to Rs.27,39,37,562.37 was due and payable to M/s. Excel & Co. by the defendant no.1 in respect of transactions in shares and securities and accordingly defendant no.1 had credited the account of M/s. Excel & Co. in the books of account.
47. The further averment is to the effect that on 30 th June, 1992 the officers of the CBI visited the first defendant's office and pressurized him to 34/48 s-1-2014.odt draw a cheque for Rs. 27,39,37,562.37 in favour of the CBI. Meanwhile, Assistant Commissioner of Income Tax vide an order dated 17 th December, 1993 passed under Section 281B of the Income Tax Act directed him not to part with an amount of Rs.24,46,59,072/-. It is further contended that numerous amounts have been payable by Manubhai Maneklal to the defendant no.1 and there was a mutual open and current account between the defendant no.1 and or the said Maneklal. The suit therefore claimed a sum of Rs.34.55 lakhs and interest thereon from the heirs of said Maneklal. The plaintiff herein was not a party in that suit. The written statement in that suit was filed by the widow of the said Maneklal and in response to paragraph 6 of the plaint, the said heirs of Maneklal state that they were not concerned with the account of Excel & Co. in the books of the defendant no.1 they have disclaimed any knowledge of the defendant no.1 having not a dealings with Excel & Co. or its proprietor S. Ramamurthy - the present plaintiff. As suit no. no.1 of 2008 proceeded to trial on 12th April, 2018 this Court passed the order permitting defendant no.1 herein to file additional affidavit of documents. Defendant no.1 also filed his affidavit of evidence, inspection of documents was completed and some of the documents were marked. The affidavit of documents filed by the first defendant in Special Suit no.1 of 2008 is accompanied by compilation of documents which includes the integrity of the statement made by him to the income tax department, the photocopy of a cheque for Rs.27,39,37,562.37 made out in favour of the Superintendent of 35/48 s-1-2014.odt Police, CBI, Mumbai and several other documents with which we are not concerned in the present suit.
48. In the Miscellaneous Application as originally filed by the Custodian paragraph 6 there is a mention that Rs.26.04 Crores was due from the defendant no.1 to the plaintiff, the defendant no.1 in his affidavit of evidence in lieu of examination in chief dated 6 th June, 2018 filed in suit no.1 of 2008 has not dealt with that aspect concerning the plaintiff in the present suit. The affidavit focuses on the alleged transactions between him and the said Maneklal. There is however no denial of the liability to the plaintiff. Moreover the statement made to the Income tax department Exhibit P-3. Letter dated 21st December 2006 Exhibit P-4 also admits of liability to the plaintiff and his proprietary concern.
CONCLUSIONS
49. Having heard learned counsel for the parties and having perused the record I proceed to answer the issues.
Issue nos. 1 and 2
50. Suit No. 1 of 2008 has been withdrawn and upon withdrawal of the suit the entire defence is deemed to have been given up. Issue nos. 1 and 2 therefore do not arise for consideration.
36/48
s-1-2014.odt Issue nos. 3 and 4
51. The defence based on defendant no. 1's contention that all the transactions forming subject matter of the present claim were in fact transactions of one Maneklal who had manipulated defendant no. 1 has been given up and hence of no consequence. However, perusal of the plaint in the said suit no. 1 of 2008 reveals a clear admission in paragraph 6 which reads as follows :
6. The applicant, states that in view of the above, the liability of payment of Rs. 26.04 Crores due and payable by Shri Haresh K. Dalal during the Assessment Year 1993-94 to Mr. S. Ramaswamv is an admitted liability. The said liability is to be received from the assets of Shri Haresh K. Dalal who is also a notified party under the provisions of the said Act. The Applicant states that the Income Tax Department has also addressed a notice through the Assistant Commissioner of Income Tax, Central Circle VII. Mumbai dated 21 st July, 1995 to Shri Haresh K. Dalal inter alia, calling upon him to discharge the said liability to Shri S. Ramaswamy. The amount mentioned in the said notice is reflected as Rs. 10.91 Crores. A copy of the notice dated 21 st July 1995 is hereto annexed and marked as Exhibit "E". This notice has been referred to and relieved upon by Shri S. Ramaswamv in Misc.Application No. 276 of 2009.
52. Apart from the above admission defendant no. 1 has also filed affidavit in lieu of examination in chief dated 6th June, 2018 in which after reiterating his claim, he deposed in support of his case in the plaint against Maneklal. He has also filed an affidavit of documents and a compilation of documents 37/48 s-1-2014.odt which includes Exhibit P-7 being letter dated 17 th August 1994 addressed by the defendant no. 1 to Maneklal in which the defendant no. 1 states as follows "As you are aware on or about 30 th June, 1992 C.B.I. Officer visited my office and enquired about the credit balance of Rs.27,39,37,652.37 (Rupees twenty seven crores thirty nine lakhs thirty seven thousand six hundred fifty two and thirty seven paise only) in the account of Mr. S. Ramaswamy, Proprietor M/s. Excel & Co. shown in my books. I was pressurized by the CBI to hand over the said amount to them which was due to Mr. S. Ramaswamy, Proprietor M/s/. Excel & Co. I did not have any liquidity. I therefore contacted you with a request to pay the amount due to me to enable me to discharge my liability to C.B.I. on account of M/s. Excel & Co. You assured me that you would pay the amount to me by mid August, 1992 as in any event there were adequate shares pursuant to our badla transactions, which could be sold and money recovered." (Emphasis supplied) This is not a statement that has been made under coercion or undue influence. There are no caveats or reservation which make this admission of liability to the present plaintiff conditional. It is an unconditional admission of liability. This is corroborative of the statement made under section 131 to the Income Tax authorities and is very much part of paragraph 6 of the plaint. Although the claim in the suit no. 1 of 2008 was not directed against the plaintiff but only against Maneklal and later against his legal heirs, there is an unqualified admission of liability as far as the claim is concerned. Arguments canvassed before me about the said Maneklal were perfunctory 38/48 s-1-2014.odt and lacking in material evidence. In the course of submissions Mr. Mirajkar invited my attention to the answers of the plaintiff in cross examination wherein the plaintiff had replied Question no. 2 and Question no. 8 in the negative, inter alia contended that the plaintiff had no transactions in shares or securities. He submitted that in view of these answers the plaintiff has no case. This submission overlooks the fact that although the plaintiff had answered question 2 in the affirmative, the pleading was based on the Custodians findings. Question 2 and 3 are the answers thereto are reproduced for ease of reference;
Q.2. Would it be correct to say that the claim in this suit does not arise from any transaction in shares between the defendant no.1- Haresh K.Dalal and you? A. · Yes, the claim does not arise from any transaction in shares between us. Q.3. In view of your answer to question no.2 above, is not your statement that is not the second sentence of para 4 incorrect?
A. The second sentence is inadvertently worded incorrectly. I have clarified the particulars of my claim in my letter dated 19'" December, Exhibit P-8.
53. Thus the plaintiff has provided a satisfactory answer considering the fact that the "Plaint" in the Suit was filed as a Miscellaneous Application by the Custodian. It was much later that the present plaintiff was transposed as plaintiff. The inaccuracies having being satisfactorily explained I see no reason to fault the plaintiff's case. The evidence of the plaintiff when read as a 39/48 s-1-2014.odt whole, cannot be faulted. He has, in my view, been consistent in his deposition The cross examination has not shaken the credibility of the witness.
54. I may also mention that Suit no. 1 of 2008 was withdrawn after having taken out a Notice of motion seeking judgment on the basis of pleading filed by Maneklal in a sum of Rs 2,81,21,000/-. Despite such contest at the time of trial of the present suit, Suit no. 1 of 2008 was unconditionally withdrawn. Defendant no. 1 has all along admitted amount due to the plaintiff in this suit as well but for the first time altered his stand in his additional written statement filed on 23 rd August, 2014. This shift appears prompted by the auditors report and not before. As late as on 15 th September, 2011 when the rejoinder was filed, the defendant no. 1 had clearly admitted liability was 26,04,76,724.37 as on 31 st March, 1993. An admission in a pleading is proof of the fact admitted and is one that must act ex propio vigore and the affidavits in reply and the written statements clearly reiterate the admissions which must result in a decree. In fact there are various occasions on which the defendant no. 1 has admitted liability. Withdrawal of Suit no. 1 of 2008 will not come to the way of the plaintiff seeking a decree. The Plaintiff has deposed in the affidavit in lieu of examination in chief that his claim is independent of the claim that the defendant no.1 had against Manubhai Maneklal. Even if we ignore the admission in Suit no. 1 of 2008, the defendant no.1 has expressly admitted liability in this suit as well 40/48 s-1-2014.odt
55. As we have seen from table above defendant no. 1 has filed an affidavit in reply dated 18th November, 2009, rejoinder dated 4 th March, 2010, further affidavit in rejoinder dated 15th September, 2011 and an additional written statement dated 28th October, 2014. He has also filed the suit no. 1 of 2008 as far back as 25th August, 1995. Thus from 1995 till September, 2011 defendant no. 1's stand has been consistent. It is only in the written statement dated 23rd August, 2014 that he altered his defence as a result of order dated 18th January, 2014 in the said Special Case no. 2 of 1995. Reference has been made to transaction no. 5 of 2017 forming subject matter of that case. All of these transactions deal with funds involving Bombay Mercantile Corporation Bank Limited. The transactions are 17 in number. The plaintiff herein was accused no. 5 and was said to have been involved in transaction no. 5, 8, 11, 13, 14, 16 and 17 inasmuch as certain credit entries were found in respect of other brokers. However the plaintiff was acquitted of the charges and has come clean. In the process the Court observed that the brokers had not made out any case of any of the offences against accused no. 5, 11, 15 and 16. Whereas defendant no.1 has been convicted on charge of cheating and dishonestly inducing delivery of property though he was acquitted of the charge of stolen property and committing forgery. It is in this light that the plaintiff's statement to the income tax authorities had to be considered. In view of the unqualified admission made in the written 41/48 s-1-2014.odt statement it was incumbent upon defendant no. 1 to lead evidence in support of his defence, especially since he has sought to avoid his admission as sought to be contended in the additional written statement. This he has consciously avoided.
56. The defendant no. 1 has not pressed the defence of the claim being time barred. The issue and the aspect of limitation has not even been canvassed in the argument. The contention of Mr. Mirajkar that the earlier averment in the written statement / affidavit in reply are to be ignored, cannot be accepted. His submissions are not based on the pleadings. The cross examination of the plaintiff witness has not elicited anything that will take away the basis of the plaintiff claim. Save and except the contention that answers to question nos. 2 and 8 in the cross examination has elicited replies that the plaintiffs claim does not arise from any transaction in shares between defendant no. 1 and the plaintiff. The reason why these answers are of no consequence has been been discussed above. The admission that there were no transactions in government securities between defendant no. 1 and Mankelal and Excel and Company does not in any manner take away the effect of admission of liability. The claim made by the plaintiff in MA/276/ 2008 against the Custodian calling upon him to take steps to recover the amounts admitted, due from the defendant no.1 in his statement made to the Income Tax authority under section 131 of the Income Tax Act on 20 th 42/48 s-1-2014.odt March, 2007. The defendant no.1's answers to question nos. 3 and 4 were also annexed to the said MA/276/2008 The statement made by defendant no. 1 Mr. Dalal on 20th March 2007 is clear and reads as follows Q. 3. Do you owe any amount to Mr. Ramaswamy ?
A. As on 31.3.93 I owe Rs.26,04,76,724.37 to Mr. Ramaswamy. I paid an interest of Rs.3,38,41,831.42 by way of cheque to CBI on 30.6.1992. The amount was stayed along with the principal amount of Rs.24.00,95,820.95 by honourable Judge of Special Court Mr Variava's order dated 1.12.93 in which he stated that the said amount should be stayed till the assessment is over. Q. 4. Have you paid any interest or made any provision for interest in your books with regard to interest payable to Mr. Ramaswamy A.Y. 93-94 onwards? A. No. I have neither paid nor provided any provision for interest in my books with regard to interest payable to Mr. Ramaswamy. Only the amount due to Mr. Ramaswamy, Prop. Of M/s Excel & Co. is shown as Sundry Creditors (Rs.2,60,470,724.37).
57. This admission has not been retracted at any stage. The admission in the affidavit in reply dated 18th November, 2009 is unqualified, except that the report made by the Chartered Accountant records that the transaction "appears" to be an accommodation entry and the bank account of defendant no. 1 has been used as conduit to transfer funds cannot be set up as defence to the claim which is otherwise admitted. The affidavit is affirmed on 18 th November, 2009 and it contains an unqualified statement on admission has been made in paragraph 6 of the suit and in letter dated 17 th December, 1992 43/48 s-1-2014.odt addressed to The Asst. Director of Income Tax (INV) Exhibit P-7 in suit no. 1 of 2008 it appears that at each stage defendant no. 1 has sought to improve upon his defence, initially by attempting to thwart the claim by contending that all transaction pertain to Maneklal. This defence has been given up. Admission of liability is also being noticed in contemporaneous proceeding such as the order passed by the Income Tax Appellate Tribunal in ITA/2998/Mum/97 filed by defendant no. 1 in its Assistant Commissioner of Income Tax and a cross appeal filed by the department against the defendant no. 1 against order of the IT Appeals in respect of assessment year 1992-93. The order appealed against records transactions for their financial year 1991-92 and the fact that defendant no. 1 was provided funds by Excel and Co, and these transactions were confirmed by the plaintiff as proprietor of Excel and Co on 17th June, 1992. The CBI raid on the premises of Excel and Co on 17th June, 1992 revealed books of accounts recording that monies were to be received from defendant no.1. Although there is a statement that Mr. Ramaswamy had made contradictory and false statements in relation to the confirmation, the fact remains that defendant no. 1 had admitted liability to pay the amount.
58. On behalf of the plaintiff, reliance is placed on the judgment of the Supreme Court in Seth Ramdayal Jat (supra) the admissibility of a judgment delivered in a criminal matter in trial of civil proceedings, the Supreme Court 44/48 s-1-2014.odt held that the evidence via criminal matter is not relevant evidence. Although a judgment in a criminal case is not relevant in evidence for the purpose of proving civil liability, the admission in civil suit was admissible in evidence. The admission being recorded in writing in that case, the witness was confronted with a question as to whether he had admitted his guilt and pleaded guilty to the charges framed. He accepted that he made an admission in the criminal case. In such a situation the admission was admissible in evidence. He had an option of resiling from their admission or explaining it away. The Court held that the averments in the plaint in that case not having been traversed, the same would be deemed to have admitted by him in terms of Order 8 Rule 5.
59. On behalf of the plaintiff reliance was placed on paragraph 20 to 22 of the judgment which records that it is almost well settled that except Section 43 of the Evidence Act which refers to Section 40, 41 and 42 the judgment of a Criminal Court shall not be admissible in civil suit but what is admissible is an admission made by the party in a previous proceeding. This would apply especially when the admission is in writing and if he is confronted in a civil proceeding it was admissible in evidence. In this behalf, Section 58 of the Evidence Act reads as under;
"Section 58. - Facts admitted need not be proved. - No fact need be proved in any proceeding which the parties thereto or their agents agree to admit at the hearing, or which, before 45/48 s-1-2014.odt the hearing, they agree to admit by any writing under their hands, or which by any rule of pleading in force at the time they are deemed to have admitted by their pleadings; Provided that the court may, in its discretion, require the facts admitted to be proved otherwise than by such admissions."
The Supreme Court therefore observed that although a judgment in a criminal case was not relevant in evidence for the purpose of proving civil liability, the admission in the civil suit was admissible and the question whether the explanation offered should be accepted or not is a matter that would be considered at the time of appreciation of evidence.
60. In Narayan Bhagwantrao (supra), reliance is placed on paragraph 12 and 13 in which the Supreme Court observed in the facts of that case that the appellant and predecessors in the title had admitted that the public had a right to worship the deity. This aspect had been proved but it was not necessary for the appellant to prove that the admissions were erroneous and did not bind him. Although an admission is the best evidence and one that the opposite party can rely upon, unless such admission is withdrawn or proved to be erroneous, the Court proceeded to consider an admission made that the property in question belonged to the Devasthan and there was no private ownership. I do not find how this judgment is of any assistance to the defendant inasmuch as nothing has been shown to me that the admission made by him before the Income Tax Authority was erroneous in any manner. 46/48
s-1-2014.odt
61. In Avadh Kishore Das (supra), the Supreme Court was considering a religious endowment and succession to Mahantship. The custom and usage of the Math was not followed but succession was effected on the strength of a registered will. The Court considered Section 31 of the Evidence Act and held that evidentiary admissions are not conclusive proof of the facts admitted but they raised an estoppel and shifts the burden of proof on to the person making them or his representative-in-interest. The Court further held that unless the admission is shown or explained to be wrong, there would be efficacious proof of the facts admitted. The line of reasoning in Avadh Kishore Das is therefore similar to that which was held by the Supreme Court in Narayan Bhagwantrao (supra).
62. In K.G. Premshanker (supra), the Supreme Court considered Section 40 to 43 of the Evidence Act and the effect of a decision of the Civil Court on criminal proceedings where both the civil and criminal proceedings were against the same person. The Court observed that the previous judgment which is final can be relied upon as contemplated by Section 40 to 43 of the Evidence Act. In civil suits between the same parties, the principle of res judicata may apply whereas the criminal case under Section 300 of the Cr.P.C. provides that may not be tried for the same offence again when the conditions are satisfied and if the criminal case and the civil case are for the same cause. The judgment in the civil case would be relevant provided the 47/48 s-1-2014.odt conditions in Sections 40 to 43 were satisfied but cannot be said to be conclusive except as provided in Section 41. The Court further held that a judgment and order of decree passed in previous civil proceeding It would be relevant as contemplated in Sections 40 and 42 of the Evidence Act. The Court must decide the extent to which it is binding and conclusive and were depending on the facts of each case. The endeavor of Mr. Mirajkar in relying upon these judgments is to support his case that the admission made by the defendant no.1 in proceedings before the income tax department could not bind him and those admissions were therefore inadmissible in the current proceedings. I am unable to agree with Mr. Mirajkar.
63. In view of the above discussion issue no. 3 is liable to be answered in the affirmative and it is answered accordingly. As far as interest is concerned the plaintiff has left it to this Court to grant appropriate interest. No doubt interest is certainly payable and in my view it will be in the fitness of things that interest @9% per annum is granted. Issue no. 4 is answered accordingly. I pass the following order :
(i) The Suit is decreed in terms of prayer clause(a). (ii) Defendant no.1 shall pay interest @ 9% per annum on
Rs.26,04,76,724.37 from date of the suit till payment or realisation.
(iii) Defendant no. 1 to pay costs of the suit fixed at Rs.1,00,000/- to the Custodian.
(A.K. MENON,J.)
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Digitally signed
by Rajeshwari R.
Rajeshwari Pillai
R. Pillai Date: 2019.07.17
18:46:37 +0530