Naresh K. Aggarwala & Co vs Canbank Financial Services Ltd. & Anr

2. The aforesaid suit was initially filed by the appellant in the High Court of Delhi at New Delhi on its original side being Suit No.1827/1993. It was transferred to the Special Court in view of the appellant being notified on or about 17.6.1997 under the provisions of the Special Court and thereafter the suit was numbered as Suit No.4/98 before the Special Court. The appellant had prayed for money decree in the amount of 1 Rs.3,18,06,868/- together with interest at the rate of 24%. Respondent No.1, Can Bank Financial Services Limited, had opposed the claim and also lodged a counter claim, claim and decree in the amount of Rs.2,53,75,000/- from the appellant with interest w.e.f. 22.4.1992. The appellant claims to be a stock broker, being a sole proprietory concern of Mr. Naresh K. Aggarwala. The respondent No.1, Can Bank Financial Services Limited, is a wholly owned subsidiary of Canara Bank.

3. The appellant had prayed for a decree against respondent No.1 in respect of net amount payable arising out of two sets of transactions in shares i.e.; (i) two transactions in the shares of Reliance Industries Limited (RIL) (ii) one transaction in respect of Steel Authority of India Limited (SAIL). It is claimed that on 14.2.1992 a contract was entered into between the appellant and Can Bank for purchase of one lakh shares of RIL at a price of Rs.154 per share inclusive of all charges. On 23.3.1992 another contract was entered into by the appellant with Can Bank for purchase of one lakh shares of RIL at a price of Rs.375 per share net. On 27.2.1992 another contract was entered into by the appellant for purchase of five lakh shares of SAIL at a price of Rs.51 per share net and a contract note was issued. In the plaint it was averred that of the two lakh RIL shares purchased by the appellant only one 2 lakh shares were delivered by respondent No.1. These shares according to the appellant were appropriated towards the contract dated 14.2.1992. It was the case of the appellant that the balance one lakh RIL shares pursuant to contract dated 23.3.1992 have not been delivered by respondent No.1. According to the appellant, respondent No.1 had been wrongly claiming that the entire two lakh shares had been duly delivered to the appellant. The appellant claims that this fact is amply borne out from the various letters written by respondent No.1 to the appellant wherein respondent No.1 claims to have delivered one lakh shares to its Bombay office and the remaining one lakh shares allegedly to a broker/one Mr. Hiten P. Dalal. The appellant states that on inquiry Mr. Dalal has sated that no such shares had been delivered on behalf of respondent No.1. In communication dated 07.08.1992 respondent No.1 acknowledges only one delivery and seeks intimation whether his broker, Mr. Hiten P. Dalal, on their account has delivered one lakh shares or not. Therefore respondent No.1 is, in fact, aware that no such delivery had been made. Respondent No.1, in fact, in its communication dated 15.09.1992 acknowledges the factum of both the contract notes. In letter dated 28.09.1992, the appellant reiterated that at no stage it had received any share from Mr. Hiten P. Dalal on account of respondent No.1. It was also stated that Mr. Hiten P. Dalal 3 had confirmed that he had not given any Reliance shares on account of respondent No.1 to the appellant. It was also averred that in spite of assurances having been given by respondent No.1 from time to time, the balance one lakh shares were not delivered.

4. It was further claimed by the appellant that on 27.07.92 respondent No.1 was requested that the transaction with regard to the SAIL shares should have been squared up at the time when the shares were purchased. They were priced at Rs.51 per share. The market rate, according to the appellant, on 27.7.1992 was Rs.130 per share. Therefore appellant asked the respondent No.1 to credit Rs. 79 per share for five lakh shares of SAIL to the account of the appellant-company. The appellant claimed that by letter dated 17.09.1992 respondent No.1 resiled from the contract regarding sale of shares of SAIL. The appellant therefore by letter dated 19.09.1992 once again requested for the cooperation of the respondents as the delivery had to be effected within reasonable period of time to avoid substantial losses. In this letter the appellant reiterated that one lakh shares only had been delivered and no other delivery had been made in respect of Reliance shares. Against contract note dated 14.02.1992 Rs.1,54,000/- was 4 credited to the account of respondent No.1 but the respondent No.1 reiterated its stand in the letter dated 17.9.1992.

5. The appellant further stated that on 27.05.1993 respondent No.1 issued a notice demanding an amount of Rs.2,56,25,000/- on the basis of account maintained up to 08/02/1992. By letter dated 14.06.1993 the appellant informed the respondent No.1 that after reconciliation of the account, the appellant was liable to be paid by respondent No.1 an amount of Rs.2,59,75,000/-. It was further claimed that according to the statement of account of the appellant as on 31.7.1993 an amount of Rs.3,18,06,868/- is due to the appellant from respondent No.1. According to the appellant, respondent No.1 is liable to pay this amount to the appellant with interest at the rate of 24 % per annum.

6. Respondent No.1 in his written statement took a preliminary objection stating that the suit is wholly misconceived and a fictitious claim has been put forward solely with the intention of delaying or avoiding payment of a sum of Rs.2,53,75,000/- and interest thereon to the answering respondent No.1. It was also stated that along with the written statement respondent No.1 is preferring a counter claim against the appellant for the recovery of the aforesaid amount. 5 The averments made in paragraph 1 to paragraph 6 of the plaint were admitted by the respondents.

9. In the counter claim it was pleaded that the appellant has admitted in paragraph 8(a)(i) that on 23.3.1992 a contract was entered into between respondent No.1 and the appellant whereunder the respondent No.1 agreed to sell and the appellant agreed to purchase one lakh shares of Reliance Industries Limited on 23.3.1992 at Rs.375 per share. This averment is affirmed by respondent No.1. According to the respondent No.1 the aforesaid one lakh shares were delivered by respondent No.1 to appellant on 22.4.1992. This delivery has also been admitted by the appellant. It is further stated that appellant had wrongly contended after a long lapse of time that this delivery was in respect of another alleged contract dated 14.2.1992. The appellant, according to respondent No.1, has 8 illegally and wrongly accounted for its liability to pay to respondent No.1 in respect of one lakh shares sold on 23.3.1992 only at Rs.154 per share instead of Rs.375 per share. Thus the difference between the rate per share at Rs.375, which was the actual contract rate, and the rate at which the appellant has accounted for i.e. Rs.154 per share comes to Rs.2,21,00,000/-. According to respondent No.1 this amount is payable by the appellant to the respondent No.1 with interest. It is accepted that there were dealings between the appellant and respondents and the accounts were settled periodically. Therefore on 31.3.1993 the statement of mutual account between the parties shows that a sum of Rs.2,53,75,000/- is due and payable by the appellant to the respondent No.1. The interest at the rate of 24% from 22.4.1992 till 31.5.1994 amounts to Rs.1,28,47,397.26/- which is also due and payable.

12. The Special Court notices that both the parties have filed documents. On behalf of the appellant one witness has been examined. The respondent No.1 has not led any evidence. It is also noticed that some documents have been admitted in evidence by consent of the parties. Issues Nos.2 to 5 were taken up together as they relate to the transactions in RIL shares. All these issues have been decided in favour of respondent No.1 and against the appellant. It is further held that the transaction dated 27.2.1992 was illegal and therefore is not capable of being enforced. Therefore issues No.6 and 7 have also been decided against the appellant. Issues Nos. 1, 8 and 9 have also been decided against the appellant. It has been held that the appellant is not entitled to make any claim neither in relation to RIL shares nor in relation to SAIL shares. So far as issue 11 No.10 is concerned, the Special Court has clearly held that the counter claim of respondent No.1 succeeds and is allowed. Therefore, a decree in an amount of Rs.2,53,75,000/- with an interest at the rate of 12% per annum from 22.4.1992 till the date of realisation is passed against the appellant. The appellant was also directed to pay costs entitled to the respondents.

22. On Issue No.10, Mr.Suri has submitted that the Special Court has illegally allowed the counter claim of respondent No.1. It was submitted that the Special Court has come to a contrary conclusion even though the fact situation was identical in the claim put forward by both the parties. We are unable to accept the submissions made by the learned senior 26 counsel. Once it is concluded that the appellant is not entitled to claim any amount from respondent No.1 in relation to the aforesaid three transactions i.e. contract dated 14.2.1992, contract dated 23.3.1992 for one lakh RIL shares each and contract dated 27.2.1992 relating to one lakh SAIL share. It needed to be determined as to whether the appellant in fact needed to compensate respondent No.1. In the counter claim, the respondent No.1 clearly stated that the appellant had agreed to purchase one lakh shares of RIL on 14.2.1992 @ Rs.154/- per share, but this contract was cancelled by the appellant on the very same date. Thereafter, the appellant had intimated about another contract for purchase of one lakh shares of RIL on 23.3.1992 @ Rs.375/- per share. Against the aforesaid contract, the delivery of one lakh shares was made by the respondent No.1 to the appellant on 22.4.1992. After the receipt of a letter dated 15.9.1992 when the Management of respondent No.1 had changed, the appellant started claiming that the delivery of one lakh shares on 22.4.1992 had been adjusted against the cancelled contract dated 14.2.1992. The respondent No.1 had based the counter claim on the difference of price in shares between two periods of contract i.e. 14.2.1992 and 23.3.1992. The difference of amount of Rs.2,21,00,000/- was claimed as the amount due from the appellant to the respondent No.1. A perusal of the letter 27 dated 27.5.1993, which contains a statement of account with the subject "settlement of outstanding" clearly shows that the respondent No.1 is claiming a sum of Rs.2,56,25,000/- as outstanding against the appellant from various transactions as per the details given therein. Against the entry dated 4.3.1992, there is a clear entry with regard to the sale of one lakh RIL shares @ Rs.375/- per share given a total consideration of Rs.3,75,00,000/-. The respondent No.1 had clearly requested the appellant to settle account by paying Rs.2,56,25,000/- immediately. In the letter dated 14.6.1993, the appellant offered its comment on the statement of account for payment by respondent No.1 on 27.5.1993. Herein, the appellant states that the credit claimed by the respondent No.1 should be Rs.2,21,00,000/- instead of Rs.2,56,25,000/-. This balance was claimed by the appellant on the ground that the credit claimed by respondent No.1 of Rs.3,75,00,000/- has to be reduced by Rs.1,56,00,000/- i.e. the difference in price of shares of the two contracts dated 14.2.1992 and 23.3.1992. The appellant also claimed that a sum of Rs.2,95,00,000/- was also required to be adjusted in respect of SAIL shares. The appellant had claimed the difference in contract price of shares of SAIL @ Rs.51/- per share against the official quotation of the Delhi Stock Exchange @ Rs.110/- per share. Thus he had claimed that respondent No.1 was liable to pay for 28 the difference of Rs.59/- per share (Rs.110/-Rs.51/- per share amounting to Rs.2,95,00,000). It was held by the Special Court, which finding has been affirmed by us, that the contract with regard to SAIL shares being contrary to law was void ab initio. Therefore, the appellant could not possibly claim anything against the aforesaid SAIL shares on account of any difference in the contracted rate and the rate when the same were listed on the Delhi Stock Exchange. Therefore, the irresistible conclusion was that the appellant was liable to pay to respondent No.1 for the RIL Shares @ Rs.375/- per share, the contract dated 14.2.1992 having been cancelled. Thus the Special Court, in our opinion, correctly concluded that the appellant was liable to pay to the respondent No.1 the amount of Rs.2,53,75,000/-. In view of the above, we find no reason to interfere with the findings of the Special Court on Issue No.10 also.

21. With regard to issues no 1,8 & 9, it was correctly observed by the Special Court that the Plaintiff i.e. Appellant herein is not entitled to make any claim either in relation to the Reliance Industries Shares nor in relation to contract for SAIL shares. Further as the appellant is not entitled to claim any amount from the respondent on account of the aforesaid transactions, there is no question of the appellant being entitled to any interest.

23. We also do not find any cogent reason to interfere or to reduce the amount of interest awarded by the Special Court in the peculiar facts and circumstances of this case.

25. In view of the above, we find no merit in this appeal and the appeal is dismissed. No order as to costs.

.......................J. [B.Sudershan Reddy] New Delhi;

.......................J. May 05, 2010. [Surinder Singh Nijjar] 30