# CITIBANK N.A v. STANDARD CHARTERED BANK AND ORS - **Citation:** [2003] Supp. 4 S.C.R. 489 - **Court:** Supreme Court of India - **Decided:** 2003-10-08 - **Case number:** Civil Appeal No. 7941 of 1995 - **Bench:** R.C. Lahoti, Ashok Bhan - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/citibank-n-a-v-standard-chartered-bank-and-ors-19520 - **Pages:** 42 ## Headnote B Contract Act, 1872-Section 63-Performance of Contract-Transfer of Bonds-By one Bank to another Bank-Subsidiary General Transfer Form given by first bank in favour of second bank-Dishonoured-Further transfer of the Bonds in favour of third Bank-Bankers Receipt given in C lieu of the Bonds-Bankers Receipts duly discharged returned by third Bank asking for Subsidiary General Ledger transfer in favour of second Bank from the first Bank-Demand was voluntary with knowledge about the dishonour-Ledger given-Interest on the Bonds received by third Bank from a third party-After 9 months of transaction, demand of Bonds D or money in lieu of it by third Bank from second Bank-Second Bank stating that liability to deliver Bond stood discharged on delivery of the Ledger-Suit by third Bank demanding delivery of the Bonds-Name of the party from whom it got interest on Bonds not disclosed-Suit by Second Ban.k on plea that in case of decree against it in suit by third Bank, it was entitled for decree against first Bank-Both suits decreed by Special E Court-On appeal, held: Second Bank was discharged of its obligation to deliver the Bonds-The obligation was substituted by delivery of Bankers Receipts-Duly discharged Receipts raised rebuttable presumption that the Bank had discharged its obligation which the third Bank failed to dislodge-Adverse inference could be drawn against third Bank failed to F disclose material fact in the suit-Evidence Act, 1872--Section 114 illustration (i) and (g). Can bank Mutual Fund (CMF) purchased securities (11.5% GOI 2009 Bonds) from the Bank of Karad and the same was purchased from CMF by Citi Bank. Total consideration was paid and CMF G handed over their Subsidiary General Ledger (SGL) Transfer Form to Citi Bank in order to enable it to get the securities transferred in · " their name in the Ledger maintained by CMF with Reserve Bank of India (RBI). On presentation of SGL Transfer Form with RBI, the same was dishonoured due to insufficient balance. Citi Bank agreed to H 489 490 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. A sell the Bonds to Standard Chartered Bank (SCB) against receipt of purchase price i.e. 50 crores which was duly paid by SCB. Since the Bonds were not ready, Citi Bank issued two Bankers Receipt (BRs) dated 18th and 19th September 1991 with understanding that the Bonds will be delivered when ready in exchange of the BRs. SCB by B a letter dated 19.9.1991 requested Citi Bank to deliver the SGL Forms issued by CMF in exchange of the two BRs. Along with the letter SCB sent the two BRs. Citi Bank delivered the SGL Forms issued by CMF in its favour of the face value of Rs. 44.8505. crores and their own SGL Form of the face value of Rs. 5,41,95,000 in exchange of the two BRs. C On 8.10.1991 SCB addressed a letter to CMF requesting it to issue a fresh SGL Transfer Form in its name in lieu of SGL Transfer Form received by it from the City Bank. During trial CMF denied to have received the letter dated 8.10.1991. SCB also received the interest on the Bonds from a third party whose name was not disclosed by it in D ·the plaint. SGL Form of City Bank was duly encashed by SCB. Nine months· after the transaction, SCB sent a notice to City Bank to handover to. SCB, consideration of Rs. 44,8505 crores with further interest in respect of the Bonds as the same were not delivered to them. Citi Bank replied to the notice that its liability to deliver the· E Bonds under the contract stood discharged on delivery of SGL Forms to them. SCB filed a suit in Federal Court, New York, as well as in a High Court in India. The suit in Federal Court was dismissed in view of the Suit in India. Plea of SCB in the suit was that it did not receive the F Bonds; that Citi Bank impliedly warranted that CMF would transfer the Bonds and on its failure Citi Bank was obliged to deliver the same; that action of Citi Bank was fraudulent and amounted to deceit : and that "useless" and "worthless" SGLs were given by City Bank. Citi Bank ## Text _Characters 0–39,906 of 99,759. This is a partial read: ask again with offset=39906 for what follows._ CITIBANK N.A. A v. STANDARD CHARTERED BANK AND ORS. OCTOBER 8, 2003 [R.C. LAHOTI AND ASHOK BHAN, JJ.] B Contract Act, 1872-Section 63-Performance of Contract-Transfer of Bonds-By one Bank to another Bank-Subsidiary General Transfer Form given by first bank in favour of second bank-Dishonoured-Further transfer of the Bonds in favour of third Bank-Bankers Receipt given in C lieu of the Bonds-Bankers Receipts duly discharged returned by third Bank asking for Subsidiary General Ledger transfer in favour of second Bank from the first Bank-Demand was voluntary with knowledge about the dishonour-Ledger given-Interest on the Bonds received by third Bank from a third party-After 9 months of transaction, demand of Bonds D or money in lieu of it by third Bank from second Bank-Second Bank stating that liability to deliver Bond stood discharged on delivery of the Ledger-Suit by third Bank demanding delivery of the Bonds-Name of the party from whom it got interest on Bonds not disclosed-Suit by Second Ban.k on plea that in case of decree against it in suit by third Bank, it was entitled for decree against first Bank-Both suits decreed by Special E Court-On appeal, held: Second Bank was discharged of its obligation to deliver the Bonds-The obligation was substituted by delivery of Bankers Receipts-Duly discharged Receipts raised rebuttable presumption that the Bank had discharged its obligation which the third Bank failed to dislodge-Adverse inference could be drawn against third Bank failed to F disclose material fact in the suit-Evidence Act, 1872--Section 114 illustration (i) and (g). Can bank Mutual Fund (CMF) purchased securities (11.5% GOI 2009 Bonds) from the Bank of Karad and the same was purchased from CMF by Citi Bank. Total consideration was paid and CMF G handed over their Subsidiary General Ledger (SGL) Transfer Form to Citi Bank in order to enable it to get the securities transferred in · " their name in the Ledger maintained by CMF with Reserve Bank of India (RBI). On presentation of SGL Transfer Form with RBI, the same was dishonoured due to insufficient balance. Citi Bank agreed to H 489 490 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. A sell the Bonds to Standard Chartered Bank (SCB) against receipt of purchase price i.e. 50 crores which was duly paid by SCB. Since the Bonds were not ready, Citi Bank issued two Bankers Receipt (BRs) dated 18th and 19th September 1991 with understanding that the Bonds will be delivered when ready in exchange of the BRs. SCB by B a letter dated 19.9.1991 requested Citi Bank to deliver the SGL Forms issued by CMF in exchange of the two BRs. Along with the letter SCB sent the two BRs. Citi Bank delivered the SGL Forms issued by CMF in its favour of the face value of Rs. 44.8505. crores and their own SGL Form of the face value of Rs. 5,41,95,000 in exchange of the two BRs. C On 8.10.1991 SCB addressed a letter to CMF requesting it to issue a fresh SGL Transfer Form in its name in lieu of SGL Transfer Form received by it from the City Bank. During trial CMF denied to have received the letter dated 8.10.1991. SCB also received the interest on the Bonds from a third party whose name was not disclosed by it in D ·the plaint. SGL Form of City Bank was duly encashed by SCB. Nine months· after the transaction, SCB sent a notice to City Bank to handover to. SCB, consideration of Rs. 44,8505 crores with further interest in respect of the Bonds as the same were not delivered to them. Citi Bank replied to the notice that its liability to deliver the· E Bonds under the contract stood discharged on delivery of SGL Forms to them. SCB filed a suit in Federal Court, New York, as well as in a High Court in India. The suit in Federal Court was dismissed in view of the Suit in India. Plea of SCB in the suit was that it did not receive the F Bonds; that Citi Bank impliedly warranted that CMF would transfer the Bonds and on its failure Citi Bank was obliged to deliver the same; that action of Citi Bank was fraudulent and amounted to deceit : and that "useless" and "worthless" SGLs were given by City Bank. Citi Bank filed suit in Special Court against SCB, CMF and its Trustees G pleading that in th~ event of decree being passed against it in s1;1it filed by SCB, it was entitled to a decree against CMF. Suit pending in High Court was also returned to the Special Court. In written statement in the suit filed by Citi Bank, SCB took additional plea that SGL sought by SCB was an SGL of CMF in favour of SCB and not the one drawn H in favour of Citi Bank. CITIBANK N.A. v. STANDARD CHARTERED BANK 491 City bank pleaded that SCB on its own volition had asked for and A ..: taken SGL of CMF and returned the two BRs duly discharged and hence it was not under any obligation; that obligation to deliver Bonds under BRs wns substituted by delivery of SGL of CMF. Special Court held in the suit of the Citi Bank that its liability was B not discharged and same could be discharged only on delivery of the Bonds; and that the remedy of SCB was not against CMF; that Citi Bank's claim against CMF was justified. The decree was made contingent upon the result of the suit filed by SCB. The suit of SCB was decreed holding that it had the cause of action against the Citi C Bank and Citi Bank was not discharged of its obligation. In appeal to this court, Citi Bank contended that it stood discharged from its obligation to deliver the Bonds under Section 63 of the Contract Act, 1872 as SCB on its own asked and voluntarily and unconditionally accepted the two SGLs of CMF from Citi Bank as P satisfaction knowing it fully well that under such SGLs it could not obtain the Bonds from Public Debt Office and that the same had been dishonoured by RBI and it was not transferable; that the plea that the SGLs were "useless and worthless" were not tenable as it accepted the dishonoured SGLs without any protest and also received interest from E an undisclosed third party; that an adverse inference could be drawn against SCB as it failed to disclose material facts in the suit and failed to explain the delay of 9 months in approaching Citi Bank; that since Citi Bank, as per decree was required to pay value of securities alongwith interest and in return getting the Bonds worth face value of F Rs. 44,8505 crores, the value of which in the market was at a discount, Citi Bank incurred loss of Rs. 12,94,66,022.419. SCB contended that there was only one contract between Citi Bank and SCB i.e. to give the Bonds, BRs were not independent of the G contract, SGLs of CMF was taken by SCB as a step-in-aid for delivery of Bonds; that an implied warranty must be read in the transaction asking for and accepting the SGLs of CMF; that principles of contractual interpretation mandate that interpretations adopted, be reasonable and arise out of natural and probable course of human conduct and Courts should not adopt an interpretation out of context with the H 492 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. A commercial dealings between the parties and in the manner unknown to trade and commerce; that it would be contrary to the normal, natural and probable course of banking business to deduce that SCB would be satisfied with neither the Bonds nor the monies thereof but with SGLs having no value; that letter dated 19.9.1991 be interpreted B in the context that it wanted the SGLs in its favour and not the one in favour of Citi Bank; that on return of BRs worth 50 crores, SCB could not be understood to have asked for dishonoured third party SGLs of Rs. 44.58 crores; SCB having proved not receiving the Bonds despite having paid the amount, the onus fo prove novatio or discharge C by substitufion or satisfaction was on the Citi Bank which it failed to discharge; that where a cheque, pro note or Bankers Receipt is accepted in satisfaction, there is a presumption that such acceptance was only as a 'conditional discharge' and not 'absolute discharge' of performance; that conditional discharge having failed, SCB could fall back upon the original consideration; that receipt of interest by third party was of no D consequence; that in order to do complete justice between the parties SCB could be asked to make good the loss if any suffered by Citi Bank; that CMF should not be unduly benefited. E Allowing the appeals, the Court HELD : 1.1. Production of two Bank Receipts by the Citi Bank raised a rebuttable presumption that CiH Bank had discharged its obligation under the two BRs which the SCB failed to dislodge by pleading/ leading any evidence to show the circumstances under which the two F BRs were returned. In the absence of any explanation by the SCB either in its plaint or the written statement as to why it had asked for and took dishonoured SGL ofCMF in exchange of two BRs raises a pr~sumption · under Section 114, illustration (i) that Citi Bank was discharged of its obligation under the BRs i.e. to deliver the Bonds. It cannot be said that there was nothing on the record to show that there was an absolute G discharge granted by the Citi Bank to the SCB because the two BRs were returned with the stamp of SCB duly signed by an officer of the SCB authenticating that it had been discharged. [514-F-G, 514-A] Chaudhri Mohammad Mehdi Hasan Khan v. Sri Mandir Das, L.R. H 39 Indian Appeals 184, relied on. CITIBANK N.A. v. STANDARD CHARTERED BANK 493 1.2. SCB has not disclosed any particular or even the name of the A person from whom or the circumstances under which it obtained interest on the Bonds. An adverse inference should be drawn against . the SCB to the effect that if these facts were disclosed it would have been proved that SCB had taken the SGL of CMF for its own benefit or at the behest of the third person from whom it had received the B interest. That third person treated the SCB as the beneficial owner of Bonds and therefore entitled to interest on it. Failure on the part of the SCB to show from whom it had received the interest would raise a presumption that the SCB had failed to disclose/produce a material piece of evidence wh~ch wquld have thrown much light on the issue in C controversy. [515-B-D, 516-C-D] TS. Murugesan Pillai v. MD. Gnana Sambandha Pandara Sannadhi and Ors., AIR (1917) PC 6; Bi/tu Ram v. Jainandan Prasad, Civil Appeal No. 941 of 1965, decided on 15.4.1968; Gopal Krishnaji Ketkar v. D Mohammed Haji Latif and Ors., AIR (1968) SC 1413, relied on. 1.3. It cannot be said that there was only one contract between SCB and Citi Bank and that was to deliver the Bonds for which it had paid valuable consideration or that the BRs issued by the Citi Bank were not independent of the main contract to supply tht°Bonds. SCB E had taken the SGLs ofCanbank with the clear intention that it wanted to exchange the BRs of Citi Bank with SGLs of Canbank. SCB was to get the Bonds in exchange of two BRs but SCB instead substituted that satisfaction by asking for and taking unconditionally the SGL of CMF. The obligation to deliver the Bonds under BRs, was substituted by F delivery of SGL of CMF. [516-E-G) 1.4. Proximity of the dates of BRs and letter of SCB dated 19.9.1991 clearly indicates that the intention of the SCB was to buy the SGLs ofCanbank Mutual Fund otherwise they would not have written G. the letter on 19.9.1991 itself. Proximity of these two dates and the manner in which the whole transaction was completed indicates that it was done with a purpose or a design. It has not been explained as to how did SCB know that the Citi Bank had in its possession the SGL of CMF. SCB must have known, being a big banking business H 494 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. A company, that the SGL issued by the CMF in favour of the Citi Bank was non-transferable. It could not provide any security to them. It had also been dishonoured. Still SCB asked for and accepted the dishonoured SGL of CMF. If it was their case that the SGL of CMF given to them was 'useless' or 'worthless' it should have refused to accept it; far from B doing so, the SCB not only accepted it but also acted upon it. It received interest from the third party. It has not been explained as to why third party paid interest to the SCB. Basically, it was for the SCB to explain and answer all these questions which it has failed to do. {517-A-D] C 1.5. SCB's letter dated 8th October, 1991 wrote to CMF requesting them to issue a fresh SGL in their favour for the same amount to enable the.m to lodge it urgently, clearly indicates that SCB has taken the SGL of Canbank with the clear understanding that it wanted to exchange th~ BRs of Citi Bank with SGLs of Canbank. Though this letter has D no~ been formally proved as the same has been denied by CMF but since this was pleaded by the plaintiff-SCB and the document was attached with the plaint, SCB cannot disown this document. It is bound by its own case set up in the Court. [517-D-F, 517.:.H, 518-A) ·- 1.6. Though Citi Bank in its plaint did not specifically mention E Section 63 of Indian Contract Act, but overall reading of the plaint makes it clear that Citi Bank was relying upon the terms of Section 63 in pleading .that it stood discharged of its obligation to deliver the Bonds under the two BRs on the delivery of SGL of CMF. [521-A-B] F 1. 7. It is Citi Bank's case that SCB of its own asked for and voluntarily accepted two SGLs from Citi Bank as satisfaction which it deemed fit in exchange for the Citi Bank's obligati~n to deliver the Bonds of the face value of Rs. 50 crores under the two BRs. Such a plea would fall under Section 63 of the Contract Act. Special Court fell G in error in applying Section 41 of Contract Act to the facts of the case. Section 41 of Contract Act only provides that tbe promisee cannot have double satisfaction of its claim i.e. from the promisor as well as third party. It does not give a cause of action to the promisee, but, to the promisor, to contend that the promisee who has accepted satisfaction H from the third party cannot insist on the satisfaction of its claim from CITIBANK N.A. v. STANDARD CHARTERED BANK 495 the promisor as well. No case under Section 41 of the Contract Act has A been pleaded by the Citi Bank. It nowhere pleaded that CMF had delivered the Bonds to SCB and, therefore, SCB cannot enforce its demand for delivery of Bonds against the Citi Bank. [521-E-H] Har Chandi Lal and Others v. Sheoraj Singh and Others, AIR (1916) B PC 68; Chegamull Suganmull Sowcar v. V. Govindaswami Chetty and Others, AIR (1928) Mad. 972, referred to. 1.8. City Bank has specifically pleaded that it stood discharged from the performance of the original obligation on the delivery of C SGLs to the SCB, which were asked for and accepted by SCB for reasons best known to it. SCB instead of the original satisfaction accepted another satisfaction, deemed fit by it, in terms of Section 63 of Contract Act. [522-E-F] 1.9. As to why a creditor like SCB had asked for and accepted D the instrument which was on the face of it unrealizable from the debtor which is even described by it as 'useless and worthless', it owed a duty of explanation to the Court as to why did it ask for or accepted the delivery of such an instrument. SCB has conspicuously and completely failed to give any explanation either in its plaint or even in evidence. E It is difficult to import an implied condition or warranty, in the absence of such an explanation by the SCB. A re-writing of SCB letter of request of 19th September, 1991 and imposing a qualification in the acceptance of the Canbank SGL by SCB is not permissible. The clear intention of SCB was to ask for and take the SGL of Canbank which p was in possession of the Citi Bank. The said SGL was in favour of Citi Bank. SCB as a business house was clearly aware of the terms of an SGL of CMF from Citi Bank when it asked Citi Bank for it and accepted and retained it. A term can only be implied by way of sense to give efficacy to the transaction which is intended by the parties. Implied terms in law are founded on the presumed intention G of the parties. In this case, the intention of SCB was clear and unambiguous. [523-G-H, 524-A-D] Union of India v. D.M Ravri and Co., [1977] 1 SCR 483, referred ~ H 496 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. A Hi/las and Co. Ltd. v. Acros Ltd., (1932) All ER 494; Investors B Compensation Scheme Ltd v. West Bromwich Building'Society, (1998) 1 All ER 98; Stocznia Gdanska SA v. Latvian Shipping Co. and Others, (1998) 1 All ER 883 and Antaios Cia Naviera SA v. Salen Rederierna AB, (1984) 3 All ER 229, referred to. . ' Halsbury's Laws of England, 4th Edition, Vol. 9, referred to. 1.10. Since the SGL of CMF were taken by the SCB voluntarily knowing and understanding the consequences flowing from it and the fact that plea of express or implied warranty was given up before the C Special Court, it cannot be said that there was an implied condition/ warranty by the. Citi Bank to give the Bonds on the SGL being dishonoured. (525-B-C] 1.11. Where an instrument, a cheque or negotiable instrument, is D given by the debtor and accepted by the creditor, the question whether the instrument was taken as an absolute payment or a conditional payment is one of fact depending on the intention of the parties. When the creditor takes an instrument by way of absolute satisfaction of the debt then the creditor cannot fall back on the original transaction ana E is restricted to the terms of that instrument only. In the present case the SCB asked for and acc~pted an SGL of Canbank payable to the Citi Bank in absolute satisfaction of the Citi Bank's original obligation to give to SCB Bonds of the face value of Rs. 44.58 crores. SCB asked for the SGL of Can Bank which was in possession of the Citi Bank and F accepted the same voluntarily and unconditionally indicating to the fact that SGL was taken as satisfaction deemed fit within the meaning of Section 63 of Contract Act. There was no intention of the parties that taking of the SGL was conditional, i.e., that if SCB did not get the Bonds from CMF, the SCB would hold Citi Bank liable for the Bonds. (526-E-G] G Brijbhusan Pande and Ors. v. Ramjanam Kuer, AIR (1932) Patna 324; Parman Nand and Anr. v. Saliq Ram and Ors., AIR (1926) Lahore 328; Ramdayal v. Maji Devdiji, AIR (1956) Raj. 12; Lingam Narayan Das v. Punia Das, AIR (1959) Orissa 176 and Subramniam Chettiar v. H Muthiah Chettiar (died) and Ors., AIR (1984) Madras 215 disapproved. r CITIBANK N.A. v. STANDARD CHARTERED BANK 497 1.12. In the present case, SCB had substituted its original A satisfaction by asking for and taking the SGL of CMF as deemed fit for its own reason which have not been disclosed to the Court. Hence it cannot be said that asking for and acceptance of SGL from the Citi Bank is not proof of acceptance of the condition that SCB had given up its claim for the original consider~tion~ (527-G-HJ B Firm Basdeo Ram Sarup v. Firm Dilsukharai Sewak Ram, AIR (1922) Allahabahit Kapadia, K.S. Cooper, (NP), Dr. A.M. Singhvi, R.F. Nariman, P.K. Samdani, Ms. Rashmi Virmani, Subrat Birla, Rajeev K. Virmani, Ms. Sunita Dutt, Pradeep Canchati, Shaunak Thacker, Nilesh Parikh, Shailendra Bhardwaj, Rakesh K. Sharma, T.K. Cooper, Mahesh Agrawala, E.C. Agrawala, Rishi Agrawala, E Manu Krishnan and Ms. B. Vijayalakshmi Menon for the appearing parties. The Judgment of the Court was delivered by BHAN, J. : This judgment shall dispose of Civil Appeal No.7941 F of 1995 arising in Suit No. 22of1994 (filed by Standard Chartered Bank against Citi Bank & Others) decided on 10th July, 1995 and Civil Appeal No. 8340 of 1995 arising in Suit No. 20 of! 994 (filed by Citi Bank against Standard Chartered Bank & Others), decided on 7th July, 1995. Suits were tried by the Special Judge appointed under the Special Courts (Trial of G Offences Relating to Transactions in Securities) Act, 1992, hereinafter referred to as 'the Act'. During 1991 - 92, Reserve Bank of India noticed that large scale irregularities and ma! practices were committed in transactions .. in both'.'.'.'·'. the Government and other securities, by some .brokers in collusion with · H the employees of various banks and financial institutions. The said ' I CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 499 irregularities and ma! practices led to the diversion of funds from banks A and financial institutions to the individual accounts of certain brokers. To deal with this situation and, in particular, to ensure speedy recovery of the huge amount involved and to punish the guilty and restore confidence in and miintain the basic integrity and credibility of the banks and financial institutions, this Act was enacted for establishment of Special Courts to be B presided over by a sitting Judge of the High Court to be nominated by the Chief Justice of the High Court within the local limits of whose jurisdiction the Special Court is situated, with the concurrence of the Chief Justice of India. The Act provided for appointment of one or more Custodian for attaching the properties of the offenders with a view to prevent diversion of such property by the offenders. The Custodian, on C being satisfied, on information received that any person has been involved in any offence relating to transactions in securities after the 1st day of April, 1991 and on and before 6th June, 1992 could notify the name of such person in the Official Gazette. Special Courts were given· the jurisdiction to deal with cases of civil as well as criminal liability of the D notified person. The present appeals arise out of a set of transactions between three parties, namely, the Citi Bank, Standard Chartered Bank (for short 'SCB') and Canbank Mutual Fund (for short 'CMF') through its trustees. E Suit No. 22 of 1994 filed by SCB has been decreed against the Citi Bank and that is how the Citi Bank is in Appeal in Civil Appeal No. 7941 of 1995 and Suit No. 20 of 1994 filed by the Citi Bank ha~ been decreed against the CMF and that is how CMF is in appeal in Civil Appeal No. F 8340 of 1995. The brief facts giving rise to these appeals are: Citi Bank is a corporation incorporated under the laws of United States of America, carrying on business of banking, inter alia, at Sakhar G Bhavan, Nariman Point, Bombay. SCB is a bank incorporated by royal charter under the laws of England and Wales. CMF is represented through its trustees. CMF was made a party respondent along with its trustees in Suit No. 22 of 1994 filed by SCB initially; they were given up on the application of SCB on 10th July, 1995. CMF has been made a party in· H 500 SUPREME COURT REPORT<; [2003] SUPP. 4 S.C.R. A Civil appeal No. 7941 of 1995 (in Suit No. 22 of 1994), though as stated above it had been deleted from the array of parties in the suit at the instance of the plaintiff SCB. On 27th May, 1991, CMF purchased certain securities (11.5% GOI B 2009 Bonds) from the Bank of Karad. Citi Bank purchased from CMF 11.5% GOI 2009 bonds of the face value of Rs. 44,93,20,414.17 p. for Rs. 44.8505 crores on the same day. The total consideration was paid by the Citi Bank to CMF. CMF handed over to the Citi Bank their Subsidiary General Ledger (for short 'SGL') Transfer Form, duly executed on their C behalf to enable the Citi Bank to get the said securities duly transferred to their name in the SGL maintained by the CMF with the Reserve Bank of India. CMF maintains with the Public Debt Office (for short 'PDO') of the Reserve Bank. oi India an account into which its purchase of the Government of India Securities were credited and whenever it desires to sell any Government securities, instead of physically handling the papers, D it merely issues a SGL transfer form which can roughly be equated to a non-negotiable account payee cheque in favour of the transferee. A SGL has to be issued in favour of a named person and no blank SGL transfer form can be issued under the Regulations governing the use of SGL transfer form framed by PDO of the Reserve Bank of India. E Citi Bank on 27th May, 1991 presented the SGL transfer form to the Reserve Bank of India but the same was dishonoured for want of sufficient balance. An endorsement to that effect was made on the SGL form. It was presented once·again on 6th June, 1991 when it was again dishonoured for F want of balance .. On 18th & 19th September, 1991, Citi Bank agreed to sell to SC.B 11.5% GOI 2009 Bonds of the face value of Rs. 42 crores and Rs. 8 crores respectively against receipt of the 'purchase price paid by the SCB to the Citi Bank. Since the bonds were not ready, the Citi Bank issued two G Bankers Receipts (for short 'BRs') Nos. 0912621480 and 0912611410 for the said Bonds with the understanding that the Bonds will be delivered when ready in exchange for the duly discharged BRs and in the mean time the BRs will be held on account of the SCB. A seller issues a BR acknowledging its liability to deliver the purchased securities, when H purchaser has made the payments. The exact term mentioned in the BR ' \ I I I ~ \ " CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 501 is as follows: "The Securities/Debentures/Bonds of face value ofRs.42,00,000.00 will be delivered when ready in exchange for this receipt duly discharged and in the meantime the same will be held on account of Standard Chartered Bombay." By a letter dated 19th September, 1991, the SCB requested the Citi Bank to deliver to the SCB, SGL fonns issued by CMF in exchange for the two BRs issued by the Citi Bank. Accordingly, the Citi Bank delivered to the SCB, the (I) SGL fonn which had been issued by CMF in its favour A B of the face value of Rs. 44.8505 crores and (2) their own SGL fonn of the C face value of Rs.5,41,95,000 in exchange of the two BRs making it equivale11t to Rs. 50 crores i.e. the amount advanced by SCB for purchase of the GOI Bonds. SCB delivered to the Citi Bank, the two BRs duly discharged which had been earlier issued by the Citi Bank in favour of SCB. The letter dated 19th September, 1991 written by SCB to the Citi D Bank is to the following ~ffect: "We hereby enclose two BRs (I) 42 crores (2) 8 crores issued by you of 11.5% GOI 2009 on 18.9.91 & 19.9.91 respectively. We now request you to give us SGLs of Canbank Mutual Fund in exchange of the same." E [emphasis added] Allegedly on 8th of October, 1991 SCB addressed a letter to the CMF requesting CMF to issue a fresh SGL transfer fonn in its name in lieu of SGL transfer fonn received by the SCB from the Citi Bank. CMF in their F written statement in Suit No. 22 of 1994 denied having received the said letter. The letter was attached by the SCB with its plaint in Suit No. 22 of 1994 and this fact was mentioned in the plaint as well. Another important fact which needs to be noticed is that on 25th November, 1991 SCB received the interest due as on 19th November, 1991 of the said bonds vide cheque No.944073 dated 25th November, 1991 in the sum of G Rs.2,56,33,787.50 p. drawn on Andhra Bank. The interest was neither received from the Citi Bank nor from the CMF. The same was received from a third party whose name was not disclosed in the plaint by the SCB. Citi Bank's SGL fonn of the value of Rs. 5,00,95,000 was duly encashed by the SCB and there is no dispute about it. H 502 SUPREME COURT REPq,i TS [2003] SUPP. 4 S.C.R. A On 17th June, 1992 SCB addressed t~ 1eir :advocate' s letter to the Citi Bank calling upon the Citi Bank to forthwith handover to SCB the consideration of Rs. 44.8505 crores paid to the Citi Bank with furthe1 interest in respect of the said bonds as they had not receiveQ. delivery of the said bonds from CMF in spite of the lapse of over nine months from B the date of giving of the SGL of CMF. Advocate for the Citi Bank sent a reply to the advocate's notice of SCB refuting the claim of the SCB. According to the Citi Bank, the liability of the Citi Bank to deliver the securities ( 11.5% of GOI 2009 Bonds) under the contract of sale between the Citi Bank and SCB stood discharged and the Citi Bank ceased to be liable to carry out any further obligation in respect of the said transactions. c On 8th October, 1992 SCB filed a suit against the Citi Bank in the Federal Court at New York claiming consideration paid by the SCB to the Citi Bank. SCB also filed a suit bearing No. 3837 of 1992 in the High Court of Judicature at Bombay on its original side against the Citi Bank D for recovery of the aforesaid amount due towards the Bonds. Citi Bank made an application to the Federal Court at New York seeking dismissal of the suit on the ground of forum non-convenience. By an order dated 22nd April, 1994 the Federal Court dismissed the said suit, inter alia, granting liberty to the SCB to revive the suit in the event the suit filed by the SCB in the Bombay High Court was not disposed of within a reasonable · E period oftime. Before the service of summons in Suit No. 3837 of 1992, Citi Bank filed a suit in the nature of third party pr-0.ceedings being Suit No. 20 of 1994 before the Special Court at Bombay constituted under the Act, inter alia, against the SCB, CMF and its trustees in which the Citi Bank pleaded that in the event of a decree being passed against the Citi F Bank and in favour of the SCB in Suit No. 3837 of 1992 filed by the SCB against the Citi Bank, Citi Bank was entitled to a decree agains~ CMF for delivery of the original securities, or, in the alternative for the refund of the consideration paid and for other reliefs. Plaint in Suit No. 3837 of 1992 was returned by the High Court for G being presented to the Special Court because one of the parties notified under the Act was involved. The suit was transferred to the Special Court and renumbered as Suit No. 22 of 1994. Citi Bank after service of the summons in Suit No. 22 of 1994 filed its written statement. H Primarily the case of SCB against the Citi Bank was for return of CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 503 money on the ground that for consideration which was paid on 18th and A 19th September, 1991, it had not received the transacted securities. That Citi Bank expressly/impliedly warranted that CMF would transfer the Bonds and on its failure to do so, the Citi Bank was obliged to deliver the Bonds. That the action ofCiti Bank was fraudulent and amounted to deceit. That 'useless' and 'worthless' SGLs were given by Citi Bank which even B could not be transferred in its name. In the written statement filed by SCB in Citi Bank's suit an additional plea (which is absent in its own suit filed two years earlier) was taken to.the effect that the SGL sought by SCB was an SGL of CMF in favour of SCB and not the one drawn in favour of Citi Bank. Citi Bank in its defence in suit no. 22 of 1994 pleaded and contended C that as SCB had on its own volition asked for and took the SGL of CMF which was in its possession and returned the two BRs duly discharged and therefore the Citi Bank was no longer under any obligation to either pay any sum ·or to deliver any securities much less to refund the money. That SCB returned two BRs duly discharged in exchange of the SGL of CMF at its express desire. The obligation to deliver bonds under BRs was D substituted by delivery of the SGL of CMF. Citi Bank similarly claimed complete discharge in its own suit. Citi Bank in its suit claimed for a decree against CMF in case a decree was passed against the Citi Bank in the Suit filed by SCB. The defence taken by the CMF in the two suits was more or less common. In substance it was that all these transactions were part E of Hiten Dalal's transactions with SCB and that CMF as well as Citi Bank were merely used as a conduit to pay monies from the Bank ofKarad which was basically a Hiten Dalal's account to SCB and from SCB to the Bank ofKarad and that all these transactions were in pursuance of an arrangement which Hiten Dalal had with SCB under which SCB used to "Park" funds, F with Hiten Dalal for guaranteed return of 15 percent, although this parking of funds was shown simulated transaction in securities. On these broad pleadings the following separate issues were framed in Suit No. 20 of 1994 between Citi Bank and SCB (Set A) and between Citi Bank and CMF(Set B): G ISSUES IN SUIT NO. 20 OF 1994 A. ISSUES BETWEEN THE PLAINTIFF (CITIBANK N.A.) AND DEFENDANT NO. 2 (STANDARD CHARTERED BANK). H 504 SUPREME COURT REPORTS i2003] SUPP. 4 S.C.R. A 1. Whether the liability of the Plaintiffs towards Defendant No. 2 stood discharged and the Plaintiffs ceased to be liable as alleged in paragraphs 8 and 9 of the plaint? 2. Whether the liability of the Plaintiffs towards Defendant 2 could B have been discharged only if Defendant No. 2 had obtained delivery of the · securities as alleged in paragraph 8 of the Written statement? 3. Whether the remedy of Defendant No. 2 is only against Defendant Nos. 3 to. 3G as alleged in paragraph 9 of the plaint? C B. ISSUES BETWEEN THE PLAINTIFF (CITIBANK N.A.) AND DEFENDANTS 3 TO 3G (CANARA BANK & OTHERS) 1. Whether the alleged claim of the Plaintiff is contingent upon the. Plaintiff being held liable for the alleged claim of Defendant No. 2 in Suit D No. 22 of 1994 as alleged in paras 12 and 14 of the Written Statement of Defendant Nos. 3A to 3G? E 2. Whether the two transactions dated 27th May 1991 are interconnected with the Plaintiffs alleged transaction dated 18th September 1991 with Defehdant Nos. 2? 3. Whether the alleged transaction dated 18th September 1991 with the Plaintiffs are part of and/or connected with the alleged 15% informal arrangement that Defenoant No. 2 had with Defendant No. 1 and whether the alleged transactions are illegal and opposed to public policy as alleged F para 8G of the Written Statement of Defendant Nos. 3A to 3G? · G 4. Whether the Plaintiff and the Defendant Nos. 3A to 3G are not liable to Defendant No. 2 for the reasons alleged in para SD of the Written Statement of Defendant Nos. 3A to 3G? 5. Whether the Defendants are not liable for the claim in the suit in view of the alleged facts and circumstances mentioned in paragraph Nos. SF and I 0 of the Written Statement of Defendant Nos. 3A to 3G? 6_. ~ether the two security transactions dated 27th May, 1991 were H a ruse by which Defendant No. l transferred funds to himself using CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 505 Defendant No. 3 as a conduit? 7. Whether claim against Defendant Nos. 3A to 3G personally is barred by limita~ion? A 8. Whether Defendant Nos. 3A to 3G are personally liable for the B claim in the Suit? 9. Whether the Plaintiffs claim against Defendant Nos. 3 to 3G is not maintainable in view of the facts and circumstances set out in paragraphs 5(a) to 5(h) of the Written Statement of Defendant Nos. 3A to 3G? In Suit No. 22of1994 issues were framed between the plaintiffSCB and Citi Bank, defendant No.2. No issues were framed between SCB and the CMF. The same were as follows: ISSUES IN SUIT NO. 22 OF 1994 1. Whether the Plaintiffs have no cause of action against Defendant No. 1 as alleged in Paragraph 1 of the Plaint. c D 2 .. Whether for the reasons mentioned in paragraph 3 of their written statement Defendant No. 1 stands discharged of all their obligations. E 3. Whether Defendant No. 1 gave any express or implied warranty of the nature alleged in para 13 of the plaint. 4. Whether there is any failure of consideration as alleged in para F 14(3) of the plaint. 5. Whether Defendant No. 1 is guilty of any fraud or deceit as alleged in para l 4(g) of the Plaint. 6. Whether any amount is payable by the 1st Defendant to the G Plaintiffs as alleged in para 15 of the plaint. · 7. To what reliefs are the Plaintiff entitled to? 8. And generally. H 506 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R. A Copies of documents in Suit No. 20 were tendered in the Court. No oral evidence was led by any of the parties in Suit No. 20. Suit No. 20 of 1994 was listed for hearing. Citi Bank and CMF submitted before the Special Court that issues between Citi Bank and SCB should not be decided in Suit No. 20of1994 (Citi Bank suit) but in Suit No. 22of1994 B. as issues between Citi Bank and CMF were dependent on the result ·of Suit No. 22 of 1994 filed by SCB against Citi Bank. It was contended thafthe suit filed by the Citi Bank was a contingent suit depending on the result of the suit filed by SCB against the Citi Bank. This objection was overruled by the Special Court. c All the three issues (Set A) in Suit No. 20 of 1994 between the Citi Bank and the SCB were decided in favour of the SCB and against the Citi Bank on 5th/6th July, 1995. It was held that the liability of the Citi Bank was not discharged towards the SCB and that the remedy of SCB was not against the CMF or its trustees. It was further held that the liability of D the Citi Bank towards SCB could be discharged only if the SCB had obtained delivery of the securities as alleged by the SCB in paragraph 8 of its written statement. On 7th of July, 1995 issues betwee~ Citi Bank and CMF (Set B) in E Suit No. 20of1994 were answered in favour of the Citi Bank and the suit decreed against CMF. Issue No. I was decided in the negative. Issues No.2 to 6 were also answered in the negative because of the absence of any evidence. Issues Nos. 7 & 8 were not pressed. Issue No. 9 was decided in the negative i.e. against the CMF and in favour of the Citi Bank. Citi Bank's claim against CMF was held to be justified.