# STATE BANK OF INDIA THR. GENERAL MANAGER v. NATIONAL HOUSING BANK & ORS

- **Citation:** [2013] 13 S.C.R. 1074
- **Court:** Supreme Court of India
- **Decided:** 2013-07-31
- **Case number:** Civil Appeal No. 2155 .of 1999
- **Bench:** R.M. Lo[;>Ha, J. Chelameswar, Madan 8. Lokur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-bank-of-india-thr-general-manager-v-national-housing-bank-ors-28962
- **Pages:** 39

## Headnote

Special Court (Trial of Offences Relating to Transactions
c in Securities) Act, 1992 -Recovery suit - Special Court
established under the Act passed decree - Propriety of the
. decree - Held: Not proper - Plaintiff did not adduce any
evidence in support of its pleadings and merely tendered
certain documents but did not bother to prove them inspite
0 of caution by the Special Court - Course adopted by the
Special Court of looking into the correspondence between the
parties, which had not been proved not permissible in law -
Though the Special Court was not bound by the CPC, it did
not relieve it from the obligation to follow the Evidence Act -
E Further, the Special Court erred in extensively relying upon
the second interim report of the Jankiraman Committee -
Janakiraman Committee is not even a statutory body
authorised to collect evidence in the legal sense - Report o~
Janakiraman Committee is not evidence within the meaning
of Evidence Act which the Special Court was bound to follow
F - Suit required to be dismissed on ground that no evidence
was led by the plaintiff to establish its case - The plaintiff
approached the Special Gourt with unclean hands by
suppressing relevant material - There was sheer abuse of the
legal process - Decree set aside in toto - Evidence Act,
G 1872.
Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992 - s.9A :... Jurisdiction of the Speci9I
Court - Recovery suit - Procedure required to be followed in
H
1074
-+
STATE BANK OF lNDIA THR. GEN. MANAGER v. 1075
NATIONAL HOUSING BANK
;
the cases of set off or counter claim as contemplated u/Order A
VIII CPC not followed by Special Court in the instant case -
Propriety - Held: Special Court was authorised by law to
adjudicate the claim of defendant without being shackled by
the procedural fetters imposed under CPC - U/s.9-A(4) of the
Act, the Special Court is not bound by the procedure laid
B
down by.CPC but shall be guided by the principles of natural
justice and has the power to regulate its own procedure -
Code of Civil Procedure, 1908 - 0. VIII.
f
The National Housing Bank (plaintiff bank) drew a c
cheque on the Reserve Bank of India in favour of the
State Bank of Saurashtra (defendant no.1-bank).
Subseq·uently, the plaintiff bank sought delivery of Bank
Reciepts· (BRs)ISecurities or ·return of amo!,mt. The first
defe~dant bank denied the existence of any "outstanding
D
transaction" .between the two and its liability to issue
-<'.
~ither a B.R. or deliver any securities or refund of the
amount as claimed by the plaintiff bank. The plaintiff Bank
filed suit b.efore .the Special Court established under the
Special Court (Trial of. Offences relating to transactions
in Securities) Act, 1992.
E
The Special'.Court partially accepted the 'counter
claim' made by the second defendant-- a notified person
under Section 3(2) of the Special Court Act and decreed
partly· in fa'Vour of plaintiff bank. The first part of the F
decree was in favour.of the plaintiff bank and the second·
part virtually in favour of the second defendant, though,
!h~ ulthnate ·direction in this regard was that the plaintiffshould pay certain amounts to the fifth defendant who is
'*:
the statutory custodian of the 2nd defendant's property G
under the Special Court Act. The plaintiff preferred appeal
being aggrieved by the judgment of th~ Special Court.
The 1st defendant also preferred an appeal aggrieved by
the decree directing the payr:nent to the plaintiff.
Disposing of the appeals, the Court
H
1076
SUPREME COURT REPORTS
(2013] 13 S.C.R.
A
HELD:1. The procedure that is required to be'·
followed in the cases of set off or counter claim is detailed
under Order VIII of the Code of Civil Procedure. It does
not appear that the procedure contemplated under Order
VIII of the Code is followed in the ir:istant case. However,
a under Section 9-A(4) of the Act, the Special Court is not
bound by the procedure laid down by the Code but sh~tl
be guided by the principles

## Text

_Characters 0–39,806 of 79,186. This is a partial read: ask again with offset=39806 for what follows._

[2013) 13 S.C.R. 1074
A
STATE BANK OF INDIA THR. GENERAL MANAGER
B
v.
NATIONAL HOUSING BANK & ORS.
(Civil Appeal No. 2155 .of 1999)
JULY 31, 2013
[R.M. LO[;>HA, J. CHELAMESWAR AND
MADAN 8. LOKUR, JJ.]
Special Court (Trial of Offences Relating to Transactions
c in Securities) Act, 1992 -Recovery suit - Special Court
established under the Act passed decree - Propriety of the
. decree - Held: Not proper - Plaintiff did not adduce any
evidence in support of its pleadings and merely tendered
certain documents but did not bother to prove them inspite
0 of caution by the Special Court - Course adopted by the
Special Court of looking into the correspondence between the
parties, which had not been proved not permissible in law -
Though the Special Court was not bound by the CPC, it did
not relieve it from the obligation to follow the Evidence Act -
E Further, the Special Court erred in extensively relying upon
the second interim report of the Jankiraman Committee -
Janakiraman Committee is not even a statutory body
authorised to collect evidence in the legal sense - Report o~
Janakiraman Committee is not evidence within the meaning
of Evidence Act which the Special Court was bound to follow
F - Suit required to be dismissed on ground that no evidence
was led by the plaintiff to establish its case - The plaintiff
approached the Special Gourt with unclean hands by
suppressing relevant material - There was sheer abuse of the
legal process - Decree set aside in toto - Evidence Act,
G 1872.
Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992 - s.9A :... Jurisdiction of the Speci9I
Court - Recovery suit - Procedure required to be followed in
H
1074
-+
STATE BANK OF lNDIA THR. GEN. MANAGER v. 1075
NATIONAL HOUSING BANK
;
the cases of set off or counter claim as contemplated u/Order A
VIII CPC not followed by Special Court in the instant case -
Propriety - Held: Special Court was authorised by law to
adjudicate the claim of defendant without being shackled by
the procedural fetters imposed under CPC - U/s.9-A(4) of the
Act, the Special Court is not bound by the procedure laid
B
down by.CPC but shall be guided by the principles of natural
justice and has the power to regulate its own procedure -
Code of Civil Procedure, 1908 - 0. VIII.
f
The National Housing Bank (plaintiff bank) drew a c
cheque on the Reserve Bank of India in favour of the
State Bank of Saurashtra (defendant no.1-bank).
Subseq·uently, the plaintiff bank sought delivery of Bank
Reciepts· (BRs)ISecurities or ·return of amo!,mt. The first
defe~dant bank denied the existence of any "outstanding
D
transaction" .between the two and its liability to issue
-<'.
~ither a B.R. or deliver any securities or refund of the
amount as claimed by the plaintiff bank. The plaintiff Bank
filed suit b.efore .the Special Court established under the
Special Court (Trial of. Offences relating to transactions
in Securities) Act, 1992.
E
The Special'.Court partially accepted the 'counter
claim' made by the second defendant-- a notified person
under Section 3(2) of the Special Court Act and decreed
partly· in fa'Vour of plaintiff bank. The first part of the F
decree was in favour.of the plaintiff bank and the second·
part virtually in favour of the second defendant, though,
!h~ ulthnate ·direction in this regard was that the plaintiffshould pay certain amounts to the fifth defendant who is
'*:
the statutory custodian of the 2nd defendant's property G
under the Special Court Act. The plaintiff preferred appeal
being aggrieved by the judgment of th~ Special Court.
The 1st defendant also preferred an appeal aggrieved by
the decree directing the payr:nent to the plaintiff.
Disposing of the appeals, the Court
H
1076
SUPREME COURT REPORTS
(2013] 13 S.C.R.
A
HELD:1. The procedure that is required to be'·
followed in the cases of set off or counter claim is detailed
under Order VIII of the Code of Civil Procedure. It does
not appear that the procedure contemplated under Order
VIII of the Code is followed in the ir:istant case. However,
a under Section 9-A(4) of the Act, the Special Court is not
bound by the procedure laid down by the Code but sh~tl
be guided by the principles of natural justice and has the
power to regulate its own procedure; Under Section 9A(1) of the Act, the Special· Court has all jurisdiction to
c adjudicate any matter or claim 'arising out of a transaction
in securities entered into during the period specified in
the said s·ection in which a notified person is involved in
whatever capacity. Therefore, the Special Court is
authorised by law to adjudicate the claim of the second
0
defendant without being shackled by the procedural
fetters imposed under the Code. [Paras 30, 31] [1093-DF; 1094-A-B]
: 2. On ~he basis of pleadings ofthe parties, the Special
Court passed the decree which· is the subje~t matter.of
E these two·appeals, though the plaintiff did not choose to
adduce any evidence in support of its· pleatlings. Apart
from the problem of the plaintiff not add.ucing any
evidence, it is rather difficult to understand the process
followed by the Special Court to reach the concJOsion that
F . the plaintiff is entitled to the decree as prayed for and at
the same time not entitled to retain the entire amoul)t but
should share a part of it with· the 2nd defendant.
·Scandalous thing about the litigation is that the plaintiffs
led no ~vidence. They merely· tendered" certain
G documents but did not bother to prove them in spi~ of a
. caution by the Special Court. [Paras 40, 41 af'!d 47) [1097F-G; 1100-C-D]
.
.
. •
i
.
. •
... :
, ' ;J '
·.·· 3. The Special Court.based its .conclusions ori
. H . Janakiram.an Committee Report.and the corr~spondence
' ..
STATE: BANK OF INDIATHR. GEN. MANAGER v.
1077
NATIONAL HOUSING BANK
between the various parties (whose details are not even
A
specified in the judgment). The course adopted by the
Special Court of looking into the correspondence
between .the parties, which even according to the Judge
had not been proved is not permissible in law, The·
Special Court Act though declares that the C_ourt is not . B
bound by the Code of Civil Procedure, it d~es not relieve .
the Special Court from the obligation to follow the
Evidence Act. Further,. the Judge extensively .relied upon
f
the second interim report of the Jankiraman Com,mittee
on the grou.nd that the same was tendered by the 1st c
defen~ant. It is well settled by a long line of judicial .
authority that-. the_ findings of. even a statutory
·commission appointed under the Commissions: of
tnquiry Act, 1952 are not enforceable proprio. vigore .and
the statements made before such Commission are 0
expressly made inadmissible in any subsequent
proceedings civil or criminal. The Courts are not bound
·by :the conclusions and findings rendered by such
Commissions. The statements made before such
Commission cannot be used as evidence before any civil
., or criminal court. It should logically follow thateven the
E
·~onclusions based on:such statements can also not be
used as evidence in any Court. Janakiraman committee .·
:yis not even a statutory·:body authorised to 'collect .
evidence in the legal sense. It is a body set up by the
Governor of Reserve Bank of lndja in exercise of its
F
administrative 'functions.- [Paras 49, 50, 52 and 53] (1101C-F; 1102-D-E,. G; 1103-A-B]
.
Ram Krisflna Dalmia ·v. Justice S.R. Tendotkar and
....
Ottier5-AIR 1958 SC 538.: 1959 SCR 279; State of Kamataka. G .·
v. Union· of India [(1977) 4 SCC 608] and Sham Kant v. State
o~ MtJharastitra ((1992) Supp (2) _SCC 521 - relied on~
· Mahara}a Madhava Singh v. Secretary of State frir India ·
inCouncjl [(1903-04) 31 IA 239 (PC) and M. V. Rajwade v.
. . .
.
.
.
.
.
H
1078
SUPREME COURT REPORTS
[2013) 13 S.C.R ·
A Dr. S.M. Hassan [AIR 1954 Nag 71 : 55 Cri LJ 366)- referred
to.
4.The report of such a Committee can at best be the
opinion of the Committee based on its own examination
8 of the records of the various banks (including the plai11tiff
and the 1st defendant) an~ the statements recorded (by
the Committee) of the various persons examined by the
Committee. The report of Janakiraman Committee is not
evidence within the meaning of Evidence,Ac.t -which.the
C Special Court is bound to follow. It is difficult to ~pprove.
the procedure followed by the Special Court to record
such conclusions. [Para 54 and 55] [11.04-A·C]
5. The suit is required to be dismissed on the ground
that there is no evidence led· by the plaintiff· to ·establish
D its case. The plaintiff approached the Special Court with
unclean hands by suppressing the relevant material.
[Paras 62, 63] [1106-B-C; 1101-A]
6. The plaint, as originally filed, stated that the
cl:teque in question was drawn "in favour of the'"'lst
E defendant in respect of the sale by the 1st defendant to
the plaintiff of 9% IRFC Bonds of face value Rs.100.
crores". But $Ubsequently the plaint was amended
omitting the reference of the purchase of the
abovementioned IRFC Bonds. The suppression of the
F original case coupled with the very fac~ that the 1st
defendant paid various amounts in accordance with the
instructions of the 2nd defendant after' encashing the
cheque in question coupled with the 1st defendant's
consistent stand that the cheque was issued for -the
G benefit of the 2nd defendant, leads to a possible inference
that the fst defendant acted on the instructions of
somebody ·high up in the administration of the .plaintiff
Bank. Neither of the banks explained the genesis of such
practice. But from the very history of this litigation and
H the background in which the Special Court Act came to'
STATE BANK OF INDIA THR. GEN. MANAGER v.
1079.
NATIONAL HOUSING BANK
be passed, o~e -can safely' presume that both the banks
A
herein, (along with other ban~.did not follow any
·procec;lure when it came to the dealings in which the 2nd
defendant was involved. Eventually when the bubble
burst, everybody tried to disown the responsibility trying
to project an image of innocence. The entire effort of the. B
pJaintiff in the suit is to suppress all the relevant
information. Such a pr.ocess is resorted to in order to
shield the delinquent officers of the bank (whoever they
are) who are responsible for such dealings by taking
shelter under the· 1egal principles such as unjust c
enrichment and moneys had and received etc. to recover
the money paid by the plaintiff to the 1st defendant
through the cheque in question. [Paras 64, 68] (1107-B;
1108-D-H;. 1109-A]
7.1. The whole attempt of both the b.anks is to shield
D
the officers on either side taking refuge under.attractive
legal pleas - which if examined in the context of the
limited facts pleaded 'give a picture that the suit ·
transaction is an innocuous transaction Which
unfortunately for the country is not. The suit is a sheer E
abuse of the legal process'. [Paras 69] [1109-E]
· 7 .2. On the other hand, the dispute such as the one
on hand, where the contesting parties are either organs
of the State or its instrumentalities, is better resolved · F
through a Committee of Secretaries of the. Government
of India or the States, as the case may be, as directed by
this Court on more than one occasion. Unfortunately,
such orders remain unimplem~nted. In fact, it appears
from the judgment under appeal that even in this case the
G
Special Court had directed such a settlement without any
success. Both the plaintiff and respondent Banks simply
reiterated their respective stands before the- Committee
of Secretaries. No attempt appears to have been made by
the Government to find out the truth as to (1) how the
H
1080
SUPREME COURT REPORTS
[2013) 13 S;C;R.
.
.
A plaintiff Bank parted with a high denomination cheque
and gave custody of the same to Harshad Mehta and (2)
as to how the first defendant Bari·k paid the various
amounts t"o the dictation of Harshad Mehta in the
absence of any authorisation by the plaintiff Bank. Be that
s as it may, if really the Government beHeved that the
judgment of the Special Court does not require any
interference, nothing stopped the Government from·
directing both the Banks to withdraw their appeals before
this Court. The whole exer.cise appears to be an eye
c wash. A thinly veiled scorn for the orders of this Court.
The professed purpose of the Special Courts Act - the
back drop of the scandal that shook the nation • and the
manner fo which the litigation was conducted· coupled
with the absolute indifference of the Government to get
, 0 . at the truth only demonstrates the duplicity with which
Governments can act. [Paras 70, 73, 7 4 and 75) [1109-FG; 1111-F-H; 1112-A~B].
8. The suit is dismissed and the decree set aside in
toto. [Para 76) [1112-C]
E
Case Law Reference:.
1959 SCR 279
relied on
Para 52
(1977) .4 sec 608
relied on·
Para 52
F
(1992) ~upp (2) sec 521
relied on
Para 52
(1903-04) 31 IA 239 (PC)
referred to
Para 52
AIR 19.54 Nag 71 : 55 Cri LJ 366 referred to . Para 52
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
G 2155 of 1999 •
. Appeal Under Section 10 of Special Court (Trial of
Off~r.ices Felating to Transactions in Securities) Act, 1992,
Jupgment and decree passed by the Special Court on February
H 24/25.02.1999 in Suit No.2 of 1995.
-f
)'" -
+
.
..
-
"•' .
. .
STATE BANK OF INDIA THR. GEN. MANAGER v. 1081
NATIONAL HOUSING BANK
WITH
C.A. Nos. 2294 & 3647 of 1999.
Harin P. Raval, ASG, Bishwajif Bhattacharyya, Sanjay
Kapur, Priyanka Das, Anmol Chandan, Shubhra Kapur,
Mohammed Himayatullah, Pradeep Kumar Tiwari, Ninad Laud,
Mahesh Agarwal, E.C. Agarwal, Megha Mehta Agrawal,
Abhi.nav Agarwal, Anirudh Sharma, Palash Kanwar,
Respondent-In-Person, Amit .Yadav, Shishir Deshpande,
Kat1shal Narayan Mishra, Sujata Kurdukar, Subramonium
Prasad for the appearing parties.
The Judgment of the Court was delivered by
CHELAMESWAR, J. 1. These statutory appeals are filed
under Section 10 of the Special Court (Trial of Offences
Relating to Transactions in Securities) Act 27 of 1992
(hereinafter referred to as 'the Special CourtAct'). An appeal
both on q•Jestions of fact arid law under the above-mentioned
provision is provided directly to this Court from any "judgment,
decree, sentence or order" of a Special Co"urt established
under Section 5 of the above-mentioned Act.
2. The Special Court Act was made in the aftermath of a
scandal in the stock market in the year 1991-1992 when "large
scale irregularities and malpractices were noticed in both the
Government and other securities, indulged in.by some brokers
in collusion with the employees of-various banks and financial
institutions" .1
t.
In the course of the investigations by the Reserve Bank of india, large scale
irregularities and malpractices were no.ticed in transactions in both the
Government and other securities, indulged in by. some brokers in collusion
with the employees· of various bonds and financial institutions.
The said
irregularities and malpractices led to the diversion of funds from banks
and financial institutions to the individual accounts of certain brokers.
2.
To deal with the situation and in particular to ensure the speedy recovery
ofthe huge amount involved, to punish the guilty and restore confidence
in and maintain the' basic integrity and credibility ofthe banks and financial .
· institutions the. Sp~cial Court (Trial of Offences Relating to Transaetions
A
B
c
D
E
F
G
H
1082
SUPREME COURT REPORTS
A
3. Under Section 3(2)2 of the said Act, the Custodian
. appointed by the Government of India, if satisfied that any
person was involved in "any offence relating to transactions in
securities" during the period falling between 01.04.1991 to
06.06.1992 is empowered to notify the name of such person
B in the official gazette. Upon such notification, all the properties
whether movable or immovable belonging to any person so
notified stand attached. The custodian is required to deal with
such attached properties in such manner as the Special C0urt
may direct. The Act further authorises the Government of India
c to establish a Special Court to be presided over by a sitting
Judge of a High Court to be nominated by the Chief Justice of
the High Court within the local limits of whose jurisdiction the
Special Court is to be located. The concurrence of the Chief
Justice of India is required to be obtained for such nomination
0 of a sitting Judge of the High Court.
E
F
G
H
4. The Special Court is invested with jurisdiction both
criminal and civil to dea1 with the offences committed by the
notified persons and also with the properties and transactions
in Securities) Ordinance. 1992 was promulgated on the 6th June, 1992.
The Ordinance provides for the establishment of a Special Court with a
sitting Judge of a High Court for speedy trial of offences ,relating to
transactions in securities and disposal of properties attached.
It also
provides for appointment of one or more Custodians for attaching the
property ·of the offenders with a view tci prevent diversion of such properties
by the offenders.
2.
Section 3. Appointment and functions of Custodian. - (1) The Central
Government may appoint one or more Custodians as it may deem fit for
the purposes of this Act.
(2) The Custodian may, on 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 the 6th June,
1992 notify the name of such person in the Official· Gazette.
(3) Notwithstanding any1hing contained in the Code and any other law
for the time being in force, on and from the date of notification under subsection (2), any property, movable or immovable, or both belonging to any
person notified under that sub-section shall stand attached simultaneously
with the issue of the notification.
1
STATE BANK OF INDIA THR. GEN. MANAGER v. 1083
NATIONAL HOUSING BANK [J. CHELAMESWAR, J.]
fip securities in which a notified person is involved and any
A
matter or claim arising therefrom. An appeal to this Court, is
provided from the judgment, decree, sentence or order of such
Special Court.
5. The entire scandal and the present litigation revolves
"around the second defendant (since deceased) - one Harshad
B
S. Mehta (a notified person under Section 3(2) of the Act). The
"l.
~ i
!scandal exposes the shortcomings and loopholes in the
administration of banking sector of this country, more
,particularly, the State-owned/controlled banks.
c
6. The National Housing Bank (hereinafter referred to as
the 'Plaintiff') a statutory Corporation created by an Act of
Parliament (Act No. 53 of 1987) filed two suits, one invoking
the. original jurisdiction of Bombay High Court (Suit No. 211 of
__,
1995) and another before the Special Court established under D
~
the ActNo. 27of1992 being Suit No. 2of1995. The said suits
came to be filed against (i} the State Bank of Saurashtra which
at that point of time was a subsidiary bank of the State Bank
of India but later got amalgamated with the State Bank of India,
(ii) Harshad S. Mehta, (iii) two of the employees of the plaintiff
E
bank and (iv) the Custodian appointed under Section 3(1) of
the Act 27 of 1992.
~
7. ltappears that the relief sought in both the above-
'
mentioned suits is substantially the same i.e. the recovery of
F
-
an amount of Rs. 95.39 crores with interest. By an Order dated
17th April, 1995, the Special Court directed the plaintiff bank
to elect one of the two fora for pursuing its litigation.
... -<
8. "Aggrieved" by the said direction, the plaintiff bank
approached this Court. This Court directed that both the suits .G
be placed before the learned Judge who had been nominated
to be the Judge presi~ing over the Special Court (Hon. Justice
~
Variava of Bombay High Court, as His Lordship then was) for
disposal in accordance with law. Consequently, a preliminary
H
1084
SUPREME COURT REPORTS
[2013) 13 S.C.R.
A
question regarding the forum which had jurisdiction to adjudicate
the dispute which is the subject matter of the two suits came
to be considered by Hon. Justice Variava. By an order dated
. 3rd February, 1996, the learned Judge hel~ that in. view of the
language of Section 9-A( 1 )(b) of the Special Court Act, it is the
B
Special Court alone which had the jurisdiction to adjudicate the
dispute as the dispute centres around a claim arising out of a
transaction in which a person notified under the Special Court
·Act is involved. The above-mentioned Suit no. 211 of 1995
c
came to be dismissed.
9. Subsequently, the plaintiff bank moved an application
to amend the pleadings in Suit No. 2 of 1995. The said
application was allowed by an order of the Special Court dated
16th October; 1996: The frame of Suit No. 2 of 1995 and the
0
nature of the amendment made will be discussed later in this
judgment.
.,._
~
10. In view of the amendment in the plaint, the 1st defendant
bank once again raised a preliminary issue regarding the
maintainability of the suit before the Special Court. The Special
E
Court rejected the preliminary objection by its order dated 22nd
November, 1999. Aggrieved by the same, the 1st defendant
F
G
H
Bank carried Civil Appeal No. 2294 of 1999 to this Court.
11. During the,pendency of the said appeal, Suit No. 2 of
1995 itself came to be disposed off on 24th February, 1999.
Challenging that part of the decree3 which was against it, the
1st defendant Bank once again carried Civil Appeal No. 2155
.· of 1999 to this Court. Aggrieved by that part of the decree of
·· the Special Court wherein the Special Court directed the
3.
Para 110 .. Accordingly there will be a decree in favour of the Plaintiffs and
against the 1st Defendant in a sum of Rs.95,39;78,082.19p with interest.
thereon at the rate of 19% p.a. from 3rd January 1992 till payment of
realisation ·thereof.
-
'r .
STATE BANK OF INDIA THR. GEN. MANAGER v.
1085
NATIONAL HOUSING BANK [J. CHELAMESWAR, J.]
;._
plaintiff to deliver certain amounts to the Custodian4 , the plaintiff
A
bank filed Civil Appeal no. 3647 of 1999.
12. The prayer in Suit No. 2 of 1995 is as follows:-
"(a) that the 1st Defendant be ordered and decreed to pay
B
to the Plaintiff a sum of Rs. 164, 11,61,079.59 as per
particulars at Exhibit 'B' hereto with further interest thereon
at the rate of 24% per annum from the date hereof till
i
payment and/or realisation.
1
(b) In the alternative to prayer (a) above the Defendant c
Nos. 1 to 4 or any one or more of them be ordered and
decreed to pay to the Plaintiff jointly and/or severally a sum
of Rs. 164, 11,61,079.59 p. as per particulars at Exhibit 'B'
hereto together with interest thereon at the rate of 24% per
annum from the date hereof till payment and/or realisation.
D
--'\-'
(c) For costs; and
(d) For such further and other reliefs as the nature and
circumstances of the case may require;"
E
'
13. According to the facts pleaded in the amended plaint,
4.
Para 120. Today a Decree has been passed in favour of the Plaintiffs and
j.
,. .
against the 1st Defendant in the sum of Rs.95,39,78,082.19p along with
....
interest at 19% per annum. If plaintiffs are allowed to keep interest on the
F
sum of Rs.40.22 crs. they will have unjustly enriched themselves. This
...
because with effect from 30th March, 1992 the Plaintiffs liability to Canfina
stood discharged without their having paid any consideration for the 9%
IRFC Bonds f.v. Rs.38.75 crs. The Plaintiffs will be receiving interest at
19% per annum even on the sum of Rs.40.22 crores. As stated above to
allow the Plaintiffs to retain that interest would be to allow the Plaintiffs to
'"'(
unjustifiably enrich themselves. Thus it is directed that as and when the
G
"'
Plaintiffs receive interest at 19% on the sum of Rs.40.22 crores, the Plaintiffs
<
must hand over the interest amount on Rs.40.22 crs. from 30 March 1992
onwards to the Custodian. Clarified that Plaintiffs will be entitled to keep
the interest amounts, even on Rs.40.22 crs., from 3rd January 1992 till
29th March 1992. This interest amount i.e. for the period 30th March 1992
onwards on Rs.40.22 crs. would be payable to the Custodian within four
weeks from the receipt of the amount by the Plaintiffs.
H
1086
SUPREME COURT REPORTS
[2013] 13 S.C~.
A
t,he National Housing Bank drew a cheque on 3rd January,
1992 for an amount of Rs. 95.39 crores approximately on the
Reserve Bank of India in favour of the State Bank of
Saurashtra. Towards the end of April, 1992, "the Plaintiff found
that, while its records indicated that certain transactions had
B been entered into and were still outstanding, it did not
possess any Bank Receipts (hereinafter referred to as 'B.R. ')
;
or supporting documents or any securities in respect of such
transactions. 'On the basis of information gathered it was
thought that the said transaction was outstanding and that the
tc 1st Defendant had not delivered the related securities or any
B. R. for the same. The Plaintiff, therefore, addressed letters
to the 1st Defendant drawing its attention tq the said fact and
request the 1st Defendant for delivery of B.R.!Securities or for
return of the said amount"
D
14. A blissfully vague statement regarding the nature of the
"transaction"
....__
-,
I r
15. Long correspondence ensued between the plaintiff and
the first defendant bank. The first defendant bank denied the
E existence of any "outstanding transaction" between the two and
its liability to issue either a B.R. or deliver any securities or
•.
refund of the amount as claimed by the plaintiff bank. The
substance of the correspondence of the first defendant bank
as narrated in the plaint is "the 1st Defendant further stated
-+
\
F that the amount of the cheque received by it had be~n for and
on account and for the benefit of the 2nd Defendant. The 1st
Defendant further stated that its action of crediting the
proceeds of the said cheque to the account of the 2nd
· Defendant was justified by a certain market/banking practice.
G The 1st Defendant also stated that solely on the basis of
instructions of the 2nd Defendant against the said cheque of
y
the Plaintiff it issued cheque on behalf of the 2nd Defendant
in favour of certain third parties."
I
H
STATE BANK OF INDIA THR. GEN. MANAGER v.
1'087
NATIONAL HOUSING BANK [J. CHELAMESWAR, J,1
,
~·
16. The unamended plaint5 contained assertions that the
A
.
plaintiff Bank drew the cheque in issue for the purpose of
acquiring 9% IRFC Bonds of face value of Rs.100 crores, the
same was omitted by the amendment of the plaint. However,
vague references continued even in the amended plaint to a
transaction pertaining to the sale of 9% IRFC Bonds.
B
17. The plaintiff based his prayers "on grounds which are
set out in the alternative and without prejudice to each other"'
~
The grounds of the plaintiff are:-
•
1 .
As there was no transaction between the plaintiff c
and the 1st defendant, the 1st defendant was bound
..
to hold the money realised by encashing the
cheque in question until further instructions were
issued by the plaintiff bank, but should not have paid
the proceeds of the cheque on the directions of the
D
.Jr
2nd defendant. Therefore, the 1st defendant is
"liable for conversion of the cheque." In the same
breath the plaintiff also added "in any case is liable
to repay the amount on the basis of moneys had
and received without any consideration".
E
2.
The second ground on which the plaintiff based his
case in the alternative is "e;onspiracy, collusion and
~
5.
Unamended Plaint - The records of the plaintiff, as mentioned by the Funds
F
Management Group, show that a cheque bearing No.173756 dated
3.01.1992 drawn by the Pl~intiff on the Reserve Bank of India in the sum of
Rs.95,39,78,082.19 p. had been issued in favour of the 1st Defendant in
respect of the sale by the 1st defendant to the plaintiff of 9% IRFC Bonds
of the face value of Rs.100,00,00,000/-.
...
y
Amended Plaint - A cheque bearing No.173756 dated 3.01.1992 drawn by
G
the Plaintiff on the Reserve Bank of India in the sum of Rs.95,39,78,082.19
had been issued in favour of the 1st Defendant. The Plaintiff says that the
cheques was originally drawn in the name of State Bank of India and was
altered in the name of 1st Defendant and received as such as by the 1st
Defendant. However the documents and the records as maintained by
F.M.G. did not show a similar corresponding correction and continue as if
the deal was between the Plaintiffs and State Bank·of India.
H
A
B
c
D
E
F
G
1088
SUPREME COURT REPORTS
[2013] 13 S.C.R.
fraud between the defendant Nos. 1 to 4" thereby
causing loss to the plaintiff bank.
18. On the other hand, the first defendant bank in its written
statement took a categorical stand that the records of the bank
did not show "that the cheque in dispute was issued in respect
of any alleged sale by the first defendant to the plaintiff of 9%
/RFC Bonds of face value of Rs. 100 crores", but went on to
say that the said cheque was issued for the benefit of the
second defendant Harshad S. Mehta, through whose employee,
the cheque was delive{ed to the first defendant bank. The first
defendant also took a stand that the cheque was delivered to
the first defendant under a covering letter dated 3rd January,
1992 of Harshad S. Mehta containing instructions to the first
defendant to make certain payments as detailed in the letter6.
6.
(a) The said cheque for Rs. 95,39,78,082.19 p. dated 3rd January, 1992
was to the knowledge of the plaintiff issued for the sole benefit of Defendant
No. 2.
(b) .Under cover of a letter dated 3rd January 1992 the 2nd Defendant
delivered the said cheque to this Defendant.
Pursuant to the instructions
contained in the said letter dated 3rd January, 1992 as varied by the
subsequent oral instructions of Defendant No. 2 this Defendant issued
four cheques, as follows:-
Particulars
Amounts (Rs.)
1.
Bankers Cheque No. 202667 dated 3.1.92
79, 79,69,041.09
in favour of Canara Bank
2.
Bankers Cheque No. 202669 dated 3.1.92 in
5,01,58,904.18
favour of State Bank of India
3.
Bankers Cheque No. 202668 dated 3.1.92 in
5,37,00,000.00
favour of ANZ Grindlays Bank
4.
Bankers Cheque No. 202670 dated 3.1.92 in
4, 10,00,000.00
favour of Bank of India
Total
94,28,27,945.27
(c) Defendant No. 2, thereafter, by a letter dated 6th January, 1992
requested this Defendant to issue a Bankers cheque in -favour of ANZ
Grindlays Bank for Rs. 1, 10,00,000/- and debit his current account No. 2230,
titled as Harshad S. Mehta for the said sum of Rs.1, 10,00,000/-. This
Defendant carried out the aforesaid instructions.
"'-
\
.;.
t
'Y
,;
STATE BANK OF INDIA THR. GEN. MANAGER v.
1089
NATIONAL HOUSING BANK [J. CHELAMESWAR, J.]
19. The second defendant Harshad S. Mehta filed a
A
written statement. According to him, the entire transaction in
question occurred in the following manner:-
''. .. (a) This Defendant states that on 3rd January, 1992, the
Plaintiffs undertook a set of two transactions in respect of
B
9% IRFC Bonds with a view to make an assured profit,
without outlay of any funds of the Plaintiffs, of 4 paise per
face value of Rs. 100/- i.e. Rs. 4 lacs. Accordingly, the
Plaintiffs purchased 9% Tax-free Indian Railways Finance
Corporation (I RFC) Bonds of the face value of Rs. 100
C
crores @ Rs. 93.08 and delivered the same, under
instructions of this Defendant, to Canfina. This Defendant
states that accordingly the Plaintiffs delivered a Banker's
Receipt to Canfina and received a Banker's Receipt from
Defendant No. 1. ThisDefeDdant says that the terms of the
said transaction have been duly recorded in the
D
computerised data of this Defendant and a copy of the
said data seized by the l.T. Department is also available
with the Office of Defendant No. 5. This Defendant craves
leave to refer to and rely upon the same as and when
produced.
E
(b) This Defendant further states that the sale of 9% IRFC
Bonds of the face value of Rs. 100 cores by Defendant
No. 1 to the Plaintiffs as stated hereinabove was on behalf
of this Defendant under the routing facility offered by
F
Defendant No. 1 as a customer to this Defendant. The sale
proceeds of the above bonds under the routing facility was,
therefore, received by Defendant No. 1 from the Plaintiffs
and were credited into its own account maintained by it
y
with the Reserve Bank of India. Thereafter, th~ sale
G
proceeds, as were due to this Defendant, were credited
to this Defendant's current account maintained with
Defendant No. 1.
9.
This Defendant further states that sometime
thereafter in the month of March, 1992, before the
H
1090
SUPREME COURT REPORTS
[2013] 13 S.C.R.
A
interest payment date fell due on 1st April, 1992,
_..,
~
this Defendant initiated the process of liquidating
the outstanding banker's receipts issued by both the
Plaintiffs and Defendant No. 1. This Defendant
arranged for physical delivery of 9% Tax-free IRFC
B
Bonds of a face value of Rs. 100 crores dire,gtly to
'
Canfina and instructed Canfina to tender the
discharged banker's receigt to the Plaintiffs to
enable the Plaintiffs to return the duly discharged
}-
banker's receiQt issued by Defendant No. 1 . this
c
Defendant states that it is an admitted position that
Canfina has received delivery of 9% IRFC Bonds
of a face value of Rs. 100 crores and it is also an
admitted position that the said Canfina has
..
discharged the Plaintiffs from all their liabilities
D
under the banker's receipt issued by the Plaintiffs.
.,l_
10.
This Defendant says and submits that the above 9%
IRFC Bonds of the face value of Rs. 100 crores
,
covered under banker's receipt issued by
Defendant No. 1 would now constitute an attached
E
property of this Defendant together with all the
accruals thereon. This Defendant, therefore,
submits that the Plaintiffs should be called upon to
surrender the said 9% IRFC Bonds of a face value
+-
of Rs. 100 cores together with accrued tax free
F
benefits and interest on the same to Defendant No.
5 on behalf of this Defendant and accordingly this
suit be dismissed with costs."
20. The Special Court framed a large number of issues
G arising between the plaintiffs and each of the 0efendants. The
y
suit is decreed only against the first defendant Bank with a
further direction to the plaintiff to make payment of certain
amount to the second/fifth defendant.
21. The Special Court in the judgment under appeal clearly
H
--
STATE BANK OF INDIA THR. GEN. MANAGER v.
1091
NATIONAL HOUSING BANK [J. CHELAMESWAR, J.]
»
rejected the case of the plaintiff based on the principle of
A
money had and received. The Special Court held as follows:-
"Thus on that ground, it will have to be held that the claim
for money had and received would not be maintainable"
(Para 77)
B
22. Coming to the allegations of conspiracy, collusion and
i
fraud, at para 92 of the judgment, the Special Court recorded
" ... it is absolutely unnecessary to decide the alternate case
whether there has been any fraud or not".
c
It also recorded:-
"On the case of fraud, no party has led any oral evidence,
the burden of proving fraud always lies on the party who
. ....-
alleges it." (Para 92)
D
23. The Special Court also recorded that the only piece
of evidence relied upon on the plea of fraud is the Second
Report of the Janakiraman Committee, but opined that the
Report would not be sufficient to foist any liability on individuals.
(para 98).
E
On the other hand, the Special Court held:-
"Having received, encashed plaintiffs cheque without there
being any transaction, the first defendant is now liable to
F
refund the money on the basis of conversion, fiduciary
obligation and moneys paid without intending to do so
gratuitously." (para 84)
...,,
24. It can be seen from the judgment under appeal that
some of the issues were not pressed even before the Special
G
Court. The issue regarding suppression of material facts by the
plaintiffs is common with reference to both the defendants.
However, issues Nos. 4 to 6 between the plaintiff and the 1st
defendant and issues Nos. 6 and 7 between the plaintiff and
the 2nd defendant imply (though inelegantly) that there was a
H
1092
SUPREME COURT REPORTS
[2013] 13 S.C.R.
A sale transaction of the !RFC bonds of face value of Rs.100
crores between the plaintiff which the 1st defendant Bank routed
through the 2nd defendant. In view of the specific assertion of
defendants 1, 2 and 5 and particularly the 2nd defendant in his
written statement that the plaintiff entered into two transactions
B on 03 January 1992 - one for the purchase and the other for
the sale of 9% !RFC Bonds and that the 1st defendant also
issued a B.R. (obviously for the value of the cheque in issue)
in favour of the plaintiff bank and the further assertion of the 2nd
defendant that he "arranged for physical delivery of 9%
c IRFC bonds" to CANFINA and instructed CANFINA to return
the duly discharged B.R. issued by the plaintiff bank in order
to enable the plaintiff to discharge the B.R. allegedly issued by
the 1st defendant bank - in our opinion, a more specific issue
- whether there were two transactions as alleged by the 2nd
defendant and also whether. the 1st defendant also issued a
D B.R. for the value of the cheque in issue as averred by the 2nd
defendant, ought to have been framed.
25. The Special Court opined that the plaintiff had
disclosed all necessary facts in the plaint and was not guilty of
E suppression of material facts. A conclusion which in our opinion
is wrong and the consequences of suppression of material
facts require a further scrutiny at a later stage of this judgment.
26. We have already noticed that the decree under appeal
F
is in two parts. The first part of the decree is in favour of the
plaintiff and the second part virtually in favour of the second
defendant, though, the ultimate direction in this regard is that
the plaintiff should pay certain amounts to the fifth defendant
who is the statutory custodian of the 2nd defendant's property
G under the Special Court Act.
27. The plaintiff preferred Civil Appeal No. 364 7 of 1999
"being aggrieved by the judgment of the Special Court insofar
as it:-
H
(A)
directs the plaintiff (NHB) to hand over Rs. 4022
i-
·-
)>-
·f
,\-
-tSTATE BANK OF INDIA THR. GEN. MANAGER v.
1093"
NATIONAL HOUSING BANK [J. CHELAMESWAR, J.]
crores to the Custodian with interest thereon at 19%
A
per annum from 30.3.92;
(B)
directs the Plaintiff to pay costs of Rs. 10,000 to
Defendants 3 & 4 on the basis that no case of ,fraud
had been made out against them
B
(C)
holds that the Plaintiff top management ''were aware
of what was going on"
· 28. The 1st defendant also preferred an appeal being Civil
Appeal No. 2155 of 1999 ·aggrieved by the decree directing c
the payment to the plaintiff.
29. Under the Code of Civil Procedure, 1908 (for short "the
Code"), such a decree in favour of a defendant is permissible
in a case where defendant either pleads a set off or makes a
D
counter claim as contemplated under Order VIII of the Code.
30. The procedure that is required to be followed in the
cases of set off or counter claim is detailed under Order VIII of
the Code. From the record before us, it does not appear that
the procedure contemplated under Order VIII of the Code is
E
followed in the instant case. However, we do notice that under
Section 9-A(4) of the Act, the Special Court is not bound by
the procedure laid Clown. by the Code but shall be guided by
.. the principles of natural justice and has the power to regulate
' 'its own procedure?
7.
Section 9-A(4) - While dealing with cases relating to any matter or claim
under this section, the Special Court shall not be bound by the procedure
F
laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be
guided by the prinCiples of natur_ar justice, and subject to the other
provisions of this Act and of any rules, the Special Court shall have power
G
·to regulate its own procedure'.
8. . Section 9-A(1 )(a) 5
· (9-A.