# STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. & ORS

- **Citation:** [2006] Supp. 2 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 2006-05-05
- **Case number:** Civil Appeal No. 2275 of 2002
- **Bench:** Y.K. Sabharwal, Cj.I, B.N. Srikrishna, P.P. Naolekar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/standard-chartered-bank-v-andhra-bank-financial-services-ltd-ors-21515
- **Pages:** 58

## Headnote

Special Courts (Trial of Offences Relating to Transactions in Securities)
Act, J992: Section JO.
Securities-Andhra Bank Financial Services Ltd. (ABFSL) made an
offer to Nuclear Power Corporation Ltd. (NPCL) for placing Rs. JOO
crores-Rs. 50 crores in 9% tax-free bonds and Rs. 50 crores in J 7% taxable
bonds issued by NPCL-NPCL issued a letter of allotment (LOA) confirming
the allotment o/9% tax-free bonds of the nominal value of Rs. 50 crores (suit
bonds)-On the same day ABFSL sold the suit bonds to the Standard
Chartered Bank (SCB) and issued a Cost Memo-Against the receipt of the
said Cost Memo SCB issued a Pay Order-ABFSL, in turn, issued a Banker's
Receipt (BR) acknowledging receipt of the sum from SCB towards the cost
of the suit bonds and undertook to deliver the suit bonds of the value o/Rs.
50 crores, when ready, in exchange for the said BR duly discharged, and
assured that, in the meantime, the suit bonds would be held on account of
SCB--SCB wrote to NPCL alleging that though in ABFSL 's letter, it was
stated that the original LOA was forwarded, SCB had found that only a
photocopy of the LOA had been enclosed--SCB also requested/or issue of
a duplicate allotment letter on the undertaking to return the original, if
received by it, and keeping NPCL indemnified against claims, if any, arising
out of issue of the duplicate-On 29.5.J992, SCB requested ABFSL to
confirm to NPCL the fact of its having sold the suit bonds to SCB-On the
same day, ABFSL addressed a letter to NPCL (with a copy endorsed to SCB)
confirming having sold the suit bonds to SCB-ABFSL also confirmed that
it had no objection to NPCL issuing a duplicate LOA to SCB-Subsequently,
Canbank Mutual Fund (CMF) filled up a Transfer Deed and lodged it along
with the original LOA with NPCL seeking transfer and registration of the
suit bonds in its name--SCB filed a suit before the High Court against
ABFSL, CMF and NPCL for a declaration that it was entitled to the suit
bonds and for an order directing NPCL to register the suit bonds in the name
ofSCB and to hand over the same to SCB-CMF filed a Misc. Petition before
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the Company Law Board (CLB; under Section 111 of the Companies Act,
1956 seeking registration of the suit bonds in its name-The suit and the
petition were transferred to Special Court--Special Court held that CMF
was the owner of the suit bonds--Correctness of-Held: The suit was not
a mere declaratory suit; it must be regarded as a title suit--Notwithstanding
the market practice of delivery of securities accompanied by a signed blank
transfer deed, the property in the securities can only be transferred if there
is bona fide purchase of the same for value-CMF has utterly failed to prove
its story that it had paid consideration for purchase of the suit bonds-CMF
acquired no right, whatsoever, to the suit bonds-The suit bonds always
remained the property of SCB irrespective of how they found their way into
the hands of CMF--Companies Act, 1956, S. I 0-Transfer of Property Act,
1882, Ss. 130 to 137--EvidenceAct, 1872, S. l/4-Code of Civil Procedure,
1908, S. 11--Benami Transactions (Prohibition) Act, 1988, Ss. 3 and 4(2)-
Specific Relief Act, 1963, S. 34.
In December 1991, Nuclear Power Corporation oflndia Ltd. (NPCL)
issued bonds of two series - 9% tax-free bonds and 17% taxable bonds.
These bonds were permitted by the Controller of Capital Issues to be sold
to banks and financial institutions for private placement. Andhra Bank
Financial Services Ltd. (ABFSL) made an offer to NPCL for placing Rs.
I 00 crores - Rs. 50 crores in 9% tax-free bonds and Rs. 50 crores in 17%
taxable bonds. NPCL wrote to ABFSL confirming the allotment of the
9% tax-free bonds and the 17% taxable bonds, as requested. NPCL
issued a letter of allotment (LOA) confirming the allotment of 9% taxfree bonds of the nominal value of Rs. 50 crores (suit bonds). NPCL also
said that intimation would be given in du

## Text

_Characters 0–39,998 of 147,245. This is a partial read: ask again with offset=39998 for what follows._

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STANDARD CHARTERED BANK
v.
ANDHRA BANK FINANCIAL SERVICES LTD. & ORS
MAY 5, 2006
[Y.K. SABHARWAL, CJ.I., B.N. SRIKRISHNA AND
P.P. NAOLEKAR, JJ.)
Special Courts (Trial of Offences Relating to Transactions in Securities)
Act, J992: Section JO.
Securities-Andhra Bank Financial Services Ltd. (ABFSL) made an
offer to Nuclear Power Corporation Ltd. (NPCL) for placing Rs. JOO
crores-Rs. 50 crores in 9% tax-free bonds and Rs. 50 crores in J 7% taxable
bonds issued by NPCL-NPCL issued a letter of allotment (LOA) confirming
the allotment o/9% tax-free bonds of the nominal value of Rs. 50 crores (suit
bonds)-On the same day ABFSL sold the suit bonds to the Standard
Chartered Bank (SCB) and issued a Cost Memo-Against the receipt of the
said Cost Memo SCB issued a Pay Order-ABFSL, in turn, issued a Banker's
Receipt (BR) acknowledging receipt of the sum from SCB towards the cost
of the suit bonds and undertook to deliver the suit bonds of the value o/Rs.
50 crores, when ready, in exchange for the said BR duly discharged, and
assured that, in the meantime, the suit bonds would be held on account of
SCB--SCB wrote to NPCL alleging that though in ABFSL 's letter, it was
stated that the original LOA was forwarded, SCB had found that only a
photocopy of the LOA had been enclosed--SCB also requested/or issue of
a duplicate allotment letter on the undertaking to return the original, if
received by it, and keeping NPCL indemnified against claims, if any, arising
out of issue of the duplicate-On 29.5.J992, SCB requested ABFSL to
confirm to NPCL the fact of its having sold the suit bonds to SCB-On the
same day, ABFSL addressed a letter to NPCL (with a copy endorsed to SCB)
confirming having sold the suit bonds to SCB-ABFSL also confirmed that
it had no objection to NPCL issuing a duplicate LOA to SCB-Subsequently,
Canbank Mutual Fund (CMF) filled up a Transfer Deed and lodged it along
with the original LOA with NPCL seeking transfer and registration of the
suit bonds in its name--SCB filed a suit before the High Court against
ABFSL, CMF and NPCL for a declaration that it was entitled to the suit
bonds and for an order directing NPCL to register the suit bonds in the name
ofSCB and to hand over the same to SCB-CMF filed a Misc. Petition before
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the Company Law Board (CLB; under Section 111 of the Companies Act,
1956 seeking registration of the suit bonds in its name-The suit and the
petition were transferred to Special Court--Special Court held that CMF
was the owner of the suit bonds--Correctness of-Held: The suit was not
a mere declaratory suit; it must be regarded as a title suit--Notwithstanding
the market practice of delivery of securities accompanied by a signed blank
transfer deed, the property in the securities can only be transferred if there
is bona fide purchase of the same for value-CMF has utterly failed to prove
its story that it had paid consideration for purchase of the suit bonds-CMF
acquired no right, whatsoever, to the suit bonds-The suit bonds always
remained the property of SCB irrespective of how they found their way into
the hands of CMF--Companies Act, 1956, S. I 0-Transfer of Property Act,
1882, Ss. 130 to 137--EvidenceAct, 1872, S. l/4-Code of Civil Procedure,
1908, S. 11--Benami Transactions (Prohibition) Act, 1988, Ss. 3 and 4(2)-
Specific Relief Act, 1963, S. 34.
In December 1991, Nuclear Power Corporation oflndia Ltd. (NPCL)
issued bonds of two series - 9% tax-free bonds and 17% taxable bonds.
These bonds were permitted by the Controller of Capital Issues to be sold
to banks and financial institutions for private placement. Andhra Bank
Financial Services Ltd. (ABFSL) made an offer to NPCL for placing Rs.
I 00 crores - Rs. 50 crores in 9% tax-free bonds and Rs. 50 crores in 17%
taxable bonds. NPCL wrote to ABFSL confirming the allotment of the
9% tax-free bonds and the 17% taxable bonds, as requested. NPCL
issued a letter of allotment (LOA) confirming the allotment of 9% taxfree bonds of the nominal value of Rs. 50 crores (suit bonds). NPCL also
said that intimation would be given in due course as to when the allotment
letter duly discharged may be exchanged for bond certificates and that
the interest payable on the suit bonds would accrue from the date of
allotment payable on half-yearly basis. On the same day ABFSL sold the
suit bonds to the appellant and in connection with the said sale issued its
Cost Memo indicating the particulars of the suit bonds and the cost at
which they were being sold. Against the receipt of the said Cost Memo
the appellant issued a Pay Order. ABFSL, in turn, issued a Banker's
Receipt (BR) acknowledging receipt of the sum from the appellant towards
the cost of the suit bonds and undertook to deliver the suit bonds of the
value of Rs. 50 crores, when ready, in exchange for the said BR duly
discharged, and assured that, in the meantime, the suit bonds would be
held on account of the appellant. Thereafter, ABFSL addressed a letter
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STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. 3
to the appellant requiring the appellant to hand over its BR in lieu of the
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original LOA in respect of the suit bonds as well as the 17% NPCL
taxable bonds, which were said to have been enclosed with the said letter.
According to the appellant, in April/May 1992, when the securities
scam broke out, the officers of the appellant made an investigation of its
records and found that the appellant did not have in its possession the
original LOA, but only a photocopy.
The appellant wrote to NPCL alleging that though in ABFSL's
letter, it was stated that the original LOA was forwarded, the appellant
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had found that only a photocopy of the LOA had been enclosed. The
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appellant also requested for issue of a duplicate allotment letter on the
undertaking to return the original, if received by it, and keeping NPCL
indemnified against claims, if any, arising out of issue of the duplicate.
On 29.5.1992, the appellant requested ABFSL to confirm to NPCL the
fact of its having sold the suit bonds to the appellant. On the same day,
ABFSL addressed a letter to NPCL (with a copy endorsed to the appellant)
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confirming having sold the suit bonds to the appellant. ABFSL also
confirmed that it had no objection to NPCL issuing a duplicate LOA to
the appellant.
On 8.6.1992, one HPD who was acting as a broker in a large number
of securities transactions of banks and financial institutions was declared
a 'notified person' under the provisions of Section 3 of the Special Courts
(Trial of Offences Relating to Transactions in Securities) Act, 1992. The
appellant filed a First Information Report (FIR) against HPD and its own
employees alleging that, as a result of a conspiracy between HPD and its
own employees, several securities and monies had been misappropriated
by HPD.
Subsequently, Canbank Mutual Fund (CMF) filled up a Transfer
Deed and lodged it along with the original LOA with NPCL seeking
transfer and registration of the suit bonds in its name. CMF wrote to
NPCL claiming that the suit bonds had been bought by it from ABFSL
through a broker, HPD, and that the consideration therefor had been
paid by certain adjustments between itself and ABFSL. NPCL informed
CMF that it had received a request for issue of a duplicate LOA pertaining
to the suit bonds from the appellant, which was also claiming purchase
of the suit bonds from ABFSL. NPCL, by another letter, informed the
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SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
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appellant that CMF had lodged the original LOA for registration claiming
to have purchased the suit bonds from ABFSL.
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The appellant filed a suit before the High Court against ABFSL,
CMF and NPCL for a declaration that it was entitled to the suit bonds
and for an order directing NPCL to register the suit bonds in the name
of the appellant and to hand over the same to the appellant. The said suit
was transferred to the Special Court.
CMF filed a Misc. Petition before the Company Law Board (CLB)
under Sertion 111 of the Companies Act, 1956 seeking registration of the
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suit bonds in its name. The said petition was transferred to the Special
Court. The Special Court dismissed the suit filed by the appellant and
allowed the Misc. Petition filed by CMF. Hence the appeal.
The follo~ing question arose before the Court:
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Whether the Standard Chartered Bank or Canbank Mutual Fund
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is the owner of 9% Nuclear Power Corporation Ltd. tax-free bonds and
entitled to be registered as such?
Allowi'1g the appeal, the Court
HELD: I. It is clear that the appeal has been brought on the footing
that Standard Chartered Bank (SCB) had fully proved its title to the 9%
tax-free bonds of the nominal value of Rs. 50 crores (suit bonds) and that
the Special Court had erroneously held against SCB. Looked at from any
point of view, the suit was not a mere declaratory suit; it must be
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regarded as a title suit. [22-A[
2. Even if the petition filed under Section 111 of the Companies Act,
1956 was only for the limited relief of registering the petitioner-Canbank
Mutual Fund (CMF) as the holder of the suit bonds the contention of the
respondent cannot be accepted for two reasons. ln the first place, whatever
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might have been the limited jurisdiction of the Company Law Board
(CLB) under Section 111 of the Companies Act, 1956, while entertaining
the petition, the fact that the said petition was transferred to the Special
Court by an order of this Court needs to be reckoned with. The order
of th.is Court is specific and requires the trial of Special Court Suit along
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with Misc. Petition. The limitation of the jurisdiction of the CLB, if any,
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ST AND ARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. 5
does not apply to the Special Court which is clothed with all the jurisdiction
of a civil court. Secondly, merely by filing a petition under Section Ill
of the Companies Act, 1956 and by placing reliance on Section 108 of the
Companies Act, 1956 the petitioner-CMF cannot succeed. It would have
to go further and prove that it is validly a transferee of the suit bonds
if that question is put in issue. Thus, each of the two contesting parties,
i.e. SCB and CMF, would have to prove their rights and show how they
are entitled to the suit bonds before any relief could be granted either
in the Suit or in the Misc. Petition.
(24-B-E)
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Mis. Ammonia Supplies Corporation (P) Ltd. v, Mis. Modern Plastic
Containers Pvt. Ltd., AIR (1998) SC 3153 and Manna/al Khetan v. Kedar
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Nath Khetan, AIR (1977) SC 536, referred to.
3. The Special Court was wrong on all the counts. On the question
of res judicata, the Special Court failed to notice that the doctrine of res
judicata is not merely a matter of procedure but a doctrine evolved by
the courts in larger public interest. What is enacted in Section 11 of the
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Code of Civil Procedure, I 908 is not the fountainhead of the doctrine,
but merely the statutory recognition of the doctrine, which rests on
public policy. [26-G, H, 27-A]
Canara Bankv. Standard Chartered Bank, (2002] 10 SCC 697; Daryao
v. State of UP., (1962] 1 SCR 574; Guda Vijayalakshmiv. Guda Ramachandra
Sekhara Sastry, (1981] 2 SCC 646 and Hope Plantations Ltd. v. Taluk Land
Board, Peermade, (1999] 5 SCC 590, relied on.
4. Section 13 of the Special Courts (Trial of Offences Relating to
Transactions in Securities) Act, 1992 does not override the doctrine of
res judicata. The provision of the Act was certainly not intended to
abrogate all the established principles of law, unless they were directly
in conflict with the express provisions of the Act itself. There is nothing
in the Act which is inconsistent with the doctrine of res judicata, per se,
as seems to have been assumed by the Special Court. (27-F, G, 28-A]
5. In the absence of proper explanation it was not open to the
Special Court to make inferences or assumptions with regard to terms
used in the documents, for example, SCB's securities Ledger in relation
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to the suit bonds, which pertain to the sale and purchase of the suit
bonds with different counter-parties. This document as such does not
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SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.
contain the description 'portfolio', but the said appellation has been
given to it by the Special Court on its own. The Special Court has
observed thereupon: "Therefore, all such transactions were entered
into by the bank on behalf of one HPD, who was acting as a broker.
Therefore, they were transactions of HPD. This is amply illustrated by
Exhibit-II. A portfolio represents stock held by SCB on behalf of HPD.
HPD was entitled to enter into buy transactions and sale transactions
in respect of securities coming under that portfolio. The portfolio was
built up by SCB by purchasing securities at the instance of HPD. This
is also called as building up of position. The suit contract comes under
Exhibit-I I. By the suit contract, the Letter of Allotment (LOA) came
within the portfolio of HPD. He was allowed to deal with the LOA
under the portfolio". This inference is not readily available ex facie
from the document nor was there any other evidence given by any
witness explaining the document, suggesting it. [28-H, 29-A-D)
6. Further, the word "loan' used in the Security Ledger (Exhibit11) was seized upon by the Special Court to draw an unwarranted
inference. The Special Court has held that this term shows "lending of
scrip to HPD" and has then gone on to hold as follows: "this word has
to be read while construing the entries in Exhibit-ti beginning from
27.2.1992. The word 'loan" must be read with the column "Book Value"
and the column "Profit and Loss" and "Balance". That, last column
"Balance" represents HPD's outstanding to SCB." There is no warrant,
whatsoever, for such an explanation to this document as no witness has
said so. Further, the word 'loan' appears to have been used in the Bank
Receipt (BR) issued by Andhra Bank Financial Services Ltd. (ABFSL)
to SCB in respect of the suit bonds. There was no justification for giving
an interpretation to the word 'loan' used in any of the documents without
any explanation by a witness. [29-0-F]
7. The Special Court also makes a finding that the word 'Direct'
used in SCB's ledger showing transaction details ofSCB from April 1991
to May 1992 (Exhibit-7) suggests that such transactions were all under
the 15% arrangement. This again appears to be an inference which has
been drawn by the Special Court without any supporting evidence thereto.
In the replies to the interrogatories as well as the evidence of the witnesses
no one has asserted that all transactions described as 'direct' were
necessarily covered by the 15% arrangement. Although, the reply to
Question no. 43 of the interrogatories, in Suit No. 14/94, di1 suggest to
the contrary, the said reply not having t>een tendered in evidence and
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STANDARD CHARTEREO BANK v. ANDHRA BANK FINANCIAL SER VICES LTD. 7
taken on record does not form part of the evidence before the Special
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Court. The Special Court is, therefore, not justified in drawing this
conclusion for which there was no acceptable evidence. [29-F, G, 30-A]
P.C. Purushothama Reddiar v. S. Perumal, (1972) l SCC 9 and Arulmigu
Viswesaraswami & V.P. Temple, [2003) 8 SCC 752, referred to.
8. While it may be true that the Special Court has been given a
certain amount of latitude in the matter of procedure, it surely cannot
fly away from established legal principles while deciding the cases before
it. As to what inference arises from a document, is always a matter of
evidence unless the document is self-explanatory. None of the documents
placed on record during the trial were self-explanatory; nor were they
explained by any competent witness on either side. In the absence of any
such explanation it was not open to the Special Court to come up with
its own explanations and decide the fate of the Suit on the basis of its
inference based on such assumed explanations. In fact, these inferences
run contrary to the oral evidence given by PW -1 in relation to the
transaction of 26.2.1992. [30-D-F]
9.1. The Special Court has also adversely commented on the conduct
of SCB in not leading evidence to prove what the 15% arrangement was.
A party could not be called upon to lead evidence with regard to an issue
which was no part of its case. The 15% arrangement was brought on
record at the instance of CMF and the burden, if any, of proving its
details lay on CMF. Although, a number of documents were produced
on record as called for by CMF, there was no obligation on SCB to
explain any of them.
[30-G, 31-A]
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9.2. There was, therefore, transfer of the property in the suit bonds
to SCB and the evidence on record is sufficient to arrive at such a
conclusion. It was wholly unnecessary for SCB to go further and prove
how the BR was discharged and how the LOA went out of its possession,
which were the facts emphasized on behalf of CMF. Not was it necessary
for SCB to lead evidence as to how HPD had intercepted the original
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LOA, when and in what manner. [42-B-C)
Hirata! v. Badkulal, AIR (1953) SC 225; Gopal Krishnaji Ketkar v.
Mohamed Haji Latif, AIR (1968) SC 1413; S.P. Chengalvaraya .Naidu-v.
Jagannath, AIR (1994) SC 853; Ci ti Bank NA. v. Standard Chartered Bank,
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SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
AIR (2003) SC 4630; Mt. Bi/as Kunwar v. Desraj Ranjit Singh, AIR (1915)
PC 96; Rmrati Kuer v. Dwarika Prasad Singh, AIR (1967) SC 1134; Smt.
Indira Kaur v. Shri Shea Lal Kapoor, AIR (1988) SC 1074; Murugesam
Pillai v. Gnana Sambandha Pandara Sannidhi, AIR (1917) PC 6; Chow
Yoong Hvng v. Chvong Fah Rubber Manufactory, (1962) AC 209; Mercantile
Bank of India ltd v. Central Bank of India ltd .. AIR (1938) PC 52; New
Marine Coal Co. (Bengal) Pvt. ltd v. Union of India, AIR (1964) SC 152;
Vasudev Ramchandra She/at v. Pran/al Jayanand Thaker, AIR (1974) SC
1728; l.l.C. of India v. Escorts Ltd, AIR (1986) SC 1370; Nagindas Ramdas
v. Da/patram lccharam alias Brijram, AIR (1974) SC 471; Thru John
Subramhanyam v. Returning Officer, AIR (1977) SC 1724; Bharat Singh v.
Mst. Bhagirathi, AIR (1966) SC 405; Siddik Mohamed Shah v. Mt. Saran,
AIR (1930) PC 57(1); Bhagatsingh v. Jaswant Singh. AIR (1966) SC 1861;
Shri i'enkataramana Devarzi v. State of Mysore, AIR (1958) SC 255;
Controller of Estate Duty v. Gvdavari Bai, (1986( 2 SCC 264 and Bhagwati
Prasad v. Chandramaul. AIR (1966) SC 735, referred to.
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Halsbury's laws of England: Vol. 15, p. 243, Para 451 and 453,
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referred to.
10.1.
A large portion of the impugned judgment is devoted to an
analysis of the Securities Ledger (Exhibit-11) and raising inference
thereupon. There is no doubt that Exhibit-11 is a securities ledger
maintained by SCB in respect of the suit bonds. Ex facie, the Securities
Ledger shows the date on which the transaction took place, the
counterparty to the transaction, whether the transaction was a sale or
purchase, face value of the transaction, rate of the transaction, book
value, interest paid/received, profit/loss of the transaction and the balance.
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The document as such does not give rise to an inference that in any of
the transactions HPD had become the owner of the suit bonds. The
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Special Court, on account of a misreading of the evidence pertaining to
the 15% arrangement, drew a conclusion from the Exhibit-11 that HPD
became the owner of the suit bonds right from 26.2.1992 and thereafter
all the transactions were those of HPD, the losses or gains being credited
to the accountofHPD. The evidence on record as to the 15% arrangement
is already seen. No part of that evidence can legitimately give rise to the
inference that in respect of securities transacted under the said
arrangement, any person other than SCB or the counterparty became
the owner of these securities. The suit bonds were purchased by SCB
legitimately on 26.2.1992 by payment of consideration to ABFSL, which
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ST AND ARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. 9
fact is even accepted by the Special Court. However, on an analysis of
certain documents on record, the Special Court has come to the conclusion
that on 9.5.1992 the suit bonds were sold by SCB to HPD. The transaction
dated 9.5.1992 thus becomes crucial and has to be scrutinized to see if
this inference is correct.
(44-B-FJ
10.2. While the Special Court's inferences are based upon its
understanding of what the 15% arrangement was and its analysis of
Exhibit-11, it totally fails to give any reason as to why the evidence of
a witness from ABFSL about there being no such transaction on 9.5,1992,
backed by the purchase register of ABFSL, should be rejected. In the face
of the positive evidence of ABFSL that no such transactions were there,
there was no justification for not accepting the stand of SCB that entry
dated 9.5.1992 pertaining to the suit bonds was a sham entry intended
to introduce the money into the books of SCB to cover a wide gap.
(45-G, 46-A]
11. Whatever might have been the conjectures on the part of the
Special Court, whatever might have been the suspicion generated on
account of sham entries made by one or the other party, when it came
to the crux of the issue, the Special Court has correctly answered it and
negatived the case of CMF that SCB lost title of the suit bonds because
the suit bonds were sold in consideration of purchase of Can triple Units.
[47-G, 48-A]
12.1. Notwithstanding the market practice of delivery of securities
accompanied by a signed blank transfer deed, the property in the securities
can only be transferred if there is bona fide purchase of the same for
value. The crucial question in the present case is: did CMF purchase the
suit bonds for value from the antecedent title-holder?
(53-F]
12.2. When the matter was first tried by the Special Court, CMF
categorically admitted that there was no evidence by which it could be
established that CMF had paid consideration for acquisition of the bonds.
It is true that this judgment was subsequently set aside by this Court and
the matter was remanded for trial along with the Misc. Petition. But this
is a significant fact which the Special Court could not have overlooked
in appreciation of the evidence.
[54-A, BJ
12.3. Considering the evidence as a whole, it appears that the initial
stand taken by CMF in the first round of the litigation, that there was
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no credible evidence on which payment of consideration by CMF could
be proved, was fully justified. The attempt of CMF on picking up and
putting forward some of the documents, out of the several transactions
entered into by them to patch up the story of consideration has miserably
failed. There was no cause for being charitable to CMF by saying that
they could prove only a part of the consideration, ergo, rest of the
transactions must be deemed to have proved. Every one of the arguments
put forward by SCB to impugn the story of CMF that it had paid the
consideration is ju~tified and the Special Court was wrong in rejecting
the arguments of SCB on this count. It is, therefore, held that CMF has
utterly failed to prove its story that it had paid consideration for purchase
C of the suit bonds on 27.2.1992. (57-B-D]
Jagdish Narain v. Nawab Said Ahmed Khan, AIR 33 (1946) PC 59;
Moran Mar Basselios Catholicos v. Most Rev. Mar Poulose Athanasius, AIR
(1954) SC 526; Brahma Nand Puri v. Mathra Puri, AIR (1965) SC 1506;
L.J. Leach and Co. Ltd. v. Messrs. Jardine Skinner and Co., AIR (1957) SC
D 357; Chuharmal Takarmal Mohnani v. Commissioner of Income Tax, AIR
(1988) SC 1384; Sita Ram Bhau Patil v. Ramchandra Nago Patil, (197712
SCC 49; France v. Clark (1884] Vol. 26 Ch.D. 257; V.S. Venkata Subbiah
Chetty v. A. Subha Naidu, AIR (1916) Mad 242; Govt. of the United States
of Travancore and Cochin v. Bank of Cochin Ltd, AIR (1954) Tra-Co 243
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(FB), Fazal D. Allana v. Mangaldas M Pakvasa, AIR (1922) Born. 303 and
Vasudev Ramchnadra She/at v. Pranlal Jayanand Thaker, AIR 1974 SC
1728, referred to.
Halsbury's Laws of England: 4th Edn. Vol. 6 Para 6, 8(3) and 73 and
Vol. 35 Para 1204, referred to.
13. In these circumstances, the evidence on record does not prove
that HPD became the owner of the suit bonds or that CMF legitimately
acquired the suit bonds from HPD or any other person by paying bona
fide purchase value for them. Consequently, it must be held that CMF
acquired no right, whatsoever, to the suit bonds. The suit bonds always
remained the property of SCB irrespective of how they found their way
into the hands of CMF. [58-C, DJ
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2275 of
2002.
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From the Judgment and Order dated 17.1.2002 of the Special Court at
STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] 11
Bombay in Suit No. 11 of 1996.
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With C.A. No. 2276 of 2002.
Ram Jethmalani, Aspi Chinoy, Sr. Advs., Tushad K. Cooper, Mahesh
Agarwal, P.R. Mala, Manu Krishnan, Shilpa Singh, E.C. Agarwala and Rishi
Agarwal; Advs., with them for the Appellant.
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Rohit Kapadia, Sr. Adv, Shaunak Thacker, Pradeep Sancheti, Ms.
Sunita Dutt, Nilesh Parekh, Rajiv Mehta, Kumar Desai, Ashwin Pandya,
Nandini Gore, Ms. Manik Karanjawala, P.H. Parekh, Ms. Sweety Manchanda,
Advs., with him for the Respondents.
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The Judgment of the Court was delivered by
SRIKRISHNA, J.
These two appeals under Section l 0 of the Special Courts (Trial of
Offences Relating to Transactions in Securities) Act, 1992 (hereinafter
referred to as "the Act") are against the judgments of the Special Court
constituted under Section 5 of the Act, by which judgments the Special Court
dismissed Special Court Suit No. 11/96 and allowed Misc. Petition No. 81/
95, which had been transferred to it. As a result of the said two judgments
of the Special Court, the claim made by the appellant-Standard Chartered
Bank (hereinafter referred to as "SCB") was negatived in dismissed Suit No.
11/96, and the application made by Canara Bank as principal trustee of
Canbank Mutual Fund (hereinafter referred to as "CMF") for a direction to
Nuclear Power Corporation of India Ltd. (hereinafter referred to as "NPCL")
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to register CMF as the owner of certain bonds and to pay the interest payable
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thereon was allowed.
FACTS:
Sometime in December 1991, NPCL issued bonds of two series - 9%
tax free bonds and 17% taxable bonds. These bonds were permitted by the
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Controller of Capital Issues to be sold to banks and financial institutions for
private placement. On 24.2.1992 Andhra Bank Financial Services Ltd.
(hereinafter referred to as "ABFSL") made an offer to NPCL for placing Rs.
I 00 crores - Rs. 50 crores in 9% tax free bonds and Rs. 50 crores in 17%
taxable bonds. On 26.2.1992 NPCL wrote to ABFSL confirming the
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SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.
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allotment of the 9% tax fret: bonds and the 17% taxable bonds, as requested.
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On 26.2.1992, NPCL issued a letter of allotment (hereinafter referred to as
the "'LOA") confirming the allotment of 9% tax free bonds of the nominal
value of Rs. 50 crores (hereinafter referred to as the '"suit bonds"). NPCL
also said that intimation would be given in due course as to when the
allotment letter C:uly discharged may be exchanged for bond certificates, and
that the interest payable on the suit bonds would accrue from the date of
allotment, payable on half yearly basis. On the same day ABFSL sold the
suit bonds to SCB and in connection with the said sale issued its Cost Memo
No. 057 dated 26.2.1992 indicating the particulars of the suit bonds and the
cost at which they were being sold i.e. @ 85 .05 at the total cost of Rs.
42,52,50,000. Against the receipt of the said Cost Memo No. 057 from
ABFSL, SCB issued a Pay Order No. 246408 dated 26.2.1992 for the sum
of Rs. 42,52,50,000. ABFSL, in tum, issued a Banker's Receipt (hereinafter
referred to as "BR") No. 23 728 acknowledging receipt of the sum of Rs.
42,52,50,000 from SCB towards the cost of the suit bonds and undertook
to deliver the suit bonds of the value of Rs. 50 crores, when ready, in
exchange for the said BR duly discharged, and assured that, in the meantime,
the suit bonds would be held on account of SCB. On 26/27 .2.1992, ABFSL
addressed a letter to SCB requiring SCB to hand over its BR No. 23728 in
lieu of the original LOA in respect of the suit bonds as well as the 17% NPCL
taxable bonds, which were said to have been enclosed with the said letter.
According to SCB, in April/May 1992, when the securities scam broke
out, the officers of SCB made an investigation of its records and found that
SCB did not have in its possession the original LOA, but only a photocopy.
On 20.5.1992, SCB wrote to NPCL alleging that though in ABFSL's
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letter dated 26.2.1992, it was stated that the original LOA was forwarded,
SCB had found that only a photocopy of the LOA had been enclosed. A copy
of ABFSL's concerned letter was also enclosed. SCB further stated that the
original LOA purportedly sent by ABFSL was not available, that a note may
be made in NPCL's records that the original LOA was missing and,
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therefore. due caution should be exercised by NPCL. SCB also requested for
issue of a duplicate allotment letter on the undertaking to return the original,
if received by it. and keepmg NPCL indemmfied against claims, if any,
arising out of issue of the duplicate. On 295.1992, SCB requested ABFSL
to confirm to NPCL the fact of having sold the suit bonds to SCB. On the
same date, ABFSL addressed a letter to NPCL (with a copy endorsed to
SCB), confirming having sold the suit bonds to SCB on 26.2.1992. They also
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STANDARD CHARTERED BANK v. ANDHRA BANK FlNANCIAL SERVICES LTD. [SRJKRISHNA, J.] 13
confirmed that they had no objection to NPCL issuing a duplicate LOA to
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SCB.
On 8.6.1992 one Hiten P. Dalal (hereinafter referred to as "HPD"), who
was acting as a broker in a large number of securities transactions of banks
and financial institutions, was declared a 'notified person' under the
provisions of Section 3 of the Act. On 20.6.1992 SCB filed a First
Information Report ("FIR") against HPD and its own employees alleging
that, as a result of a conspiracy b.etween HPD and its own employees, several
securities and monies had been misappropriated by HPD.
On 14.7.1992 CMF filled up a Transfer Deed dated 13.7.1992 and
lodged it along with the original LOA with NPCL seeking transfer and
registration of the suit bonds in its name. On 3.8.1992, NPCL wrote to SCB
that the matter with regard to issuance of duplicate LOA of the suit bonds
was being considered in consultation with its solicitors. On 17.8.1992, CMF
wrote to NPCL claiming that the suit bonds had been bought on 27.2.1992
from ABFSL through a broker, HPD, and that the consideration therefor had
been paid by certain adjustments between itself and ABFSL. CMF claimed
that it was the legitimate holder of the suit bonds as it had received them
against valid consideration. On 8.9.1992, NPCL infonned CMF that they
had received a request for issue of a duplicate LOA pertaining to the suit
bonds from SCB, which was also claiming purchase of the suit bonds from
ABFSL. On 8.9.1992 by another letter, NPCL informed SCB that CMF had
lodged the original LOA for registration claiming to have purchased the suit
bonds from ABFSL on 27.2.1992. On 30.9.1992 NPCL asked ABFSL to
confirm if it had sold the suit bonds to SCB as NPCL had received the LOA
and the transfer deed in relation to the suit bonds duly endorsed by ABFSL
in favour of CMF. On 30.9.1992 NPCL informed CMF that as early as on
20.5.1992 it had received a letter from SCB conveying that the suit bonds
had been transferred in SCB's favour by ABFSL and enclosing a letter of
ABFSL to evidence the transaction. They also referred to another letter of
29.5.1992 by ABFSL confirming that ABFSL had sold the suit bonds to SCB
on 26.2.1992 and that it had no objection to issuing/transferring the LOA/
bonds to SCB. On 9.10.1992 SCB wrote to NPCL stating that as the suit
bonds had been issued to ABFSL, who had confirmed selling the same to
SCB, the LOA from CMF may be disregarded. By another letter of
15.10.1992 from ABFSL to NPCL, ABFSL once again confirmed the selling
of the suit bonds to SCB and stated that as per market practice the suit bonds
had been sold with blank transfer deeds to SCB. On 6.11.1992 NPCL
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SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.
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informed SCB that, since there was a dispute over the ownership of the suit
bonds between SCB and CMF, the matter should be resolved between SCB
and CMF, only after which necessary action would be taken by it.
On 27 .11.1992 SCB filed Suit No. 3808/92 on the Original Side of the
Bombay High Court against ABFSL, CMF and NPCL for a declaration that
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it was entitled to the suit bonds and for an order directing NPCL to register
the suit bonds in the name of SCB and to hand over the same to SCB. A
further declaration was sought that CMF had no right, title and interest in
the suit bonds; in the alternative, SCB sought refund from ABFSL. The said
suit came to be transferred to the Special Court on 25.9.1996 and was reC numbered as Special Court Suit No. 11 of 1996.
On 27 .11.1992 CMF filed a petition before the Company Law Board
(hereinafter referred to as "CLB") under Section 111 of the Companies Act,
1956 seeking registration of the suit bonds in its name. The original
respondents to the petition were NPCL, ABFSL and HPD. SCB was
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subsequently joined as a party respondent. In this petition, CMF alleged that
it had purchased the suit bonds from ABFSL on 27 .2.1992 through HPD,
who, according to CMF, had acted as a broker/authorised agent of ABFSL
in the transaction and that the payment of the price of the suit bonds to
ABFSL was made by netting of the amounts of three other transactions
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between CMF and ABFSL made on the same day (i.e. 27.2.1992).
On 27.2.1993 NPCL contested the petition by denying the so called
transaction alleged by CMF and stating that the matter was sub Judice since
a suit was already filed in the Bombay High Court with regard to the alleged
suit bonds. ABFSL also filed a reply to the petition denying that it had sold
the suit bonds to CMF and affirming their sale to SCB on 26.2.1992. SCB
in its reply to the petition pointed out that it had purchased the suit bonds
from ABFSL after paying consideration and that ABFSL had also confirmed
that there had been no sale or delivery of the suit bonds to CMF. SCB alleged
that HPD had wrongly and fraudulently diverted the suit bonds to CMF. On
16.3 .1993 the CLB made an order directing all the parties to disclose the role
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of HPD in the transaction.
On 6.3.1995 the petition by CMF before the CLB was transferred to
the Special Court and re-numbered as Misc. Petition No. 81/95. HPD had
filed no affidavit in reply to the petition when the matter was before the CLB.
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On 14.6.1996, after the transfer of the petition to the Special Court,
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STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] J 5
HPD filed an affidavit in reply in Misc. Petition No. 81195 stipulating that
the contents thereof and the documents referred to could not and ought not
to be referred to and relied upon or used against HPD in any proceedings
as he could not be compelled to be a witness against himself in any court
of law, whether civil or criminal. According to HPD's version, SCB had
'lent' the suit bonds and the 17% NPCL bonds to him on 27.2.1992; that
he had agreed to return the same with interest; that on 9.5.1992 he had
purchased the suit bonds from SCB and adjusted the price payable by him
to SCB against a sale by him of Cantriple Units and further that, he had sold
and delivered the suit bonds to CMF on 27.2.1992.
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On 25.6.1996, SCB replied to HPD's affidavit and denied that it had
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any transaction with HPD in respect of the suit bonds on 27.2.1992 and
denied that the suit bonds were sold by SCB to HPD on 9.5.1992, or that
it had purchased Cantriple Units from HPD. SCB also pointed out several
inconsistencies and contradictions in the stand taken by HPD in his affidavit.
On 27.11.1996, the Special Court dismissed Misc. Petition No. 81/95
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by holding that CMF had admitted through its counsel that it was not in a
position to show that it had paid any consideration for the suit bonds to
ABFSL, and, as no consideration was paid by CMF either to ABFSL or to
SCB, CMF could claim no title to the suit bonds, even assuming that HPD
had acted as a mercantile agent and appeared to have obtained possession
of the LOA through/from SCB. In view of this, the Special Court concluded
that CMF could claim no right, title and interest in the suit bonds. However,
in view of the fact that SCB had already filed Suit No. 11/96, it was held
that SCB's title to the suit bonds could be decided in that suit.
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On 23.12.1996, CMF preferred an appeal to this Court but failed to
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obtain any interim relief except a direction from this Court that the Officer
on Special Duty, who was in possession of the suit bonds, would not part
with the suit bonds without notice to CMF and that the decision in Suit No.
11/96 would be subject to the decision in the appeal.
On 10.1.1997, HPD took out Chamber Summons 1/97 in Suit No. 11/
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96 for being joined as a party. The said Chamber Summons was opposed
by SCB and by an order dated 20.3.1997, the Chamber Summons was
dismissed by the Special Court taking the view that HPD was at liberty to
adopt appropriate substantive proceedings regarding his alleged claim of
having purchased the suit bonds from SCB on 9.5.1992.
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On 30.9.1997, SCB applied for withdrawal of the Suit against CMF.
This application was allowed. However, the Special Court took the view that
CMF was a necessary party to the Suit in spite of its earlier order holding
that CMF could claim no right, title or interest in the suit bonds and by an
order made on 30.9.1997' 1.10.1997 the Suit was dismissed on the ground
of non-joinder of CMF which was a necessary party. SCB appealed
therefrom to this Court.
Thus, both SCB and CMF, came in appeal to this Court against the
orders made by the Special Court in Misc. Petition No. 81195 as also of
dismissal of Suit No. 11196. By the judgment and order dated 21.4.1998
made in Civil Appeal No. 7 of 1997 etc., this Court allowed both the appeals
filed by SCB and CMF and remitted the matter to the Special Court for being
tried de nova. Accordingly, both, the Suit and the Misc. Petition came to be
tried again by the Special Court. By the judgment dated 17. \.2002, Special
Court Suit No. 1 \/96 was dismissed and Misc. Petition No. 81/95 was
allowed. Being aggrieved, SCB is in appeal against both the judgments.
Since the impugned judgments arise out of interconnected facts, it would be
convenient to dispose of both the appeals by a common judgment.
Since the judgment in Misc. Petition No. 81195 merely follows the
judgment in Special Court Suit No. 11/96, it would be sufficient to deal with
the judgment in Special Court Suit No. 11 /96, calling it the 'impugned
judgment' hereinafter.
Issues:
The Special Court raised the following issues in the impugned judgment
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and answered them as under:
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Issues
Answers
I. Does the Plaint not disclose
In the affirmative i.e. in favour of CMF
any cause of action against the
and against SCB
Defendant No.2 ?
2.Whether the plaintiffs were
In the negative i.e. in favour ofCMF and
entitled to and continue to be
against SCB
entitled to the suit bonds as
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alleged in para 8 of the Plaint ?
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...
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STANDARD CHARTERED BANK v. ANDHRA BANK FINANCIAL SERVICES LTD. [SRIKRISHNA, J.] J 7
2A. Whether the Plaintiffs prove the In the negative i.e. against SCB and
circumstances in which Original BR in favour of CMF.
was taken away from them as alleged
in para (8) of the Plaint ?
3. Whether the alleged transaction In the affirmative i.e.