# I CITIBANK N.A v. STANDARD CHARTERED BANK

- **Citation:** [2004] Supp. 3 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 2004-07-07
- **Bench:** R.C. Lahotj, Ashok Bhan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-citibank-n-a-v-standard-chartered-bank-19966
- **Pages:** 30

## Headnote

B
Economic offences :
Special Court (Trial of offences Relating to Transaction in Securities)
Act. 1992 :
C
Purchase of !RFC bonds by Citybank from CANFINA-Delivery of
two Banker Receipt by CANFINA against full payment-Citibank selling
!RFC Bonds of certain value to CANFJNA-Jn consideration of payment,
CANFINA issued fresh BR and one of the Banker Receipts issued earlier
by CANFINA-Acceptance of BR~ by CANFINA-Citibank sells !RFC D
Bonds of certain value to Standard Chartered Bank and issued BRs-BRs
discharged and returned to Citibank-Suit for recovery qf bonds from
Citibank filed by SCB and third party proceedings for non-performance
filed by Citibank against CANFINA-Special Court decreed the suit' of SCB
directing Citibank to pay certain sum by way of return consideration with E
interest thereon and also decreed the suit of Citibank directing CANFINA
to deliver the terms of the BR with coupon interest-Cross appeals-Held:
Since original BR duly discharged by SCB and delivered back to Citibank,
it raises a presumption in law that the BR duly discharged-SCB failed
to rebut-Hence finding of Special Court that the BRs not absolutely F
discharged by SCB cannot be accepted-SCB, a business concern
presumably aware of terms of the non-transferable BR of CANFINA
received from Citibank and accepted by it unconditionall~Hence, SCB
did not accept it as an authority to collect the securities in lieu of condition
of discharge-Jn the absence of any implied condition/warranty in the G
transaction, the plea of implied warranty clearly an afterthought-Citibank
is entitled to restitution of the total amount paid by it to Standard Chartered
Bank with interest and in cross appeal CANFINA became entitled to
restitution of the total amount paid by it to Citibank with interestDirections issued Evidence Act, 1872 Section 114 Illustration (i).
H
2
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A
Indian Contract Act, 1872; Section 141 or Section 63. Applicability
B
of Held : Section 63 applicable-Special Court erred in applying Section
41 of the Act, since in the facts and circumstances of the case, provisions
of Section 63 of the Act attracted.
Bankers Receipt-Meaning of in the context of Banking Law and
Practice.
Citibank, appellant in one of the appeals had purchased IRFC
Bonds of the face value of Rs. 50 Crores and Rs. 65 Crores respectively
from CANFINA appellant in another connected appeal. CANFINA in
C consideration of full payment thereof issued Banker Receipt Nos. 1401
and 1541 respectively. Later, Citibank sold IRFC of the face value of
Rs. 105 Crores to CANFINA and in consideration of payment thereof
issued a fresh Banker Receipt in connection with the transaction of
Rs. 40 Crores and also endorsed back BR. No. 1541 for transactions
D of Rs. 65 Crores. BRs. were accepted by CANFINA. Subsequently,
Citibank sold IRFC Bonds of face value of Rs. 72.50 Crores to
Standard Chartered Bank (SCB) and in consideration of payment
thereto delivered earlier BR No. 17/original BR in due discharge of its
liability for Rs. 72.50 Crores transaction and later replaced it by
E issuing a fresh BR No. 47 (co-incidentally number being the same) in
due discharge of its liability for Rs. 22.50 Crores and endorsed BR No.
1401 in discharge of its liability for 50 Crores Bonds. SCB in turn
discharged BR. No. 47 and returned the same with an endorsement of
due discharge. However, SCB made a demand for delivery of.Bonds
F under BR No. 1401 from Citibank and filed a suit for recovery, which
was transferred to Special Court. Citibank also filed a suit in the
nature of third party proceedings against CANFINA for nonperformance of their obligation under BR. No. 1401. Special Court
decreed both the suits and directed the Citibank to pay to SCB certain
sum by way of return consideration with interest and in another suit
G directed CANFINA to deliver to Citibank IRFC Bonds of the face
value of Rs. 50 Crores within the stipulated time period along with
coupon interest. Hence the p

## Text

_Characters 0–39,846 of 69,111. This is a partial read: ask again with offset=39846 for what follows._

,I
CITIBANK N.A.
A
v.
STANDARD CHARTERED BANK
JULY 7, 2004
[R.C. LAHOTJ, CJ. AND ASHOK BHAN, J.)
B
Economic offences :
Special Court (Trial of offences Relating to Transaction in Securities)
Act. 1992 :
C
Purchase of !RFC bonds by Citybank from CANFINA-Delivery of
two Banker Receipt by CANFINA against full payment-Citibank selling
!RFC Bonds of certain value to CANFJNA-Jn consideration of payment,
CANFINA issued fresh BR and one of the Banker Receipts issued earlier
by CANFINA-Acceptance of BR~ by CANFINA-Citibank sells !RFC D
Bonds of certain value to Standard Chartered Bank and issued BRs-BRs
discharged and returned to Citibank-Suit for recovery qf bonds from
Citibank filed by SCB and third party proceedings for non-performance
filed by Citibank against CANFINA-Special Court decreed the suit' of SCB
directing Citibank to pay certain sum by way of return consideration with E
interest thereon and also decreed the suit of Citibank directing CANFINA
to deliver the terms of the BR with coupon interest-Cross appeals-Held:
Since original BR duly discharged by SCB and delivered back to Citibank,
it raises a presumption in law that the BR duly discharged-SCB failed
to rebut-Hence finding of Special Court that the BRs not absolutely F
discharged by SCB cannot be accepted-SCB, a business concern
presumably aware of terms of the non-transferable BR of CANFINA
received from Citibank and accepted by it unconditionall~Hence, SCB
did not accept it as an authority to collect the securities in lieu of condition
of discharge-Jn the absence of any implied condition/warranty in the G
transaction, the plea of implied warranty clearly an afterthought-Citibank
is entitled to restitution of the total amount paid by it to Standard Chartered
Bank with interest and in cross appeal CANFINA became entitled to
restitution of the total amount paid by it to Citibank with interestDirections issued Evidence Act, 1872 Section 114 Illustration (i).
H
2
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A
Indian Contract Act, 1872; Section 141 or Section 63. Applicability
B
of Held : Section 63 applicable-Special Court erred in applying Section
41 of the Act, since in the facts and circumstances of the case, provisions
of Section 63 of the Act attracted.
Bankers Receipt-Meaning of in the context of Banking Law and
Practice.
Citibank, appellant in one of the appeals had purchased IRFC
Bonds of the face value of Rs. 50 Crores and Rs. 65 Crores respectively
from CANFINA appellant in another connected appeal. CANFINA in
C consideration of full payment thereof issued Banker Receipt Nos. 1401
and 1541 respectively. Later, Citibank sold IRFC of the face value of
Rs. 105 Crores to CANFINA and in consideration of payment thereof
issued a fresh Banker Receipt in connection with the transaction of
Rs. 40 Crores and also endorsed back BR. No. 1541 for transactions
D of Rs. 65 Crores. BRs. were accepted by CANFINA. Subsequently,
Citibank sold IRFC Bonds of face value of Rs. 72.50 Crores to
Standard Chartered Bank (SCB) and in consideration of payment
thereto delivered earlier BR No. 17/original BR in due discharge of its
liability for Rs. 72.50 Crores transaction and later replaced it by
E issuing a fresh BR No. 47 (co-incidentally number being the same) in
due discharge of its liability for Rs. 22.50 Crores and endorsed BR No.
1401 in discharge of its liability for 50 Crores Bonds. SCB in turn
discharged BR. No. 47 and returned the same with an endorsement of
due discharge. However, SCB made a demand for delivery of.Bonds
F under BR No. 1401 from Citibank and filed a suit for recovery, which
was transferred to Special Court. Citibank also filed a suit in the
nature of third party proceedings against CANFINA for nonperformance of their obligation under BR. No. 1401. Special Court
decreed both the suits and directed the Citibank to pay to SCB certain
sum by way of return consideration with interest and in another suit
G directed CANFINA to deliver to Citibank IRFC Bonds of the face
value of Rs. 50 Crores within the stipulated time period along with
coupon interest. Hence the present appeals/cross appeals.
It was contended by the appellant-Citibank that it was duly
H discharged of its obligation; that SCB did not take BK No. 1401 from
)-
CITIBANK N.A. v. STANDARD CHARTERED BANK
3
Citibank as an authority to colleet the securities/a conditio\'t'of discharge A
with full knowledge that BR No. 1401 was non-transferable; that the
Special Court erred in relying on Section 41 of the Indian Contract Act
to the facts and circumstances of the present case as case of the
appellant squarely falls under Section 63 of the Act; that the original
BR No. 47 was duly discharged by SCB and delivered back to the B
appellant; and that since SCB filed to discharge rebuttal presumption
of the discharge of BR No. 1401 implied condition of warranty under
the circumstances of the case could ·not be imported.
Respondent-Standard Chartered Bank submitted that the
discharge of Citibank's obligation upon CANFINA was conditional; C
that since Citibank failed to rebut the presumption, due inference that
discharge given by SCB was merely conditional one could be drawn;
that Citibank could discharge its obligation only on fulfilment of the
condition that BR. No. 1401 was honoured by CANFINA; that since
CANFINA failed to deliver the bonds to respondent, the respondent D
could that fall back upon its original consideration against the Citibank.
Allowing the appeal of Citibank and connected appeal ofCANFINA
and dismissing the other appeals, the Court
HELD : 1.1. A Bankers Receipt (BR) is a document issued by the
seller bank acknowledging that it has received money for the sale of
E
a particular security. It implies that the subject security is not readily
available for delivery and that the same shall be delivered against the
return of BR duly discharged, and in the mean time the securities are
held by the seller bank on account of the purchaser. The form of BR F
is not statutory, however, there is recommendatory form and rules
relating to BR issued by Indian Bankers Association. (17-G, HJ
1.2. The original BR 47 was discharged and delivered back to
Citibank. The same has been produced by Citibank from its possession. G
The return of original with an endorsement on its reverse duly signed
by the officer of SCB amounts to discharge of the BR. The discharged
BR being in possession of the Citibank would raise a presumption in
law under Section 114 of the Indian Evidence Act that the BR stood
duly discharged and its possession with Citibank would raise a rebuttal H
4
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A presumption of the discharge. The onus to rebut the presumption was
upon SCB, but SCB has failed to rebut the presumption. Hence, finding
recorded by the Special Court that there was nothing on the record
to show that there was an absolute discharge to the Citibank by SCB
cannot b1~ accepted. (19-F, G, H; 20-B]
B
Citibank N.A. v. Standard Chartered Bank, (2004] 1 SCC 12, relied
on.
1.3. SCB voluntarily and unconditionally received and accepted
CANFINA BR 1401 knowing fully well that the said BR was nonC transferable. The obvious inference is that SCB desired the said
CANFINA BR for its own purpose inasmuch as the said BR otherwise
was useless. It owed an explanation as to why it took BR 1401, a nontransferable document. SCB has not given any such explanation either
in its plaint or in evideuce. Its intention was to take BR which was in
D possession of Citibank. SCB being a business house presumably was
aware of the terms of BR from Citibank when it took, accepted and
retained it. The obvious inference is that the SCB did not take BR 1401
from Citibank as an authority to collect the seci~rities or that it was a
condition of the discharge. In the absence of any explanation the implied
E condition or warranty such as sought to be urged on behalfofSCB could
not be imported into the transaction. The plea of implied warranty is
one made in desperation and is clearly an after thought. (22-B-EJ
Citibank N.A. v. Standard Chartered Bank, (2004( 1 SCC 12, relied
F on.
2.1. The Special Court has erred in recording its finding. The
question of conferring authority or constituting SCB an agent of Citibank
for receiving bonds from CANFINA are matters of fact. In the absence
of any issue or evidence led by SCB, the burden cast on it could not be
G deemed to be discharged. The finding recorded by the Speci:it Court
that SCB acted as an agent of Citibank is not sustainable. (27-B, C(
2.2. When SCB discharged Citibank from its obligation under BR
47 by endorsement and delivery thereof to Citibank, it would be
H inconceivable that simultaneously it would make the discharge
CITIBANK N.A. v. STANDARD CHARTERED BANK
5
i
conditional on SCB being able to obtain bonds from CANFINA. An A
agent acts only for his principal and the collection of bonds, if at all,
would be for the benefit of Citibank and not for SCB. It is not even
pleaded by SCB that it was given authority to appropriate the bonds
to itself. 127-D]
Mohan Lal Jogani Rice & Atta Mills v. Ram/al Onkarmal Firm &
Ors., AIR (1957) Assam 133; Maung Chit v. Roshan, AIR (1934) Rang
389; Ramdayal v. Maji Devdiji, AIR (1956) Raj. 12; Kandswami Gounder
B
v. K.P. Sivasubramania Iyer, AIR (1963) Madras 16; Firm Basdeo Ram
Sarup v. Firm Dilsukhrai Sewak Ram, AIR (1922) All 461; Firm Budhu
Mal v. Gokal Chand & Ors., AIR (1925) Lahore 328; Har Chandi Lal C
v. Sheoraj Singh, AIR (1916) PC 68 and Chegamull Suganmull v. V.
Govindswami, AIR (1928) Mad. 972, held inapplicable.
3. The Special Court fell in error in applying Section 41 of the
Indian Contract Act to the facts of the present case. Attempt on the part D
of the SCB to place reliance on Section 41 of the India Contract Act is
completely misplaced in the facts of the case. Instead, the case of Citibank
squarely falls under Section 63 of the Indian Contract Act. [26-E, F]
on.
Citibank NA. v. Standard Chartered Bank, (2004] l SCC 12, relied
E
4. In the facts and circumstances of the case, Citibank is entitled
to restitution of the total amount paid by it to SCB (principal and
interest) along with interest @ 12% p.a. from the date of receipt of
payment and in default to pay the interest @ l5% p.a. from the date F
of receipt of payment till it is repaid by the SCB. Citibank would also
be entitled to receive back the amount of costs it had paid to SCB under
the decree of the Special Court but the same would not carry any
interest. In the connected appeal, CANFINA becomes entitled to
restitution of the total amount paid by it to the Citibank (principal and G
interest) along with interest@ 9% p.a. from the date of payment and
in default to pay interest @12% p.a. from the date of payment till it
is repaid by the Citibank. (29-A, B, H; 30-A]
5. In view of the above, Civil Appeal Nos. 9138 of 1996 and 4268
of 1997 have become infructuous and disposed of as such. [30-C]
H
6
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7426 of
B
1996.
From the Judgment and Order dated 12/13.3.96 of the Special Courts
(Trial of Offences Relating to Transactions in Securities) at Bombay in Suit
No. 24 of 1994.
WITH
C.A. Nos. 9063, 9138/96 and 4268 of 1997.
T.R. Andhyarujina, Shanti Bhushan, R.F. Nariman, P.K. Samdani,
C Ms. Rashmi Viramani, R.K. Vinnani, Rajeev M. Roy, Pradeep Sancheli,
Ms. Sunita Dutt, Shaunak Thackar, Nilest. Parekh, Shailendra Bhardwaj,
T.K. Cooper, Mahesh Agrawal, Man Krishnan, Rishi Agrawal, U.C.
Agarwala and Ms. B. Vijayalakshmi Menon for the appearing parties.
D
The following Judgment/Order of the Court was delivered by
BHAN, J. : This Judgment shall dispose of Civil Appeal No. 7426
of 1996 arising in Suit No. 24of1994 (filed by Standard Chartered Bank
against Citibank) decided on 12th/13th March, 1996 and Civil Appeal No.
9063 of 1996 arising in Suit No. I of 1995 (filed by Cit!bank against
E Canbank Financial Services Ltd.), decided on 22/23/26th April, 1996. Civil
Appeal No. 9138 of 1996 has been filed by Citibank against Canbank
Financial Services Ltd. arising from the same suit i.e. Suit No. I of 1995.
Suits were tried by the Special Judge appointed under the Special Courts
(Trial of Offences Relating to Transactions in Securities) Act, 1992,
hereinafter referred to as 'the Act'.
F
In the year 1991-92, Reserve Bank of India noticed that large scale
irregularities and mal practices were committed in transactions in both the
Government and other securities, by some brokers in collusion with the
employees of various banks and financial institutions. The said irregularities
and mal-practices led to the diversion of funds from banks and financial
G institutions to the individual accounts of certain brokers. 'The Act' was
enacted 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 maintain the basic integrity and credibility of the banks
and financial institutions. The Special Courts were to be presided over by
H a"sitting Judge of the High Court to be nominated by the Chief Justice of
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 7
i
the High Court within the local limits of whose jurisdiction the Special A
Court is situated, with the concurrence of the Chief Justice of India. The
Act also 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 being satisfied, on information
received that any person has been involved in any offence relating to B
transactions in securities after the !st day of April, 1991 and on or before
6th June, 1992 could notify the name of such person in he Official Gazette.
Special Courts were given the jurisdiction to deal with cases of civil as well
as criminal liability of the notified person.
A common object namely Banker Receipt (for short 'BR') No. 1401 C
is the subject matter of two suits in which there are three major players
namely Standard Chartered Bank (for short 'SCB'), Citibank and Canbank
Financial Service Ltd. (for short 'CANFINA'). The present appeals arise
out of a set of transactions between these three parties. Suit No. 24 of 1994
filed by SCB has been decreed against the Citibank and that is how the D
Citibank is in appeal in Civil Appeal No. 7426 of 1996 and Suit No. of
1995 filed by the Citibank has been decreed against the CANFINA and
that is how CANFINA is in appeal in Civil Appeal No. 9063 of 1996. Civil
Appeal No. 9138 of 1996 has been filed by Citibank against CANFINA
feeling partially aggrieved by the judgment and order of the Special Court
in Civil Suit No. I of 1995.
E
The facts giving rise to these appeals are :
On 30th of December, 1991, Citibank purchased 9% JRFC Bonds of
the face value of Rs. 50 crores from CANFINA. Citibank made full
payment for the above-mentioned bonds to CANFINA. In consideration F
thereof, CANFINA, in accordance with the market practices, delivered to
the Citibank Bankers Receipt No. 1401 dated 30th December, 1991. On
or about 3rd February, 1992, Citibank purchased similar 9% IRFC Bonds
of the face value of Rs. 65 crores from CANFINA. Citibank made full
payment from the same as well. In consideration whereof, the CANFINA G
delivered their Bankers Receipt No. 1541 dated 3rd February, 1992 to the
Citibank. On or about 5th February, 1992 Citibank sold to CANFINA 9%
!RFC Bonds of the face value of Rs. 105 crores. By way of delivery for
the same, Citibank first decided to return to CANFINA above-mentioned
two Bankers Receipts Nos, 140 I and 1541. Citibank affixed its stamp and
made an endorsement on the reverse of the BR No. 1401 to the effect "BR H
8
SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.
A exchanged against our sale of date." But subsequently instead of returning
the banker receipt No. 1401 to CANFINA, a fresh receipt of Citibank for
Rs. 40 crores was issued and sent to CANFINA along with bankers receipt
No. 1541 of Rs. 65 crores. These bankers receipts were accepted by
CANFINA against the Citibank's liability to CANFINA for Rs. 105 crores
of 9% of !RFC Bonds. According to the Citibank, as banker receipt No.
B 1401 ofCANFINA was not utlised the Citibank cancelled the endorsement
written on the reverse of the bankers receipt No. 140 I. According to
Citibank CANFINA's liability continued to remain subsisting under the
said BR.
C
On or about 19th February, 1992 Citibank sold to SCB 9% !RFC
Bonds of the face value of Rs. 72.50 crores. Citibank received payment
for the same issued BR No. 47 dated 10th February, 1992 in favour of the
SCB in the sum of Rs. 72.50 crores.
On 28th February, 1992, CANFJNA wrote a letter to the Citibank
D requesting the Citibank to collect the !RFC Bonds of the face value of
Rs. 50 crores from SCB and release their bankers receipt No. 140 I.
On 4.3.1992 SCB discharged BR 47 dated 19.2.1992 for Rs. 72.50
crores and returned the sar.ie to Citibank with an endorsement of due
discharge on the reverse of the BR in exchange for CANFINA BR 1401
E of the face value of Rs. crores and Citibank's fresh BR No. 47 (coincidentally the number is same) for Rs. 22.50 crores for the balance
amount in favour of SCB. BR 4 7 dated 4th March, 1992 of the face value
of Rs. 22.50 crores was honoured and duly discharged and there is no
dispute about the same. According to the Citibank, its liability under BR
F No. 47 dated 19.2.1992 for Rs. 72.50 crores was discharged as it had
delivered BR No. 1401 of Rs. 50 crores given to it by CANFINA and BR
No. 47 dated 4th March, 1992 of the face value of Rs. 22.50 crores in
favour of SCB.
BR 47 dated 19.2.1992 and BR 47 dated 4.3.1992 would be referred
G to respectively as original BR and fresh BR wherever necessary.
SCB through its attorney made a demand for delivery of bounds from
Citibank under BR 1401 by its notice dated 4.6.1992, a copy of the letter
was endorsed to CANFINA as well. Citibank sent a reply to the attorney's
letter dated 4.6.1992 through its own attorney on 6.7.1992 denying its
H liability to deliver any securities or make payment of any amount to SCB.
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 9
i
In or about 27th November, 1992, SCB filed a suit being No. 3828 A
of 1992 against the Citibank in the Bombay High Court alleging therein
that the Citibank had failed to deliver to them the securities given by the
said BR No. 140 I and claiming from it the securities and/or the value of
the securities. On or about 25th July, 1994 that suit was transferred to the
Special Court and renumbered as Suit No. 24 of 1994.
B
On 29th December, 1994, Citibank filed a suit in the Special Court,
being Suit No. I of 1995, inter a/ia, against the CANFINA. The said suit
was in the nature of the third party proceedings as a consequence of the
above mentioned suit No. 24 of 1994 filed by the SCB. In Suit No. I of
1995 Citibank claimed that if the Citibank was held liable to the SCB in C
suit No. 24 of 1994, the Citibank was entitled to make a claim as against
CANFINA for non performance of their obligation under BR No. 1401 and
were entitled to the securities or their face value. Suit No. I of 1995 in
substance is in the nature of third party proceedings arising from Suit
No. 24 of 1994 filed by the SCB against the Citibank.
D
SCB took out chamber summons dated 30th December, 1994 being
chamber summons 18/94 to join CANFINA as a party in Suit No. 24 of
1994. The said chamber summons was opposed by CANFINA on the
ground that SCB could have no claim against it and therefore it was neither
a necessary nor a proper party. The learned Special Court by its order dated
7th February, 1995 held that CANFINA was a necessary and proper party
to the suit and the question as to whether the SCB could have any claim
against CANFINA or not was a question on merits which would be decided
at the final hearing of the suit.
Reversing its stand SCB on 2nd January, 1996 made an application
E
F
to drop CANFINA as a party defendant in Suit No. 24 of 1994. CANFINA
opposed this application as well but the learned Judge by an order dated
22nd January, 1996 allowed SCB to drop CANFINA from the said suit and
adjourned the suit for 2nd March, 1996 for final hearing. The learned Judge G
thus de-linked the two suits, although both the suits concerned the same
question i.e. whether the Citibank or CANFINA were liable for the
outstanding bankers receipt No. 1041 of CANFINA.
On I st March, 1996, Citibank made an application to the Special
Court in Suit No. I of 1995 that both the suits, Suit No. 24 of 1994 and H
10
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A Suit No. I of 1995 be heard together as common questions of law and facts
arise for consideration in the suits. The Special Court dismissed the
application by its order dated 1.3.1996. Citibank, being aggrieved, against
the orders dated 22.1.1996 and 15.2.1996 filed two special leave petitions
in this court which were withdrawn by Citibank on 15th March, 1996 as
B the trial of Suit No. 24 of 1994 had commenced by that time.
It needs to be mentioned that Citibank's Suit No. I of 1995 initially
was against four defendants namely (I) Hiten P. Dalal (2) Standard
Chartered Bank (3) Canbank Financial Services Ltd. and (4) A.K. Menon,
the Custodian but later on Citibank got the suit dismissed against defendants
C Nos. 1, 2 & 4 for non-prosecution and allowed the suit to proceed only
against CANFINA.
By judgment dated 12th/13th March, 1996 the Special Court decreed
the Suit No. 24 of 1994 failed by SCB and ordered the Citibank to pay
D to the SCB a sum of Rs. 482,791,096 as and by way of return of
consideration and/or on the basis of monies had and received inclusive of
accrued interest at the coupon rate of 9%. The learned Jude awarded
interest@20% per annum equivalent to Rs. 414,803,528. The costs of Rs.
16,49,462 were also awarded to SCB being the actual cost. The Citibank
therefore paid a total amount of Rs. 899, 155,085 to SCB under the said
E decree. Citibank, being aggrieved, has therefore filed Civil Appeal No.
7426 of 1996 against SCB.
After conclusion of Suit No. 24 of 1994, the trial of Suit No. 1 of
1995 commenced in the middle of March, 1996. By its order dated 26th
F April, 1996 the Special Court passed a decree in favour of the Citibank
by ordering the CANFINA to deliver to Citibank 9% !RFC Bonds of the
face value of Rs. 50 crores within a period of 16 weeks along with the
coupon interest@ 9% per annum from 15% July, 1991 till the bonds were
delivered. The learned Judge an interest @ 9% per annum from 30th
December, 1991, the date CANFINA received the consideration till the
G date of repayment. Parties were directed to bear their own costs. CANFINA,
being aggrieved, against the aforesaid judgment has filed Civil Appeal No.
9063 of 1996 against Citibank.
Aggrieved against the findings of the learned Judge to the effect that
H Suit No. 1 of 1995 was not in the nature of third party proceedings and
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 11
1
therefore the Citibank was not entitled to recover the amount ordered by A
the Court to be paid to the SCB in Suit No. 24 of 1994 and the fact that
the learned Judge did not grant the Citibank interest @ 20% per annum
as had been granted in Suit No. 24 of 1994 and also that costs were not
awarded, the Citibank has filed Civil Appeal No. 9138 of 1996.
Facts in nutshell around which the controversy revolves are that B
Citibank held BR No. 1401 of face value of Rs. 50 crores issued by
CANFINA in its favour. On 19th February, 1992 Citibank sold to SCB
bonds of the face value of Rs. 72.50 crores. Citibank received payment for
the same and issued original BR No. 47 dated 19th February, 1992 in c
favour of SCB in the sum of Rs. 72.50 crores. On 28th February, 1992
CANFINA wrote a letter to the Citibank requesting the Citibank to collect
the !RFC Bonds of the face value of Rs. 50 crores SCB and release their
bankers receipt. On March 4, 1992 SCB "discharged" original BR. 4 7 dated
19.2.1992 at\tl tci~l.'.'from Citibank the CANFINA BR No. 1401 of the face
value of Rs. 50 crores and Citibank's fresh BR No. 47 dated 4th March, D
1992 of the face value of Rs. 22.50 crores. Almost after three months of
.,.
discharge of the original BR 4 7 and after break up of the scam, SCB by
its attorney dated 4.6.1992 made a demand for delivery of bonds from
Citibank under BR 1401 while endorsing a copy of letter to CANFINA,
Citibank sent a reply to the attorney's letter dated 4.6.1992 through its own E
attorney on 6.7.1992 denying its liability to deliver any securities or to
make payment of any amount to the SCB. Thereafter SCB filed the suit,
reference to which has been made in detail in the foregoing paragraphs.
Case of the SCB in the suit is that having purchased bonds of face
value of Rs. 72.50 crores on 19.2.1992 SCB received from Citibank F
original BR 47 dated 19.2.1992 of the face value of Rs. 72.50 crores.
Thereafter on 4th March, I 993 SCB discharged and handed over original
BR 47 to Citibank. Against the same Citibank issued to the SCB fresh BR
47 of the face value of Rs. 22.50 crores and delivered CANFINA BR 1401
dated 30.12.1991 of the face value of Rs. 50 crores. It was contended that G
endorsement and delivery ofCANFINA BR to SCB was on the footing that
CANFINA would honor the same. At best the delivery of CANFINA BR
merely conferred an authority on SCB to receive bonds from CANFINA
•
and it was an implied term of the arrangement between SCB and Citibank,
that if for any reason SCB did not receive bonds from CANFINA, H
12
SUPREME COURT REPORTS (2004J SUPP. 3 S.C.R.
A Citibank's obligation would continue or would stand revived.
Case of the Citibank in its written statement is that SCB duly
discharged original BR 47 dated 19.2.1992 of the face value of Rs. 72.50
ctores. On receipt of CANFlNA BR 140 I of the face value of Rs. 50 crores
B and Citibank fresh BR 47 dated 4.3.1992 of the face value of Rs. 22.5
crores which was duly encashed. That the aforesaid discharged of Citibank
original BR 47 and receipt by SCB ofCANFINA BR 1401 was unconditional
and the Citibank was discharged of its obligation in respect of transaction
dated 19th February, 1992. That the Citibank was under no obligation to
either delivery the securities or the amount thereof and in any event, right,
C if any, of SCB was only against CAN FINA. That SCB should take action
against CANFINA.
D
On the pleadings of the parties the following issues were framed by
the Special Court :
(i)
Whether the suit is not maintainable and should be dismissed
for non-joinder of Citibank Financial Services?
(ii)
Whether upon the original Bankers Receipt No. 47 being
handed over duly discharged to the defendants the plaintiffs
E
ceased to have any right in respect thereof or for the !RFC
Bonds of the face value of Rs. 72.50 crores mentioned
therein, the said discharge being in view of the plaintiffs
accepting unconditionally from the defendants the said
CANFINA Bankers Receipt No. 1401 for Rs. 50 crores and
F
the defendants Bankers Receipt for IRFC Bonds of the face
value of Rs. 22.5 crores as alleged in paragraph 8 of the
written statement?
G
(iii) Whether there was an established and accepted market
practice to deliver and accept Bankers Receipts in effective
discharge of the obligations to deliver physical securities as
stated in para 6( c) and para 12 of the written statement?
(iv) Whether the plaintiffs are estopped from denying that the
defendants have discharged their obligations in respect of
H
the !RFC Bonds of the face value of Rs. 50 crores or from
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 13
contending that the defendants obligations in that behalf A
remains outstanding or subsisting as alleged in paragraphs
3 and 12 of the written statement?
(v)
Whether the plaintiffs remedy is against Canfina only and
not against the defendants as alleged in paragraphs 12 and B
13 of the written statement of the defendants?
(vi) Whether the plaintiffs are entitled to any relief and if so,
what relief?
No oral evidence was led by SCB in the suit. Citibank also did not C
lead any oral evidence. The matter was thus required to be decided only
on the basis of the documentary evidence and facts admitted by the parties.
Under Issue No. 1 it was held that suit was maintainable and was not
liable to be dismissed for non-joinder ofCANFINA. Issue Nos. 2 & 4 were D
taken up together and were against the Citibank and in favour of the SCB.
It was held that the Citibank had failed to discharge its obligation in respect
of IRFC of the face value of Rs. 50 crores and its obligation continued in
this behalf. That there was no valid discharge of original BR 47 and mere
handing over of original BR 47 with an endorsement of due discharge on
the reverse of it did not amount to a valid discharge. That acceptance of E
BR 1401 for Rs. 50 crores ofCANFINA and Citibank's BR for !RFC bonds
of the face value of Rs. 22.5 crores did not amount to a valid discharge
of original BR ~7 and the Citibank continued to remain under obligation
to return the securities or the amount thereof. That there was a failure of
consideration inasmuch as neither the Citibank nor the CANFINA had f
delivered bonds worth Rs. 50 crores to SCB. Issue No. 3 was held to be
not proved. Issue No. 5 was answered in the negative. Issue No. 6 was relief
clause and was answered as per order.
In order of come to the conclusion arrived at on Issue Nos. 2 & 4
the Special Cou11 relied upon its own decision in Suit No. 22of1994 dated G
10th July, 1995 and Suit No. 20 of 1994 dated 7th July, 1995 between the
same parties relating to another set of transactions. The orders passed by
•·
the Special Court in Civil Suit No. 22 of 1994 and Civil Suit No. 20 of
1994 were subject matter of Civil Appeal No. 7941 of 1995 ancl Civil
Appeal No. 8340 of 1995. These two appeals were accepted by this Court !-I
14
SUPREME COURT REPORTS (2004) SUPP. 3 S.C.R.
A by its judgment dated 8th October 2003, titled Citibank N.A. v. Standard
Chartered Bank, reported in (2004] I SCC 12 and judgment and order of
the Special Court was set aside.
Since the Special Court in the impugned judgment had relied upon
B its own judgment in Suit No. 20 of 1994 and Suit No. 22 of 1944 to decree
the SCB' s suit and held that facts of the present case are identical to the
facts in Civil Suit No. 20 & 22 of 1994, it would be necessary to refer to
the facts of those cases in detail before proceeding and examining the
submissions made by the respective learned counsel appearing for the
parties in these appeals.
c
In those cases also the SCB had a transaction in securities with the
Citibank on 18th & 19th September, 199 I. In those cases as well the
original SGL transfer from which had been by the Citibank to the SCB was
exchanged by another SGL of a smaller amount of the Citibank and SGL
D transfer form issued by CMF to the Citibank. SGL transfer forms of CMF
were handed over to SCB on the basis of a letter issued by an officer of
the SCB. SCB filed Suit No 22 of 1994 against the Citibank and Canara
Bank and Others, trustees ofCMF. Citibank filed Suit No. 20 of! 94 against
the brokers in the transaction, (I) Hiten P. Dalal, (2) the SCB, and (3) CMF.
Suit No. 20 of 1994 was termed as a third party proceedings as has been
E contended in Suit No. I of 1995.
One of the question which arose for consideration before the Special
Court was whether the mere handing over of the SGL transfer form there
could be any discharge of liability. It held that mere handing over of SGL
F transfer form would not amount to discharge of the original consideration.
There could be no discharge unless was a satisfaction. Special Court also
held that Section 41 and not Sectiou 62/63 of the Indian Contract Act would
be applicable in the facts and circumstances of the case. Plea of Citibank
that as the discharged SGL came from its possession/custody, a rebuttal
G presumption be raised against SCB under illustration (i) of Section 114 of
the Indian Evidence Act and, as SCB had failed to rebut the presumption
by leading any evidence, it be deemed that Citibank was duly discharged
of its obligation was rejected. Similarly, the plea raised by the Citibank that
an adverse inference be drawn under illustration (g) of Section 114 of the
Indian Evidence Act against SCB as it had failed to produce/disclose the
H material piece of evidence which would have thrown much light on the
i
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 15
issue in controversy was rejected. The Court also held that there could be A
no discharge unless there was satisfaction and the SCB could sue the
Citibank on its original consideration.
In Citibank's case (supra) the findings recorded by the Special Court
on the applicability of Sections 41, 62 and 63 of the Indian Contract Act B
were set aside. It was held that Section 41 was not applicable. Section 63
of the Indian Contract Act would be applicable. That SCB had taken the
SGL of CMF for the reason best known to itself. Citibank stood discharged
of its obligation under the SGL and no recovery could be made from it.
Since the SGL duly discharged was produced by the Citibank a rebuttal
presumption under illustration (i) of Section 114 of the Indian Evidence C
Act of due discharge of its liability by the Citibank could be raised which
the SCB failed to discharge by leading any evidence. Further as SCB had
failed to produce the material evidence which was in its possession or gave
any explanation as to why it had accepted SGL of CMF drawn in favour
of Citibank, an adverse inference under illustration (g) of Section 114 of D
-..,.
the Indian Evidence Act could be raised against it. Appeals were accepted.
Suit filed by the SCB was dismissed. Consequently, the appeal filed by
CMF against Citibank, being a contingent suit, was also accepted and the
suit filed by the Citibank against CMF was ordered to be dismissed.
Learned Judge of the Special Court in the present appeals has held E
that the facts similar as in the previous cases, the law applicable in the
present case would be the same. The finding on points of law on the
applicability of Sections 41, 62 and 63 of the Indian Contract Act were
reiterated. The benefit of illustrations (I) and (g) of Section 114 of the
Indian Evidence Act was denied to the Citibank. It was held that the F
plaintiff SCB at the highest agreed to act as an agent of the defendant
(Citibank) and collect the 50 Crores Bonds from CANFINA and appropriate
them towards the Citibank obligation to deliver 50 crores Bonds. On the
failure of the CANFINA to honour the commitment there was no way that
the SCB could enforce any claim against CAN FINA as there was no privily G
of contract between SCB and CANFINA. As the CANFINA had refused
to honour the BR, the Citibank was not discharged of its obligation until
such time as CANFINA honoured its commitment. The Citibank's obligation
to delivered ihe bonds could not be deemed to be discharged unless such
time as SCB received the bonds. On the failure of the CANFINA to honour H
16
SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.
A the commitment the SCB could fall back on the original consideration.
Shri Andhyarujina, learned senior advocate appearing for the appellant
submitted that this Court in Citibank's Case (supra) reversed the previous
judgment of the Special Court in Suit Nos. 20 & 22of1994. The Special
B Court relying upon its earlier judgment has held that Citibank was not
absolved of its obligation to make good the bonds or the value thereof by
merely handing over CANFINA BR 140 I to SCB. As the earlier judgment
of the Special Court in the previous suits has been set aside by this Court
was in Citibank's case (supra), the view taken by the learned Special Court
was erroneous and liable to be set aside. That the Citibank was duly
C discharged of its obligation by the SCB. Original BR dated 19.2.1992 was
returned to Citibank with an endorsement of due discharge on the reverse
of it. By this act of SCB alone, Citibank stood discharged of its obligation
to either furnish the securities or amount due thereon. That SCB took
CANFINA BR 1401 voluntarily and unconditionally knowing full well that
D the said CANFINA BR was non-transferable. The obvious inference was
that SCB desired the said CANFINA BR for its own purpose inasmuch as
the said BR otherwise would be useless. This fact conclusively proves that
SCB did not take BR 1401 from Citibank as an authority to collect the
securities or it was a condition of the discharge. That the Special Court
E clearly fell in error in placing relian~e on Section 41 of the Indian Contract
Act. Reliance on section 41 is completely misplaced iri the facts and
circumstances of the present case. According to him, the case of Citibank
squarely falls under Section 63 of the Indian Contract Act and the learned
Special Court erred in taking a view contrary to it. In the instant case,
admittedly. the original BR 47 was discharged and delivered back to
F Citibank. Since the original BR 47 dated 19.2.1992 was in the custody of
Citibank and produced by it in court a rebuttal presumption of due
discharge should have been raised in favour of the Citibank. SCB failed
to dislodge the presumption by leading any evidence whatsoever. That the
SCB failed to give any explanation as to why it accepted a non-transferable
G document (BR 1401). The implied condition of warranty under the
circumstances could not be imported as has been done by the learned
Special Court.
As against this, Shri Shanti Bhushan, learned senior advocate appearing
H for the respondent-SCB contended that in law the method of discharge of
)
CITIBANK N.A. v. STANDARD CHARTERED BANK [BHAN, J.] 17
contractual obligations involving a risk of non-performance by a third party A
creates a presumption of conditional satisfaction only. Primafacie, therefore,
any discharge of Citibank's obligation was conditional upon CANFINA in
fact delivering the bonds to SCB in satisfaction of Citibank's obligation.
That Citibank failed to produce any evidence to rebut this presumption.
Under the circumstances a due inference can be drawn that the discharge B
given by SCB was merely conditional. The legal presumption reflects the
practical realities of business: and SCB's case that Citibank's obligation
was only discharged on condition that BR 1401 was honoured by
CANFINA makes legal, commercial and practical sense. That the stand
taken by the. Citibank. that SCB unconditional. gave up its legal rights C
against Citibank in return for BR 140 I which did not give any legal rights
to SCB against CANFINA defies commercial logic. Unlike the position in
Citibank's case (supra), there are no special facts on which the Citibank
could rely to displace the presumption. On failure of CANFINA to deliver
the bounds to SCB, SCB could fall upon its original consideration against
~Chi~
D
Learned counsel for the parties have been heard at length.
Fate of these appeals depends upon the answers to issue Nos. 2 &
4, as framed by the Special Court. We are in agreement with the view taken E
by the learned Special Court that the facts and points of law involved in
the present appeals are similar to the facts and points of law in the previous
cases [subject matter of Citibank's case (supra)]. The only difference on
'Y
facts being that SCB in the previous cases specifically made a request to
>
the Citibank to give SGL of CMF which was in its possession whereas in F
the present cases there is no such request in writing. All other facts are more
or less similar.
A Bankers Receipt is a document issued by the seller bank
acknowledging that it has received money for the sale of a particular
security.