Case: Standard Chartered Bank Vs. Andhra Bank Financial Services Ltd

2. The National Power Corporation Limited (hereinafterissued bonds of two series in December, 1991. These were the 9%bonds and 17% taxable bonds. On 26.02.1992, the said bonds were allotted by NPCL to the Andhra Bank Financial Services Limited (hereinafterrespondent no. 1 herein. On the same day, ABFSL sold the 17% taxable bonds of the face value of Rs. 50 crores to theChartered Bank (hereinafterThe total amount payable to ABFSL was Rs.48,02,50,000/which was paid by way of Pay Order on the same day. AReceipt No. 23727 was issued to the appellant by the ABFSL acknowledging the said payment. The receipt also stated that the delivery of the bonds would be done later.3. On 26.02.1992, SCB sold 17% bonds of the face value of Rs. 50 crores to ANZ Grindlays Bank (hereinafterSCB issued a Bank Receipt No. 1939 to ANZ in lieu of the actual possession of the bonds. On 27.02.1992, ABFSL forwarded the original letter of allotment to SCB and sought the return of theReceipt No. 23727. On the same date, SCB returned theReceipt No. 23727 to ABFSL. SCB states that as against the return of the said Bank Receipt, it only received a photocopy of the original letter of allotment. On 27.02.1992, Hiten P. Dalal, a broker who was acting in a large number of securities transactions of banks and financial institutions obtained the possession of the said original letter of allotment and delivered it to Canara Bank Mutual Fund (hereinafterOn 17.03.1992, CMF sold the 17% NPCL bonds of the face value of Rs. 50 crores to SCB. CMF issued a Receipt No. 2767 to SCB Bank in lieu of the original letter of allotment. According to SCB, when the Securities Scam came to limelight in May, 1992, the officers of SCB conducted an investigation of its records and found that SCB did not possess the original letter of allotment but had only its photocopy with it. On 09.10.1992, SCB wrote a letter to NPCL stating that as the suit bonds had been issued to ABFSL, which had further confirmed that the same has been sold to SCB and therefore, the letter of allotment from CMF may be disregarded. NPCL informed SCB on 06.11.1992 that since there was a dispute of ownership of the suit bonds between SCB and CMF, the matter should be resolved between SCB and CMF and that it would take the necessary action only after such resolution.4. On 20.06.1992, SCB filed a First Information Report against the broker Hiten P. Dalal and requested the Central Bureau of Investigation to inquire into the scam perpetrated on SCB by Hiten P. Dalal.5. On 27.11.1992, SCB filed Suit No. 6 of 1994 against ABFSL for the recovery of the principal amount of Rs.48,02,50,000.00, representing the consideration paid by SCB to ABFSL against the transaction of purchase of 17% NPCL bonds of the face value of Rs. 50 crores.6. Pursuant to the FIR dated 20.06.1992, the CBI filed a charge sheet on 16.06.1995. On 20.10.1995, SCB filed an application for amendment of the suit and to include Hiten P. Dalal and CMF as party respondents and to file claim against the said respondents in the alternative to the claim preferred by SCB against ABFSL.7. It is pertinent to mention at this stage that a suit was filed in relation to the 9% bonds, which culminated in the judgment of this Court in the case of Standard Chartered Bank v. Andhra Bank Financial Services Ltd. (2006) 6 SCC 94 ) In the present suit relating to the 17% bonds, the learned Special Court framed and answered the following issues for its consideration:IssuesAnswerBetween PLAINTIFFS andWhether the suit as against Defendants No.(CMF) is barred by limitationIn the affirmative2. Whether the Defendant No. 2 (Hiten P. Dalal) in collusion with one of the employees of the Plaintiff (viz. Santosh Mulagaonkar) fraudulently misappropriated the Suit LOA as alleged in para 6A (iii) of the Plaint?In the negative3. Whether the Plaintiffs were unaware that the series of transactions involving CMF, ANZ, ABFSL and the Plaintiffs themselves wereon the very same Letter ofas alleged in para 7 of the plaint?In the negative4. Whether the Plaintiffs prove that they had purchased 17% taxable NPCL Bonds on 26th February,1992 of the FV of Rs. 50 crores from ABFSL or acquired any title to the Suit LOA as alleged by the Plaintiffs in para 5 of the Plaint?In the affirmative5. Whether the Plaintiffs prove that CMF chose to issue its BR with a view to conceal the allegedof Bonds as alleged in para 7D and 7E of the Plaint?In the negative6. Whether the Plaintiffs prove that on 09.04.1992 there was apertaining to the transactions of 26.02.1992 between the SCB and ABFSL as alleged in para 7H of the Plaint?In the affirmative7. Whether the Plaintiffs prove that the dealers of the Plaintiffs entered into a dummy transaction dated 10.04.1992 with the ABFSL to cover up the saidas alleged in para 7(l) of the Plaint?In the affirmative8. Whether CMF have converted the bonds/ Letter of Allotment as alleged in para 6A & 7(k) of the Plaint?In the affirmative9. Whether the Suit transaction and the transactions referred to in para 7 (a), 7(f) and 7(g) of the Plaint reflect that the same were fictitious transactions for funding and/or they were transactions involving difference between the actual rate (as transacted) and the derived rate as alleged in para 25 and 27 of the further Written Statement?In the negative10. If the answer to the above issue is in the affirmative whether such transactions are illegal and/or opposed to the public policy?In the negative11. Whether the contention that the transactions are opposed to public policy is barred by the principles of res judicata and or constructive res judicata having regard to the judgment of the Special Court dated 13.03.1995 in Suit No. 13 of 1994 and the decision of the Supreme Court in CA 4456/95 dated 30th October 2001 and in CAs Nos. 2275 & 2276 dated 05th May 2006?In the affirmative12. Whether Hiten P. Dalal was the broker for ABFSL in the alleged suit transaction and ABFSL handed over the original Letter of Allotment to HPD as alleged in para 6 (c) and 11(a) of the Plaint?Does not Arise13. Whether SCB are stopped from making any claim as alleged in para 2 read with para 14 of the Written Statement of CMF?In the affirmative14. Whether CMF proves that it had on 27th February, 1992 purchased the 17% NPCL bonds through Hiten P. Dalal who was allegedly acting as a mercantile agent of SCB and/or ABFSL for consideration in good faith and without notice as alleged in paragraph 11 of the Written Statement of the said Defendant?In the negative15. Whether the transactions under the 15% arrangement were transactions of HPD and not of SCB and HPD was entitled to deal with bonds at his discretion as alleged in para 7(g) ofWritten Statement?In the negative16. Whetherallegations that transactions under 15% arrangement were transactions of HPD, are barred by res judicata by the judgment of the Special Court in Suit No. 13/94 dated 13.03.1995 and the decision of the Supreme Court in CA No. 4456 of 1995 dated 30.10.2001 as alleged in para 7(L) (i) to 7(L)(v) of the Plaint and denied in paras 32, 33 and 34 of the additional Written Statement and by the judgment of the Supreme Court dated 05.05.2006 in Appeal from Suit No. 11 of 1996 as alleged in paras 7(L)(vii) to 7(L) (xv) of the Plaint?In the affirmative17. Whetherallegation that the transactions of the Plaintiff under the 15% arrangement were actually transaction of Hiten P. Dalal, is barred by constructive res judicata as alleged in para 7(L)(v) of the Plaint and denied in para 36 of the additional Written Statement?In the affirmative18. Whether the issue of payment of consideration by the CMF for acquisition of bond on 27.12.1992 is barred by virtue of the principles of res judicata as alleged in para 11(e) of the Plaint?In the affirmative19. Whether the Defendants Nos.are jointly and severally liable to pay to SCB the sum of Rs. 55,26,16,438.36 as per the particulars of the Claim together with further interest on principle sum of Rs. 48,02,50,000.00 @ 20% per annum from 28th November, 1992 till payment and/or realisations?In the negative20. What relief?As per>1. Whether the Plaint fails to disclose any cause of action against HPD as alleged in para 1 of the Written Statement of HPD?In the affirmative2. Whether the suit is barred by limitation as against Defendant No.2 as alleged in para 2 of the Written Statement of Defendant No. 2.In the affirmative3. Whether the allegations of HPD that the Letter of Allotment was lent to him on 27th February, 1992 and/or that he purchased the same on 9th May, 1992 in the circumstances and manner set out in para 4 of his written statement are barred by res judicata as alleged in para 6B of the Plaint?In the affirmative4. Whether Hiten P. Dalal is jointly and severally liable along with CMF to pay to SCB the sum of Rs. 55,26,16,438.36 as per the particulars of claim together with further interest on principal sum of Rs. 48,02,50,000.00 @ 20% p.a. from 28th November, 1992 till payment and/or realisation?In the negative5. Whether SCB is entitled to any relief and if, what?In thecan be seen from the above table with regard to the issues framed by the learned Special Court, it came to the conclusion that SCB has succeeded in proving that they had purchased 17% taxable NPCL bonds. The learned Special Court also found that Hiten P. Dalal had not succeeded in proving that he was the owner of the suit bonds, and that SCB was entitled to file a suit for conversion against Hiten P. Dalal and CMF.8. The learned Special Court, on appreciation of the pleadings and evidence produced before it, however, declined to grant any relief to the appellant on the ground that the suit was barred by limitation. The amendment to the suit to implead CMF and Hiten P. Dalal was done on 20.10.1995. The learned Special Judgeperiod of limitation had started running from either 18.03.1992 and further from 23.05.1992. The amendment application for impleading defendant Nos. 2 to 10 was filed on 20.10.1995 and, therefore, if the period of limitation is calculated from 18.03.1992 or 23.05.1992, the said period expires either on 18.03.1995 or 23.05.1995. I have already given my reasons as to why 07.11.1992 cannot be treated as a date on which the Plaintiffs came to know about the conversion by Hiten P. Dalal in favour of CMF, and therefore, the Plaintiffs in my view have miserably failed in filing the suit within a period of limitation.On the issue of limitation, the main question that the learned Special Court had to answer as to whether the provision of Article 91(a) of the Limitation Act, 1963 (hereinafterwould apply to the instant case. To answer that question, the learned Special Court had to interpret the meaning of the phrase. The contention raised before the Special Court by the learned senior counsel for the defendants was that the wordcannot be construed as complete knowledge for the reason that if the legislature had intended to use the word knowledge as in Articles 56 to 59, it would have done so. It was submitted that the wordcannot be given to the wordin Article 91 of the Limitation Act. The learned Special Court had to decide whether the period of limitation will be ascertained from 07.11.1992 as contended by the plaintiff, or the three earlier dates 18.03.1992, 10.04.1992 or 23.05.1992. The learned Special Court after examining the pleadings and evidence on record came to the conclusion that the period of limitation cannot be said to have started running on 07.11.1992 as the plaintiff had not succeeded in establishing the happening of any meeting on that date. The learned Special Court came to the conclusion that the period of limitation for institution of the suit started running on 18.03.1992 as that was the date of the transaction between ABFSL and ANZ. The Special Court also held that the next date when the plaintiff could have possibly found out about the conversion of the bonds was 23.05.1992 as that was the date on which Hiten P. Dalal had himself informed the plaintiffs of the conversion of the suit bonds during a meeting.10. The learned Special Court thus, while accepting the fact of conversion of the bonds in question, dismissed the suit as against Hiten P. Dalal and CMF as the said amendment was barred by limitation. Hence the present appeals are filed by the appellants urging various grounds.

Court's reasoning:
The suit bonds in the instant case are movable properties which are capable of being possessed. The definition of the term movable property can be found in Section 3(36) of the General Clauses Act, 1897 which reads thusproperty, shall mean property of every description, except immovableA reading of theof the above provision makes it clear that everything that is not immovable ismovable, and thus the suit bonds in the instant case are specific moveable property to which Article 91(a) of the Limitation Act applies.We are unable to agree with this contention advanced by the learned senior counsel on behalf of the respondents. A perusal of Article 91(a) of the Limitation Act shows that it is meant to apply to specific movable property. It further stipulates that the period of limitation shall start running from the date when the person ‘firstabout the conversion of the moveable property. While it is true that the word used in the said Article isnd not knowledge, it is difficult to construe the wordut attributing to it certain degree of knowledge. The degree or the extent of knowledge is the subject matter of controversy in the instantprovision of Article 91 (a) of the Limitation Act thus demands two things. First is knowledge on the part of the plaintiff, and second, that the said fact be within his peculiar knowledge. We agree with the contention advanced by Mr. Ram Jethmalani, the learned senior counsel on behalf of the appellant, that the termes a burden of knowledge which is rather specific in nature. Thus, the knowledge must be of the identity of a specific person in whose possession the bonds are and that he acquired the possession of the said bonds under an arrangement, which in law would constitute wrongful conversion. The knowledge of a specific person against whom the suit can be instituted is what is crucial here. A mere suspicion or a whisper of knowledge is not enough for the period of limitation to start running. Point number 1 is thus, answeredcase of the appellant is that it was during a meeting held on 07.11.1992 that they first learnt that the suit bonds had been misappropriated by Hiten P. Dalal and given to CMF. The learned Special Court came to the conclusion that the plaintiff (appellant herein) had failed to establish the happening of a meeting on 07.11.1992 for three reasons. Firstly, that if the appellant knew of the transaction between Hiten P. Dalal and CMF on 07.11.1992, then they should have been impleaded as parties in the suit filed by the appellant on 27.11.1992, and that the appellant has not given any reason as to why they were not impleaded as parties on 27.11.1992 itself. Secondly, that no reference has been made about this meeting by Mr. Kalyan Raman,in his deposition, who at the time had been deputed from Andhra Bank to ABFSL, who was also alleged to have been present at the meeting. Thirdly, that even Mr. David LovelessDirector of Security and Investigations, Office of the Special Representatives of India (OSRI) does not make any reference to this meeting. The learned Special Court further held that the defendants (respondents herein) have, on the basis of the evidence on record, established that the plaintiff had knowledge about possession of the bonds at least on 18.03.1992 or 23.05.1992.We agree with the contention advanced by the learned senior counsel on behalf of the appellant, Mr. Ram Jethmalani with regard to the meeting on the above date.In the instant case, it is evident from the affidavit of Mr. Srinivasan,that the meeting happened on 07.11.Thus, we conclude that a meeting did infact take place in the office of CMF on 07.11.1992, and that it was on this date that SCB found out about the dummy transaction that had taken place between CMF and Hiten P. Dalal regarding the 9% and 17% NPCL bonds. Therefore, the finding recorded by the learned Special Court is erroneous both in fact and in law, hence the same is liable to be set aside.30. In light of the fact that the knowledge of the appellant had started running on 07.11.1992, the question that now remains to be answered is whether there was any previous date on which it was possible that the appellant had acquired knowledge of the conversion of the bonds. The learned senior counsel appearing on behalf of the respondents, Mr. Rohit Kapadia and Mr. Pradeep Sancheti, contend that there are atleast three alternate prior dates on which the appellant can be said to have acquired knowledge of the fraud perpetrated on it by the respondents. These dates are 18.03.1992, 10.04.1992 and 23.05.1992.31. We have heard Mr. Ram Jethmalani, the learned senior counsel appearing on behalf of the appellant and Mr. Rohit Kapadia and Mr. Pradeep Sancheti, the learned senior counsel appearing on behalf of the respondents and have perused the documents produced before us as evidence. We shall examine these dates one by one in order to conclude whether knowledge of the appellant can be construed from any one of these dates, from which date the period of limitation for instituting the suit for claim against the respondents starts running.The learned senior counsel on behalf of the appellant submits that the said affidavit states that the 17% NPCL bonds were purchased by CMF on 27.02.1992 from ABFSL through its broker Hiten P. Dalal along with 9% NPCL Bonds. Mr. Ramaraj further said that the very same bonds were subsequently sold by CMF to SCB, on 17.03.1992. The Bank Receipt issued was exchanged by delivery of original LOA on 18.03.1992. He does not say that it was delivered to the SCB. The learned senior counsel contends that in view of the averments of the affidavit of Mr. Ramaraj, the knowledge of the bonds being delivered to the Company on 18.03.1992 is not tenable in law. He further contends that the learned Special Court erred in arriving at this conclusion on facts, which is contrary to the affidavit of Mr. Ramaraj and therefore, the said finding is erroneous, liable to be set aside.36. The learned Special Court has erroneously held that the period of limitation for institution of the suit by the appellant would start running on 18.03.1992, as there was no evidence on record to show that the appellant did not have knowledge that this was the only set of bonds which were used by NPCL and therefore there was no question of other bonds being in circulation. The learned Special Court further held that the burden of proving the non existence of knowledge was on the appellant, and that in the absence of evidence on this point, it would have to be held that when the bonds were returned by CMF to ANZ on that date itself the appellant became aware of the possession of the bonds by CMF, and that is the date on which the period of limitation would start running for institution of the suit against the respondents.37. As has already been discussed by us in an earlier part of this judgment, the period of limitation under Article 91(a) of the Limitation Act starts running on the date that the plaintiff acquires knowledge of the identity of the person who is in possession of the bonds. Apart from knowledge of the identity of the person, Article 91(a) also requires the knowledge that the possession of the bonds was acquired by means of wrongful conversion.The learned Special Court dismissed the claim of the respondents that 10.04.1992 could be the date on which knowledge can be said to be imputed to the appellant on the ground that the respondents had not proved by leading any cogent evidence that the appellant became aware of the conversion on 10.04.1992. The learned Special Court further held that the respondents had failed to show that the said transaction was settled against bonds for valuable consideration.42. We agree with this finding of the learned Special Court. The testimony of Mr. Kalyan Raman,makes it manifestly clear that no transaction took place between ABFSL and SCB on 10.04.1992, and thus, the question of imputing knowledge to the appellant on that date does not arise for the purpose of limitation begins to run for the appellant for institution of the suit claim against the respondents.43. The next date, which has been most vehemently contended by the learned senior counsel appearing on behalf of the respondents, is 23.05.1992.The learned senior counsel for the respondents further contend that the meeting of 23.05.1992 is a material fact, which ought to have been pleaded by the appellant particularly since admittedly, the appellant was informed of the conversion of the suit bonds on that day and the alleged explanation, as to whether the knowledge was complete or incomplete etc. ought to have been a part of its pleading.47. The learned senior counsel on behalf of the respondents further contend that the distancing of the appellant from the clear knowledge about the diversion of the bonds to CMF by Hiten P. Dalal by insisting that the said information was purely informal, and that Hiten P. Dalal had even stated that he would deny this conversation if the SCB ever sought to make formal use of his statement is a clear tactic of evasion. He further contended that the minutes of the meeting do not contain any such reservation as claimed by the appellant.48. The learned Special Court, while arriving at the conclusion on the facts pleaded and evidence on record that 23.05.1992 can also be considered to be the date from which knowledge can be said to be imputed to the appellant regarding the conversion of the bonds in question, relied primarily on the evidence of Mr. Kalyan Raman,who was also present at the meeting held on 23.05.1992.Mr. Ram Jethmalani, the learned senior counsel appearing on behalf of the appellant, on the other hand contends that 23.05.1992 cannot be taken to be the date on which SCB had knowledge of the conversion of the suit bonds. He submits that knowledge is not mere suspicion, and that it must be knowledge of such a nature as will enable the person defrauded to seek a remedy in a court of law. He further contends that the fact that appellant did not know of the role played by Hiten P. Dalal and that this becomes amply clear from the FIR filed by them dated 20.06.1992. The appellant was under the clear impression that the suit bonds had not been received by them, and that it had only received a Bank Receipt which had been returned to ABFSL.51. We agree with the submission of Mr. Jethmalani, the learned senior counsel on behalf of the appellant. The learned Special Court erred in arriving at the conclusion that 23.05.1992 could be a date from which the appellant could be said to have knowledge of the diversion of the suit bonds by Hiten Pcareful examination of the deposition of these two witnesses makes it manifestly clear that the revelation made by Hiten P. Dalal during the meeting held on 23.05.1992, did not give the appellant the knowledge requisite for the purpose of Article 91(a) of the Limitation Act. The revelation in contention made by Hiten P. Dalal was vague and he gave evasive responses after the same and thus, it is not reasonable to expect the appellant to believe the same and initiate legal proceedings on the basis of the said statement.53. We examined all the dates alternative dates prior to 07.11.1992 proposed by the respondents, where knowledge could be said to be imputed to the appellant for institution of suit against the respondents. We find no merit in the contentions urged by the learned senior counsel for the respondents. The period of limitation would start running only on 07.11.1992, the reasons for which we have already elaborately stated in an earlier part of this judgment. We set aside the finding of the learned Special Court on the contentious issue nos.1 and 2 framed in the suit that the institution of the suit of the appellant against Respondents Nos.is barred by limitation.Since we have set aside the finding of fact recorded by the learned Special Court holding that the suit is barred by limitation, as prescribed in the Schedule to the Limitation Act, 1963 by recording the reasons in the preceding paragraphs of this judgment and the other issues including the issue on the merits of the claim were held in favour of the plaintiff (appellant herein) by the learned Special Court, which have not been challenged by the Respondentsby filing an appeal, therefore, the appellant is entitled for a decree of the suit claim of the principal amount adjudged as on the date of the institution of the suit. The appellant is also entitled to interest pendente lite and future interest. This transaction can be termed as a commercial transaction and Section 34 of the Code of Civil Procedure, 1908 confers discretionary power upon this Court to award interest at appropriate rate on the suit claim of the appellant. We have considered with regard to the facts and circumstances of the case as to what should be the reasonable rate of interest to be awarded on the suit claim both for the period of pendente lite and for future interest and from what date to be ordered. The suit in the instant case was instituted before the Special Court on 27.11.1992, but the respondentwere brought on record as parties to the suit by way of an amendment, which was allowed on 10.01.1996. Therefore, it would be appropriate for this Court to award interest from the above said date during pendency of the proceedings before the Special Court and this Court and also for future rate of interest at 6% per annum till the date of realisation. The Particulars of Claim, marked as Exh.to the plaint shows that the appellant had claimed 20% interest from 26.02.1992 till 27.11.1992 at the principal sum of Rs.48,02,50,000.00, to arrive at the amount of Rs.55,26,16,438.36 as the adjudged principal amount. Since we have awarded interest at the rate of 6% per annum, we shall calculate the principal amount of Rs.48,02,50,000.00, on that rate itself for the period from 26.02.1992 to 27.11.1992 at that rate itself which amounts to Rs.50,18,61,250.00 will be the adjudged principal amount from the date of institution of the suit.