Standard Chartered Bank vs Andhra Bank Financial Services Ltd. & ...

These two appeals under Section 10 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") to register CMF as the owner of certain bonds and to pay the interest payable thereon was allowed.

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 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 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 turn, issued a Banker's Receipt (hereinafter referred to as "BR") No. 23728 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 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 between HPD and its own employees, several securities and monies had been misappropriated by HPD.

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 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 re- 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 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 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 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.

On 14.6.1996, after the transfer of the petition to the Special Court, HPD filed an affidavit in reply in Misc. Petition No. 81/95 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.

On 23.12.1996, CMF preferred an appeal to this Court but failed to 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. 11/96 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.

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. 81/95 as also of dismissal of Suit No. 11/96. 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 novo. Accordingly, both, the Suit and the Misc. Petition came to be tried again by the Special Court. By the judgment dated 17.1.2002, Special Court Suit No. 11/96 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.

4. Whether there was collusion between Respondents Nos. 2, 3 and/or 4 as alleged by the Petitioners in the affidavit of M. Nayak dated April 10, 1993 ?

As per final order.

We respectfully concur with the said observations and reject the contention of Mr. Kapadia that SCB could not be permitted to rely on its changed stand.

IV. Did SCB lose title to the suit bonds at any time before the suit was filed?

V. Did CMF get title to the Suit Bonds ?

Finally, the question that needs to be considered is whether CMF as defendant acquired title to the suit bonds.

Conclusion: